Tags: Alan Blinder | rating | agency | credit

Princeton University Economist Blinder: Credit-Rating Agency System 'Scandalous, Barely Believable'

By    |   Wednesday, 23 Apr 2014 09:40 AM

The credit-rating agencies played a major role in the 2008-09 financial crisis, but no real reform has occurred, says Princeton University economist and former Federal Reserve Vice Chairman Alan Blinder.

"It is scandalous and barely believable . . . that credit-rating agencies are still being hired and paid exactly as they were in the bad old days," the Princeton professor writes in The Wall Street Journal.

The problem is that the entity issuing securities is the one that pays the rating agency, which gives the agency incentive to inflate its rating.

Editor's Note:
Secret ‘250% Calendar’ Exposed — Free Video


Blinder offers three solutions. First, ratings agencies should be subject to lawsuits, he says.

"As things stand now, it is nearly impossible to sue a rating agency successfully, because ratings are deemed to be 'opinions' protected by free speech," Blinder explains.

Second, bond issuers shouldn't pay the agencies, he tells Yahoo. If rating agencies are paid by "something other than the companies issuing the securities," such as an exchange or a regulatory agency, the rating agencies would have less incentive to "inflate ratings," Blinder argues.

Third, agencies should be assigned to issue ratings randomly, similar to how judges are assigned cases, to avoid ratings shopping, Blinder suggests.

Others too note that rating agencies have felt little effect from the post-financial crisis reforms.

The rating agencies' business "has not been threatened much by extra regulation or competition," Douglas Arthur of Evercore Partners, tells The Economist.

Indeed, the top three players — Standard & Poor's, Moody's and Fitch — "still control around 95 percent of the global ratings market: the same as before the crisis," according to the publication.

Editor's Note: Secret ‘250% Calendar’ Exposed — Free Video

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The credit-rating agencies played a major role in the 2008-09 financial crisis, but no real reform has occurred, says former Federal Reserve Vice Chairman Alan Blinder.
Alan Blinder, rating, agency, credit
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2014-40-23
Wednesday, 23 Apr 2014 09:40 AM
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