June 4, 2008
Ratings Agency Rules
New York Attorney General Cuomo has cut a deal with the rating agencies to change the way they will be for fees. The agencies at present are solicited by issuers, issue ratings, and then ask for fees. Issuers that are unhappy with the ratings can threaten refuse fees and go to other agencies. Under a pay first system, the issuers will not have, in theory, such bargaining power. The solution is empty, however, once one realizes that it does not solve the inherent conflict of interest present when those being rated, the issuers, pay those who rate them. We need either to suspend all legal requirements that depend on such ratings or find a way to have ratings agencies paid by those who depend on the accuracy of the ratings, not those who are rated.
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Isn't this a similar situation to audits on public companies, or at least before SOX? I'm not sure what impact the audit committee has had in solving the conflicts of interest but could something similar be done in this situation? Thoughts?
Posted by: anon | Jun 4, 2008 11:03:15 AM