Put the Rating Agencies Out of Their Misery Before It's Too Late

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A pillar of the financial crisis was rating agencies slapping triple-A ratings on junk mortgage products only to be mystified when the securities blew up. In the 2007 transaction involving the recent Goldman Sachs (NYSE: GS  ) CDO fraud saga, almost half of the debt was downgraded from triple-A (perfect) to junk (perfectly worthless) in short order.

Fool me once ...
Now, a sober person would think the rating agencies have learned from these flubs. But that makes too much sense. Truth is, they're as miserably inept as ever.

Last summer, Standard & Poor's invoked the ghost of 2005 when it rated a set of CDO-esque securities triple-A, which implies essentially zero probability of default.

Last week, it downgraded the same securities all the way to junk. That's triple-A to junk in less than a year. Again. Recall Einstein's definition of insanity, and feel free to smash your head against the nearest wall.

"The downgrades reflect our assessment of the significant deterioration in performance of the loans backing the underlying certificates," cried S&P. This is mildly true at best, and more likely a product of the same deceptive shell games rating agencies are now infamous for.

Here's your pig, there's your lipstick. Have at it.
These securities, you see, weren't new products created last summer when S&P initiated the ratings. They're called "re-remics," born from an alchemical process of taking existing bonds struggling for survival, slicing them up anew, and giving the new pieces a fresh set of ratings. The idea is that you can take a low-rated mangled mortgage bond, extract the pieces that still have a heartbeat (even though they share the same characteristics as the rapidly defaulting mortgages), and pronounce the new security triple-A.

So to be sure here, the same material that S&P called triple-A last summer was, at nearly the same time, rated far below that. David Blaine can't even fathom this stuff.

During a flood of re-remics last fall, The Wall Street Journal wrote an article questioning their validity "partly because re-remics rely on ratings firms -- faulted for failing early on to identify problems with mortgage-backed bonds -- to rate the new securities." That was spot-on, as was a comment by Rep. Dennis Kucinich, who warned, "The credit-rating agencies could be setting us up for problems all over again."

That's exactly what's happening, and it's time we do something about it. One of the central flaws in the rating agency world is that large-scale investors such as money market funds are required to hold assets scored by a rating agency registered as a Nationally Recognized Statistical Rating Organization, or NRSRO. Only a handful of raters are blessed with this status, and Moody's (NYSE: MCO  ) , S&P, and Fitch are kings of the court. They're privileged to what amounts to guaranteed business and no threat of new competition.

While it's certainly well-intentioned, there's fairly universal agreement that the NRSRO has created the ability, if not the incentive, for rating agencies to produce wildly flawed work. They have nothing to lose. Investors have to use their services. S&P can recklessly issue wacky ratings (as it just did), and business goes on as usual.

Hedge fund manager David Einhorn summed it up perfectly: "Nobody I know buys or uses Moody's credit ratings because they believe in the brand. They use it because it is part of a government-created oligopoly and often because they are required to by law." In any normal market, new competition and customers' disgust over shoddy analysis wouldn't let this happen.

Let's do something about this
Fortunately (though long overdue) Congress is waking up. Two amendments in the just-passed Senate financial overhaul bill could euthanize the flawed parts of the rating system.

One amendment would eliminate all mention of the NRSRO from federal regulations. The organization could still exist, but language requiring investors to use products rated by an NRSRO rating agency would vanish. Competition from eager rivals like Morningstar (Nasdaq: MORN  ) and KPMG could then step in and sanitize the industry.

A separate amendment would create a clearinghouse set up to assign rating agencies with deals. That way, banks that issue credit products couldn't shop around for the morally bankrupt rater that's willing to assign triple-A status to toilet paper just to bag a nice fee. Both amendments aim to end a kink in the financial system that benefits exactly nobody except the rating agencies and the banks that sell glorified debt products.

We'll be patiently watching as the Senate and House reconcile their respective versions of the financial overhaul bill. Stay tuned.

