Ratings Agencies

In a post entitled The Blame Game eighteen months ago I said that the ratings agencies should take some of the blame for the financial crisis.

Now the US Senate's Permanent Subcommittee on Investigations has agreed. Its chairman Carl Levin has said

"By first instilling unwarranted confidence in high risk securities and then failing to downgrade them in a responsible manner, the credit rating agencies share blame for the massive economic damage that followed"

Better late than never, you might think, but I believe this may be significant. The practice at the moment is that the inventors of the security or derivative (the banks) pay the fees of the people who assess it: if they refuse to go along with what the banks want they could lose business.

We must find a different way of doing this before the whole thing starts up again (and it will, trust me). We wouldn't allow film makers to control the film rating agency; perhaps Wall St and the City have something to learn from Hollywood.