However, the Ratings Agencies defy any attempts to be regulated themselves, shielding themselves using a defense of “Free Speech” protections.

This is a toxic mix: either no official status and clarity that they are offering their opinions after being paid by their issuers [as NYT puts it here, http://tinyurl.com/nytrate, “Four stars, two thumbs up, a must read: Rave reviews like those might seem a bit suspect if they were paid for by the restaurateurs, movie makers and authors being reviewed”), or official status and sensible regulatory requirements.

Finally, there is irony that professional investors actually love ratings? Why? It is the biggest A$$-covering operation in finance. I bought a load of crap bonds, waa, but it isn’t my fault, Moody’s said they were fine!

agree with you re: basel ii and capital requirements.

another piece of the puzzle is the fact that many leveraged finance vehicles have ratings triggers.

Of course ratings have plenty of subjective elements. Rating agencies are quite clear about that.

As for CDS spreads, they are much more volatile than ratings and have different uses.

Not sure what point you are trying to make.

That’s not the only counterindicator. Not only did the issuer poay model not create any probelms in the past, it didn’t create any problems in other rating segments, like corporates or sovereigns. It’s pretty clear that the issuer pay model as a cause of this crisis lacks any empirical evidence. Not that this will stop journalists and others that don’t know what rating agencies are and do.

I can see the start of a movie here… How about George Clooney as the intrepid anti-hero Molotov … Or better still … the rusty-voiced, cigar-smoking Alec Baldwin ! Redoubtable left-wingers that they are.

As for film score … you could start with Bob Marley. His song “Africa Unite” is one of my favorite (because it contains an exquisite riff). Let me think about this and I will get back to you at your AAA-Bomb blog.

By then entire towns and cities in California and Nevada — could have had — solar-panel roots. But B-company does not get financing. California and Nevada opted for nuclear energy. The “sticky wicket” being not only did B-company not have a credit rating, but it got shouted down as “socialist” for requiring government subsidies to get started up.

A-company has an AAA triple-rating and needs financing to build a coal-fired electrical plants. The smoke stacks are state-of-the-art.

B-company, with no credit rating wants, wants to build solar-panel roof-tops that allows homeowners to sell excess power back to the grid. Due diligence indicates B-company has a very good technology. But B-company will need government subsidies, for a decade, before it will be profitable. By then entire towns in California and Nevada will have solar-panel roofs.

The AAA credit rating is blind to the environmental cost and benefit of financing. So B-company does not get built. Hence a failure in environmental accounting for the two projects.

More generally, I think you are saying Basel, a convocation of central bankers, has missed the boat entirely. This is because, under Basel, capital requirements for banks are based on credit ratings. So there is a structural flaw in the world banking system.

Rather than ban or regulate, the rating agencies, address the structural flaw.

Correct?

The “novel” is just a speculative affair and something that I used to illustrate more in jest our current regulatory problem. You find it here: http://www.theaaa-bomb.blogspot.com/

I found a link to an online novel you are writing. (I can’t find again that link because there is too much material to wade through on this blog.) Could you repost the link to your novel.

Thanks