Let Investors Rate the Agencies
Letter to the Editor
Alex J. Pollock | Financial Times
June 03, 2008
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Resident fellow Alex J. Pollock explains that credit rating agencies should be rated by investors, not the government.

Resident Fellow
Alex J. Pollock
"Who rates the rating agencies?" asks your May 30 editorial. Somebody did: the US government, by granting official approval to certain rating agencies as Nationally Recognised Statistical Rating Organisations ("NRSROs") through the Securities and Exchange Commission. On top of that, through numerous regulations it required banks and other investors to use their ratings. This put the US government stamp of approval on certain opinions about the future (which is what a credit rating is)--what a bad idea. Thus, the government both restricted the supply of the favoured ratings and increased demand by mandating their use. What a surprise: the price went up and the dominant rating agencies became enormously profitable.

Who should rate the rating agencies? The investors who choose to use them or buy them, of course.

Alex J. Pollock is a resident fellow at AEI.

About the Author

 

Alex J.
Pollock
  • Alex Pollock joined AEI in 2004 after thirty-five years in banking. He was president and chief executive officer of the Federal Home Loan Bank of Chicago from 1991 to 2004. He is the author of numerous articles on financial systems and the organizer of the “Deflating Bubble” series of AEI conferences. In 2007, he developed a one-page mortgage form to help borrowers understand their mortgage obligations. At AEI, he focuses on financial policy issues, including housing finance, government-sponsored enterprises, retirement finance, corporate governance, accounting standards, and the banking system. He is a director of the CME Group, the Great Lakes Higher Education Corporation, the International Union for Housing Finance, and the chairman of the board of the Great Books Foundation.

    CLICK HERE TO DOWNLOAD ALEX POLLOCK'S ONE-PAGE MORTGAGE FORM
  • Phone: 2028627190
    Email: apollock@aei.org
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