Could Uncle Sam give the major private rating agencies Standard & Poor's, Moody's Investors Service and Fitch Ratings a run for their money? If the government has its way, that scenario could certainly be the case.
The Securities Exchange Commission is meeting at a round table Wednesday in Washington to consider the future of credit rating agencies, which many feel helped cause the credit crisis. Critics claim they were influenced by the fees they received from the companies they rated, resulting in overrated debt that in many cases wasn't worth the paper it was written on.
One proposal that has been banded around by politicians calls for the creation of a government rating agency that would rate corporate debt and compete with private credit rating agencies. That topic will likely be discussed at the round table.
"A government regulator, as we have with accounting standards, is appealing to me because it avoids the inherent conflict if you have one side or other paying for these products," Senate Banking Committee Chairman Christopher Dodd, D-Conn., told MarketWatch.
But detractors argue that more government intervention may not be the answer. After all, if the SEC is involved, how effective could that government body be if it allowed such scandals as the Bernie Madoff debacle that happened under its nose?
Everyone except possibly the rating agencies agree that the ratings system needs to changed. With the abrupt faltering of mortgage-backed securities rated by the agencies contributing to the credit crisis, it's not a question if change will be made to the ratings system -- but likely when and how much. - Gerald Magpily
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Governement rating agencies would be a disaster, instilling a false sense of secutity.
Instead, require all rating agencies to be Partnerships, with the ability to assign liability going back 5 years to anyone at VP or above. Limit on bonuses re total amount and require payout pver 5 years, with a ballon in year 5. This will force a greater scrutiny by the rating agencies on their ratings. It will also result in more conservative ratings, which isn't a bad thing either.