In the meantime, share your thoughts on financial reform in the comments section below.

Fool contributor Morgan Housel doesn't own shares of any of the companies mentioned in this article. Moody's is a Motley Fool Inside Value selection. Moody's and Morningstar are Motley Fool Stock Advisor picks. The Fool owns shares of Morningstar, and has a disclosure policy.

Read/Post Comments (33) | Recommend This Article (61)

Comments from our Foolish Readers

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  • Report this Comment On May 21, 2010, at 3:22 PM, Diegoman19 wrote:

    Do the writers of TMF talk to each other? How is it that one guys Critizes Moody's, another guy speaks well of it, and 2 of the services here actually recommend moody's stock? TMF should speak with one voice instead of confusing the hell out of us.

  • Report this Comment On May 21, 2010, at 4:08 PM, cmfhousel wrote:


    "How is it that one guys Critizes Moody's, another guy speaks well of it, and 2 of the services here actually recommend moody's stock?"

    Short answer: One guy likes it, another doesn't, as do 2 services.

    "TMF should speak with one voice instead of confusing the hell out of us."

    I understand the frustration. But frankly, we' don't think bureaucratic groupthink produces anything desirable. We're encouraged to speak our minds regardless if others disagree.


  • Report this Comment On May 21, 2010, at 4:43 PM, libertarianlib wrote:

    Amen! Boot out the current "NRSRO from federal regulations".

    Cal;l your Congressmen and Congresswomen!

  • Report this Comment On May 21, 2010, at 4:45 PM, libertarianlib wrote:

    Moody's Stand and Poors and Fitch have proven that they are unreliable and compromised rating agencies.

    Fool me once............

  • Report this Comment On May 21, 2010, at 5:19 PM, park94 wrote:


    That's how the media works. If you haven't realized that every piece of information contradicts itself, or is based on specious reasoning you probably shouldn't be investing. Use it on a vacation or hookers it'll be wiser and more enjoyable.

    - Ben from the Fed

  • Report this Comment On May 21, 2010, at 5:22 PM, 102971 wrote:

    TMF House

    I find your answer totally spurious (Look it up!).

    It's like saying that two of your guys would buy crack cocaine because there's a profit to be made from it but the third one wouldn't because he's too honest to invest in a product that's rotten.

    You have already agreed that Moodys can be "bought" by the sellers of junk bonds so how can you justify buying stock in a company that can be so dishonest.

  • Report this Comment On May 21, 2010, at 5:55 PM, Luis50 wrote:

    For the very same reasons as those for the Rating Agencies, I believe that the government should also require the auditing of public companies' financial statements to be sent to a clearinghouse. Think Enron, Parmalat, Worldcom and the like. I am surprised this has not been added to the forthcoming bill.

  • Report this Comment On May 21, 2010, at 6:00 PM, law683 wrote:

    Do away with ratings agencies completely and have SEC errr.. competent quasi gov agencies do the ratings and investigations from scratch. Fees would still be charged but profit maximization of the agencies would not be the goal.

  • Report this Comment On May 21, 2010, at 6:05 PM, cmfhousel wrote:


    Few things:

    Come on: there's a slight difference between recommending a stock and smoking crack cocaine. We disagree with each other. We're not tweakers.

    You write: "You have already agreed that Moodys can be "bought" by the sellers of junk bonds so how can you justify buying stock in a company that can be so dishonest."

    I never recommended buying Moody's. I'm not a fan of the company. Again, this view differs from the TMF newsletters recommending the stock, but that isn't a terrible thing. We're allowed (and encouraged to) disagree. Would you consider it superior if TMF members had an opinion on a company but were prohibited from sharing it?

  • Report this Comment On May 21, 2010, at 7:17 PM, CMFStan8331 wrote:

    I'll admit that radical disagreements among TMF staff such as this one can at times be a bit disconcerting. However, on balance I would much rather see an honest diversity of opinion, versus group-think or enforcement of a "company line". After all, bringing together a broad diversity of opinion is really what this place is all about.

