Thou shall not induce the markets to trust some particular information agents
Sir, in the Life & Arts of October 18, in very small letters, your readers are told they can go to ft.com/magazine for an article on how the credit rating agencies got it so badly wrong… which sort of implies that the human frailties present in the CRAs could somehow be avoided in the future… and so that we could trust the CRAs even more.
Is the FT building up some defences against an accusation of having downplayed the role of the CRAs in this crisis? Do you not think this article merited to be printed in the Financial Times; when the world is so dumbfounded confronting a financial crisis of immense proportions and the role of the credit rating agencies lies at the heart of it?
The article “When junk was gold” by Sam Jones is not bad but does not classify as good either, since one cannot understand how he could have left out mentioning how the bank regulators in Basel, in the mid 90s, empowered the credit rating agencies with oligopoly rights in the risk information markets, and thereby elevated exponentially their influence.
Sam Jones writes “lawmakers may not have the appetite to go after the rating agencies.
The world’s financial markets have credit rating hard-wired into them… going to an investor-pays model is probably too big a change to ask for more broadly. American and European market regulators seem happier to push for a much-reformed status quo.
I am not so sure of this. Just like there are many new regulatory proposals based on identifying and managing the behavioural patterns in the relation between borrowers and lender, there are also many like me who argue that the behavioural patterns between security vendors and investors has to be realigned, and in this respect consider that the number one reform needed, in order not to repeat mistakes that could be even more catastrophic, is for the regulators to avoid empowering any supplier of information in any special way.
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