No New Business Model for Credit Rating Agencies

While both the House financial reform bill approved in December and the current Senate bill call for tighter regulation of credit rating agencies, critics are upset that neither improves on the “issuer pays” business model.

Because most of the agencies’ revenue comes from issuers of bonds and other debt that the agencies evaluate and rate, critics say this is an unacceptable conflict of interest — that ratings could too easily be tainted by business needs.

Congressional aides defended the bill, saying that the business model could not be changed without destroying the industry. The Senate bill is now on its way to the floor for debate and a final vote.

Let’s let the ratings agencies alone. You can’t legislate morality or virtue in a free market. If nobody trusts the NRSROs, the companies will cease to exist. Let’s let the market participants decide the usefulness of ratings, not Congressmen.

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