    Regarding the subject at hand, I have to agree that Moody's is not a company in which I would be comfortable investing. It could end up doing well, but for me there are just too many problems with no clear answers and there are plenty of great alternative investments out there. In terms of TMF faves, over the past two days I added a bit to my positions in ATVI, DWA, HAS and F.

  • Report this Comment On May 21, 2010, at 7:24 PM, artintheair wrote:

    A lot of folk like me think of the rating agecies like a financial UL(Underwriters Laboratory), where UL is a litigatable entity in the event of unsafe product performance. Can we sue them?

  • Report this Comment On May 21, 2010, at 7:38 PM, jomueller1 wrote:

    It seems to me the market is not functioning when it comes to credit rating agencies. During the dot-com bubble it became apparent to me that so called analysts and the rating agencies are not neutral. They are party to all kinds of deals and therefor I deem it prudent to check out the opposite of their published opinions. All these agencies should have been shunned but they are not because they constitute a fifth column aiding the powerhouses to the detriment of the retail investor.


  • Report this Comment On May 21, 2010, at 9:12 PM, xetn wrote:

    I find it amazing that any thing that this author disagrees with requires a government solution. Now, he wants government to just put the ratings agencies out of business. Maybe the government should put TMF out of business for giving bad advice.

    All that is required is not use a ratings agency if you don't trust them; no need for the government to be involved at all!

    I finally got fed up this this BS and canceled my two subscriptions.

  • Report this Comment On May 21, 2010, at 9:53 PM, Glycomix wrote:


    Don't blame Moody's or Standard and Poor for the con that was crafted by Ivy league Democrat leadership Rep Frank, and Senators Dodd, and Schumer leading the Dems to the public trough.

    Moody's and S&P made mistakes with Fannie Mae and Freddie Mac's ratings because Congress didn't require them to disclose their financial state. Chris Shays attempted to get them to disclose their financial state to the market and make Fannie and Freddie subject to the Secrities and Exchange laws of 1933 and 1934 in 2002 and 2008. Each time his amendment was defeated! Fannie and Freddie are STILL not required by law to provide information to the market. Following are two readable articles discussing and a 'somewhat' readable CBO report on Chris Shay's efforts in 2002 to get congress to require Fannie and Freddie to provide the usual information expected in investments.,2933,434521,00.html

    Fannie and Freddie (congress' banks) ARE required by law to make loans to the poor and very poor (think subprime and Alt-A loans).

    Frank, Dodd and Schumer and others in the Democrat's cabal planned to starve investors from financial information about Fannie and Freddie, so that we wouldn't know that our investments were paying for Congress' welfare programs. I bought bonds issued by Fannie and Freddie backed by toxic mortgage-backed securities composed of 40% subprime mortgages. (Greenspan, March 2010 ¶3)

    Fannie and Freddie's loans were pure pork. They were using investor's money to guarantee mortgages they they didn't intend to be paid the 63% to 70% default rate for subprime mortgages. Banks aren't capitalized past 6%. The times in the past when they made these subprime loans are making them insolvent; So they can't make commercial loans to keep local companies solvent. That's why the unemployment rate went up and has stayed at 10%. The banks don't have the money for commercial loans because congress' regulation of the banks are still pushing them to make subprime loans.

    Congress is forcing to make more of them!

    Franks made Fannie Mae and Freddie Mac EXEMPT from the Security and Exchange law of 1933 and 1934 in the GSE's (Fannie and Freddie's) reauthorization in 1992. Gonzalez sponsored the law (with NO cosponsors), but he didn't write it.

    After scandals by Fannie CEO Franklin Raines' manipulation of the When the finally 10Ks available to the SEC they were TWO YEARS out of date.

