A post on the Credit Ratings Corporations on Insurance Claims and Issues Web Log on Friday, June 4, 2010 examined the testimony of Mr. Warren Buffett about their cluelessness and blamelessness for the Great Collapse, in his judgment.
The "big 3" of Credit Ratings Corporations are each designated by the Federal Government as "Nationally Recognized Statistical Rating Organizations". Federal Law requires that investors such as mutual funds hold only "AAA" rated investments, rated "AAA" by Nationally Recognized Statistical Rating Organizations". There are and have been only 3 of them: Fitch, Moody's, and Standard & Poor's. Other raters need not apply for this Federally conferred monopoly.
Pending legislation soon to be reconciled between the U.S. Senate and the U.S. House of Representatives may or may not preserve this anti-competitive status for the "big 3". See Joe Nocera, "Dubious Way To Prevent Fiscal Crisis" p. B1, col. 1 (New York Times Nat'l ed., "Talking Business/Business Day" Section, Saturday, June 5, 2010). There may be a new provision which would remove the headlock enjoyed by the 3 NRSRO's, to a situation where high-grade investments can be rated by other raters and not simply by the big 3. Or possibly not rated at all, but proven in some other way to be worthwhile opportunities for investing other people's money.
There is no provision under consideration to totally dismantle Credit Ratings Corporations, or even to limit their free-market potential. Using raters would still be an option if the pending legislation is enacted. S.E.C. Commissioner Kathleen Casey and Prof. Frank Partnoy, "Downgrade the Ratings Agencies" p. 11, col. 1, New York Times Nat'l ed., "Week in Review" Section, Sunday, June 6, 2010). It's just that the stranglehold favoring the Federally enhanced NRSRO's would be broken in favor of competition. As things stand, the big 3 have been given a Federally legislated monopoly position in the many provisions of Federal Law which require their ratings to be used if investments are to be made.
Now that sounds like socialism. It would be useful if people who express concern about Federal government control would express understanding of what is at issue here, and so understanding, strongly oppose this very real example of unwanted mandates.
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