Tuesday, July 14, 2009

SEC's Schapiro Eyes Credit-Rating Firms

WSJ (sub reqd) has an article today on what the SEC is doing with credit rating agencies: "Securities and Exchange Commission Chairman Mary Schapiro is set to tell Congress she has directed her staff to look into ways of preventing debt issuers from shopping around for the best credit ratings".

What that means is - the credit rating system as it exists today will continue to exist, with a few tinkers here and there. Rating agencies are govt created monopolies with unregulated pricing power.

Ratings are a way for investors to outsource the blame of their stupidity on others (the rating agencies). HSH Nordbank investment managers would have told their superiors - "But I invested in AAA" - and they wouldn't have been fired. Such a cool way to protect the downside and get the bonus on the upside.

This is worse than tobacco - in tobacco everyone now knows the harm caused by the product.

Disclosure: Long Crisil.

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