    Moody's and Standard and Poor were foolish in 2001-2005 when they used the pre-1992 data on loans made from Fannie and Freddie to estimate the adequacy of their mortgage-backed securities. Moody's didn't know that Frank and company had replaced Fannie and Freddie's fiscally conservative board that ensured accountability for a board made up of "housing advocates" who didn't care if the loans were paid back.

    Members of congress get re-elected by providing awards to their consitituents, pork. In this case, they get mortgages that they can't pay for.

    In his first re-election in 2004 , Schumer won by 71% of the vote due to his providing pork. Bethany McLean described it in her article "The death of Fannie Mae" five years ago:

    “Fannie began opening its Partnership Offices in 1994. These are regional offices that Fannie says act as catalysts for housing projects in their communities; but inside Fannie, the POs are also referred to as the "grassroots" of the political operation. They are frequently staffed by ex-politicos. (Bob Simpson, who heads the South Dakota office, was an aide to Democratic Senate leader Tom Daschle, for instance.) The opening of a Partnership Office is always a grand ceremony featuring prominent politicians. And it's often accompanied by an announcement that Fannie's American Communities Fund will make an investment in a high-impact local project. Politicians may not understand the secondary-mortgage market, but they do understand a photo opportunity and the dispensation of pork.”

    If it gets them elected, demogogues in House and Senate will destroy the country by destroying the economy of the US and the banking industry necessary to keep the economy going.

    Because it gets them votes, congress is STILL forcing Fannie and Freddie executives to guarantee toxic subprime mortgages although the GSE's have been bankrupt by 1.8 trillion dollars since 2006. [The GSE's were $1.80 trillion in the red in 2006: $4.47trillion liabilities- $2.67 trillion assets=($1.8T)]

    WHO CAUSED THE 2008 DEPRESSION? SCHUMER, DODD, FRANK who increased the number of subprime loans.

    Franks, Schumer and Dodd FORCED the Bush administration to make more subprime loans than the regulator thought advisable(c


    + ”August 16, 2007: if Bush regulators won't lift Fannie and Freddie mortgage portfolio caps, congress must act instead.” (1)

    + “Oct. 11, 2007 Strengthened Measure Would Lift GSEs' Portfolio Caps By 10 Percent for Six Months—With 85% of Increase Devoted to Subprime Refinancing.”(2)

    January 29, 2008 Schumer pushed to include GSE loan limit increase in final Senate Stimulus Package(3).

    Schumer, Dodd and Frank's increasing Fannie and Freddie's percentage of the mortgage market increased subprime mortgages to a huge percentage of the mortgage market until Fannie and Freddie controlled 76% of the entire US mortgage market and went bankrupt.

    When asked, administrator Lockhart said that "Affordable Housing goals” caused Fannie and Freddie’s executives to guarantee unsafe loans. “HUD Goals were too aggressive.” (4)

    Standard and Poor said that they expected the default rate on subprime loans issued in 2005, 2006, and 2007 to be 11 percent, 30 percent, and 49 percent, respectively. (5)


    Schumer, Dodd and Frank's forcing "Bush's regulator to increase Fannie and Freddie's portfolio" to 76% of the mortgage market made it difficult for Fannie and Freddie to find good candidates for loans among the people who would qualify for the subprime mortgages. To meet their mandated goals set by HUD, made crazy choices.

    If they're to prove they are NOT con artists,congress will must REQUIRE Fannie Mae and Freddie Mac to comply with the Securities and Exchange disclosure laws of 1933 and 1934 as it does to every other organization listed by the NYSE and the SEC.

    As you can see, Standard and Poor and Moody's showed the effect of Schumer and Franks increased the percentage of subprime mortgages that defaulted from 11% in 2005 to 30% defaults in 2006 to 49% defaults in 2007 when Frank, Dodd and Schumer forced the government to allow Fannie and Freddie to increase subprime loans. To meet HUD's 'affordable housing goals' Fannie and Freddie's executives guaranteed loans to people who had no intention of repaying them.

