Greater Competition Is A Solution

The Obama administration appears to be proposing changes that are focused on disengaging investors from their reliance on the big three, Fitch, Moody’s and Standard & Poors. Instead the administration seems to be urging investors to do more of their own research.

The idea is right, to keep the ratings independent  from the issuers. But the hope that investors are able or willing to do any credible research is a stretch. Instead, regulation should be loosened to allow room for dozens of smaller players, with various specialties, to compete with the big three on quality and price. Until recently regulation was actually a barrier to this type of competition.

When coupled with a standard ratings scale that has the fine gradations needed to measure structured credit products, either alpha or numeric, we can quickly achieve a viable, market-based solution with a minimum of government regulation.