Fri, Sep 7th 2007 12:30pm
It's been said by many that bond ratings agencies are to the credit bubble what the tech analysts were during the dot com bubble. Whereas guys like Henry Blodget got dinged for touting IPOs for no other purpose than to move stock, many are wondering whether firms like S&P and Moody's inflated debt ratings so as to help move more business. It certainly seems plausible, and now it looks like regulators are going to delve deeper into this question, as they look at whether repeat customers tended to receive better ratings for the securities they were floating. Regardless of what regulators determine, it seems likely that the reputation of these firms will be permanently tarnished. Nevertheless, there would still seem to be a need for third parties to rate debt, so that the market can determine the appropriate interest rate. Of course, it's not like nobody saw this coming. For years now, people have been warning about the oligopoly in bond rating, and the potential for conflicts of interest. Perhaps the key is pursue a more decentralized system of disseminating information, although it will take some work (and regulatory flexibility) to figure out exactly what this model would look like.
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