Wednesday, October 22, 2008
Fixed-Income Credit Ratings, A Job for Uncle Sam
Today a committee of the House of Representatives heard from people associated with the rating agencies. I listened to a good deal of the hearings and thought that what I heard was a lot of what I had been writing about the credit rating companies in my blog. The big difference between me and the committee is that I do not think it is possible for these companies to fix themselves no matter how many fancy words they use or reforms they promise to make. If it is important enough for the Food & Drug Administration to be a government run agency, then, it is my opinion, it is important enough for the responsibility for the rating of fixed-income assets, that number into the trillions of dollars, to be done by an agency of the Federal Government. While this may not be full proof, any more than the FDA is full proof, it would be one hell of a lot better than the existing system. The rating companies have let down the investing public before the present disaster in the mortgage bond arena, when they failed to down grade New York City in the 1970's. As long as the credit rating responsibility remains in the hands of private for profit companies, there will continue to be disasters as we go forward. Credit ratings can not be bought if they are to mean anything to the financial community, period. The House Committee hearings are a good show, but without a majority of members taking the position that for profit companies by their very nature can not do this job right, it is just a matter of time before there are more credit disasters and more hearings.