    If CNN, ABC, CBS and NBC continue to whitewash the Democrats' actions in producing more subprime loans, they will be complicit in our current financial mess and the pending hypeinflation that will come from allowing O'Bama increasing the debt beyond the level that the US can raise in taxes. How could they allow O'Bama to add $3 trillion in debt in 2009 and 2010 when the entire Adjusted Gross Income of everyone in the US in 2006 was only $8 trilion.(6) $8 trillion is the total of everyone's Gross income, NOT their Net!



    (3) [¶1].

    (4) [16:12-17:50]


    (6) [p1, left column, ¶6]

  • Report this Comment On May 21, 2010, at 11:58 PM, rfaramir wrote:

    @artintheair, Moody's non-sueability is part and parcel of the problem, the root of which is government interference in the problem:

    "Investors have to use their services"

    Government force is always inefficient. In this case it is downright dastardly. It prevents us from using agencies we might trust more, which gives a perverse incentive to the annointed agencies to not care if they are doing well. They are protected from competition. A government-granted monopoly (well, oligopoly) is never in the customers' best interests.

  • Report this Comment On May 22, 2010, at 12:24 AM, tubavestor wrote:


    the problem is that it is already a government solution. the ratings agencies indirectly control vast sums of money thanks to government regulation. All the author is asking for is the removal of that government regulation, restoring the ability for money managers to make decisions based on their own due diligence.

    @102971, @diegorgazzi

    There are a bunch of really good reasons to own Moody's. I personally wouldn't own it, but let's look at its positives:

    1. the use of moody's or one of its small group of interchangable competitors is government-mandated.

    2. moody's has proven that they are very good at serving the only customer they have (the banks who pay them to rate securities)

    3. their customers (who pay them) are happier when moody's does *less* work, which makes for a pretty tiny overhead.

    So I can't fault MF newsletters for recommending the stock. At the same time, *I* wouldn't own it. I try not to make money off misplaced government regulation, since I place that in the same bucket as sin stocks. I don't trust government regulation not to change, and it looks like it's about to change, and then Moody's history is going to become a reputation-destroying liability. If their not paid directly from banks then all their practice catering to banks will no longer be relevant.

    Given that the stock has so much going for it, and so much going against it, and its value is subject to the whims of congress, it's not surprising at all that the opinions on it will vary widely. Personally I'd like to hear all the opinions on it, not just one opinion that will reduce my confusion while simultaneously failing to inform me or show me that the author did any consideration of the risks involved with a particular stock (*every* stock has risk. The person who tells you different is lying to you, and probably profiting off it).

  • Report this Comment On May 22, 2010, at 9:07 AM, Appear wrote:

    The Wall Street banks run the congress and write the laws that aid inefficiency in government regulations deliberately. The industry has used its PR machine to shift the spotlight on Sub-Prime credit customers as the source for for the mortgage failures and away from the true source, the toxic loan products themselves, that were created to fail. These same toxic loans were also purchased by people with excellent credit and used to buy properties with very attractive low payments on the front end, while building up toxicity along the way.

    The toxic loans didn't have any business being sold to anyone, period. They should not have been allowed in the marketplace.

    Wall Street banks bought ratings at their own will.

    New rules passed will help the ratings industry.

    I would never invest in the stock market today. It is no longer controlled by market forces, but by market makers who are paid to develop shill investment opportunities that are intentionally designed to fail, like Goldman Sachs did, and sell them to suckers relying on the investment banks word that they are good solid investments and Rating agency integrity.

    The market lost 700 or so points in 20m minutes a few days ago, and no one can figure out what happened. In the mean time someone made a killing in the market. In my opinion this was a deliberate act by a small group of people who decided they could get away with it. Someone is hiding the body.

    I trust no one on Wall Street or any brokers. Just TMF.

  • Report this Comment On May 22, 2010, at 10:08 AM, seagull2912 wrote:

    The Motley Fool as I understand stands for "... speaking the truth to the kings.." & the truth must only be one.

