Trouble for NRSROs

Senate grandstanding by Levin aside, this does not help the NRSROs’ case.

The headline oversimplifies the story, but the truth is some NRSRO employees saw the conflict and worried about it, while some charged full steam ahead. This is ultimately a management problem. There are inherent potential conflicts of interest in a seller pays ratings model.

Everyone knows this. This horse has already left the barn.

It is impossible to legislate all capital market behavior. Regulation should be observational. We need to set up rules of conduct, keep a level playing field and referee the game, not become part of the game. It is bad public policy when government picks winners and losers.

This still does not address the completely under-reported part of the entire ratings debate: Doesn’t the buyer bear some responsibility for his own action? If you relied on the rating and didn’t do your own due diligence, who is to blame?

Lots of investors didn’t buy these complicated investments, despite the high yield and AAA rating.

Senate panel: Ratings agencies rolled over for Wall Street – McClatchy Newspapers, April 22, 2010