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There needs to be many more ratings agencies. The two big ones need competitors. If there are enough of them then when synthetic CDOs do have bad batches that

There needs to be many more ratings agencies. The two big ones need competitors. If there are enough of them then when synthetic CDOs do have bad batches that at least one will want to lead the way in downgrading. It would be much harder to pay off say 10-20 ratings agencies. There has to be some self-interest among ratings agencies to one up another, by upgrades or downgrades because of better knowledge. I think the lack of competition for ratings is part of the problem that caused 2008. Maybe even ratings based on community as well as authoritative sources, right now they are all authoritative and mostly blackboxes in terms of processes to achieve ratings. The concentration in centralized power in ratings agencies is a bad thing and history says it will bite.

TeMPOraL 11y ago
Maybe we need some rating agency rating agencies. And some more that will rate those too. If we can go up enough meta-levels, maybe it'll all become so confusing that it'll be impossible to effectively game. (I get weird ideas when I'm tired.)
- themartorana 11y ago
  I keep hoping that'll be a role the SEC plays, but so far I've been pretty disappointed.
- existencebox 11y ago
  I don't think this is a weird idea. In fact, I really like this idea. It seems like a rating agency could be given a "score" based on the historical accuracy of their measurements, since although ongoing books are business secrets I would imagine you could get SOME proxy at least for examining the veracity of the ratings in hindsight. It could be done with very little overhead, and would be a first step in some small sort of accountability, at least, if only an accountability to the data. Could anyone with an actual familiarity with this domain say if something like this exists, or if there's sufficient audit data for it to exist?
toast0 11y ago
The number of ratings agencies isn't the problem, who pays the agencies is the problem: it's the issuer of the debt in most cases. This arrangement is more efficient than buyers paying for ratings, but misaligns incentives. Supposedly mutual funds do additional research on debt issues beyond looking at ratings, and that might help, but it isn't very public.
openfuture 11y ago
If we have a bunch of them then aggregate agencies will start popping up and we will have the same problem again. This problem keeps popping up everywhere, when does a search engine become a content editor / censorship inc.? We need to have a clearly defined line or figure out a different way of looking at companies like these (that effectively own a 'platform'), because right now we basically have a oligarchy...

TeMPOraL 11y ago

Maybe we need some rating agency rating agencies. And some more that will rate those too. If we can go up enough meta-levels, maybe it'll all become so confusing that it'll be impossible to effectively game. (I get weird ideas when I'm tired.)

themartorana 11y ago
I keep hoping that'll be a role the SEC plays, but so far I've been pretty disappointed.
existencebox 11y ago
I don't think this is a weird idea. In fact, I really like this idea. It seems like a rating agency could be given a "score" based on the historical accuracy of their measurements, since although ongoing books are business secrets I would imagine you could get SOME proxy at least for examining the veracity of the ratings in hindsight. It could be done with very little overhead, and would be a first step in some small sort of accountability, at least, if only an accountability to the data. Could anyone with an actual familiarity with this domain say if something like this exists, or if there's sufficient audit data for it to exist?

toast0 11y ago

The number of ratings agencies isn't the problem, who pays the agencies is the problem: it's the issuer of the debt in most cases. This arrangement is more efficient than buyers paying for ratings, but misaligns incentives. Supposedly mutual funds do additional research on debt issues beyond looking at ratings, and that might help, but it isn't very public.

openfuture 11y ago

If we have a bunch of them then aggregate agencies will start popping up and we will have the same problem again. This problem keeps popping up everywhere, when does a search engine become a content editor / censorship inc.? We need to have a clearly defined line or figure out a different way of looking at companies like these (that effectively own a 'platform'), because right now we basically have a oligarchy...