    The demagoguery about the difference in opinion do not hold the brutal reality that the rating kings have a obvious conflict of interests in doing their ratings. The difficult question to answer is who should replace them? I don't think anyone can and the only alternative is to have a transparent financial product understandable to general public and/or the professional advisers who should be responsible for their choice as well as the agency who create and provide the information for those financial product.

  • Report this Comment On May 22, 2010, at 10:42 AM, jc09058 wrote:


    Thank you for sticking to your guns. I think it is a wonderful that you do have divergent thoughts and are allowed to speak them. That does keep things honest and above board.

    @ all others

    Not everyone will agree with everyone else on any subject. Look at the individual ratings on any stock within TMF. It's rare when a stock doesn't have a nay-sayer or supporter.

    My Thoughts

    Any and all news should always taken with a grain of salt. I always "trust but verify" (Stalin) on anything I read because it is a far saner practice. As far as the Rating companies go, they have done a wonderful job of shooting themselves in the foot but then I never used them anyway because I have more faith in my evaluations anyway. As with all things, if they survive, it is because they adapted and changed. If not, they die off and rightfully so.

    Moral: Don't rely on other's work unless you are willing to verify it to keep everyone honest.

  • Report this Comment On May 22, 2010, at 9:04 PM, shivy1 wrote:

    this is stupid, the only persons fault is the average investor, they should be smart enough to know what is right and wrong, you cant hold ratings companies liable, this is why congress and sec pisses me off, they let Madoff scam $50 billion out of investors, but when a credit agency post a rating the government shuts them down. This is the fault of the investor and only the investor, take everything at face value and do your own research you lazy sacks of crapp. I do and so should you.

  • Report this Comment On May 23, 2010, at 8:00 AM, outoffocus wrote:

    Congress won't do anything serious to the rating agencies because of the huge conflict of interest. US gov does not deserve a AAA rating and they know it. Anything Congress does will only be dog and pony show for the public. Just like GS.

  • Report this Comment On May 23, 2010, at 5:44 PM, susan400 wrote:

    Just catching up? Listen, rating agencies have always been laggards,, its not like they have future vision..

    For teh author to now learn this is lame.


    I will add MCO at 18$

  • Report this Comment On May 24, 2010, at 9:27 AM, Pariseur wrote:

    It's a scandal if two writers for the Fool have different opinions? I've always believed that if any two people have exactly the same opinion on all issues one of them is unnecessary. I myself like to have a few reasoned and researched points of view to lear from and further I would subscribe to the view that in a rigged game the stock of the casino is likely to do well at least for a while, but the gamblers at the tables are not likely to be as fortunate.

    I also agree with this comment above: << I don't trust government regulation not to change, and it looks like it's about to change, >> but the lobbying fees flowing into Washington from the "financial/casino" industry are such a tsunami that I am not sure it will change as much as it should. We've come a long way from the Wall Street Barons like Morgan, Lehman and Whitehead who, whatever their faults, thought long-term about the value of their names and brand franchises.

    How S&P ever re-rated that utter junk triple A is just astonishing. Meanwhile commercial mortgage defaults are continuing to rise.

    "A rising tide carries all the boats" but an ebbing tide will leave the stupidly anchored ones high and dry. We don't yet have the real estate market conditions that will make it sensible to be too optimistic. The rating agencies must know this as well as anyone, so it's clear when these premature re-rating issues occur that something smells a tad ripe.

  • Report this Comment On May 24, 2010, at 10:58 AM, pethier wrote:

    How about putting the rating services out of OUR misery? Raters KNEW the products were time bombs and their bosses ordered them to rate them AAA. These bosses should be living at government expense in Kansas, not continuing to make millions in New York.

  • Report this Comment On May 24, 2010, at 11:03 AM, BMFPitt wrote:

    Anyone who bought a relabeled pool of toxic mortgages at Aaa prices deserved what they got, and should probably have all their assets siezed and given to crack-addicted compulsive gamblers who would probably put the money to better use.

  • Report this Comment On May 24, 2010, at 11:34 AM, pondee619 wrote:

    Regarding the difference of opinions among fool writers: It is time we (readers) realize that this site is not "the motely fool" but rather "those/these motely fools". this site is not that of the fool telling the king the truth, but a chorus of fools saying everything about everything. If you don't like the analysis/opinion of a fool writer, don't worry a divergent statement will be made shortly.

  • Report this Comment On May 24, 2010, at 1:50 PM, 102971 wrote:

    To TMF House:

    Firstly, I wrote "buying" crack coxaine NOT "smoking" crack cocaine.

    Secondly, I would much prefer that your newsletters recommended stocks that you ALL agreed upon not stocks that one or more of you consider questionable. How are we to know which of your colleagues might disagree with one of your stock recommendations? TMF is a unit that should speak with one voice.

  • Report this Comment On May 24, 2010, at 1:59 PM, jsbsr wrote:

    Do you know why we have so doggone much bureacracy? It's because the profit motive has long and far outweighed ethical business models of certain segments of the market. Hey, these idiots have brought it on, er, us. No sympathy from me. They'll just find another way to circumvent the system and we'll end rewriting legislation for the next set of transgeressions. Until "they" are truly made to pay ( can anyone say "death sentence"), the money will continue to look too good.

  • Report this Comment On May 25, 2010, at 9:05 AM, ziq wrote:

    Rating agencies, apparently, are paid by the seller, something this article doesn't directly mention. If Moody's is threatening to give the junk bonds less than a triple-A rating the seller can take its business to S&P. A Monty Pythonesque caricature of a market incentive!

    Also (this I learned on an NPR interview a while ago though I've forgotten the names) analysts who made merely comfortable incomes at rating agencies were hired away by wall street banks offering huge salaries to help them game the ratings using inside knowledge.

  • Report this Comment On May 25, 2010, at 11:26 AM, benthalus wrote:

    Why don't we make rating agencies put some sort of deposit down on the instruments they rate? The higher the rating they give it, the greater the amount of deposit money. If the instrument defaults, they lose it all. If it doesn't, each year they get a portion of the deposit back (perhaps 10%), plus an extra percentage as the fee covering their services. After 10 years, if they were correct in their rating, they'll have all their money back plus the fees. This system eliminate the lack of accountability and extreme bias in the current system, and also force a much longer term perspective.

  • Report this Comment On May 27, 2010, at 9:03 AM, ziq wrote:

    Benthalus, I would take it one step further: let's, as the article suggests, put the rating agencies out of their misery. The following solution should please even you free market purists out there: everyone ignore the rating agencies and instead just follow your favorite investing guru. What's Warren Buffet buying, for example, or Tom and David Gardiner? That way, when the gurus make a bad call they are punished, when they make a great call they are amply rewarded. You could even make it a rule that each guru clearly reveal whether or not he/she holds a position in the investment being rated.

    Oh, wait, that's what we have here at TMF!

  • Report this Comment On May 28, 2010, at 2:25 AM, JPDemers wrote:

    Seems simple in principle: the buyers, not the sellers, should pay the ratings agencies. If Moody's had rated those collections of crap "AAA" at the buyers' expense, they'd be out of business, and deservedly so. There are practical problems implementing a "buyers pay" system, but I'm sure the geniuses on Wall St. could come up with something if pressed to the task. Any sane system must have the ratings agencies accountable to the people who pay for their services. The only alternative is a Federal ratings agency, sort of an FDA for financial products -- and we really don't want to go there.

  • Report this Comment On January 11, 2011, at 4:43 PM, peteharvey wrote:

    Evidence is building that many of these rating agencies continue to assign inappropriate ratings. S&P just announced it will be downgrading its ratings on almost 1,200 complex mortgage securities, many of which were rated Triple A. If you invested in these mortgage backed securities, you may be entitled to compensation.

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