SEC Proposes Cosmetic Regulations for Rating Agencies

The Wall Street Journal and Bloomberg report that the SEC is mulling regulations for rating agencies. Note that rating agencies have benefited from being a protected class, since the SEC determines who can be a Nationally Recognized Statistical Ratings Organization, yet heretofore has imposed no obligations on them.

In the 1970s, the SEC set regulatory capital requirements on various types of financial institutions; these in turn rested on credit ratings set by NRSROs. The three large incumbents, Moody’s Standard & Poor’s and Fitch were given the designation.

Only a very few firms have been able to join the club since then; the SEC has not only failed to set standards for new applicants, but is also has never acknowledged receipt of applications. Thus NRSROs have the unique advantage of enjoying a high regulatory barrier to entry with no accompanying responsibilities.

And the new SEC proposals are a continuation of this proud, hands-off, no obligations tradition. Its great reform proposal? To require the rating agencies to publish how well their past ratings have done and disclose performance differences among ratings for different product categories.

The latter requirement flies in the face of the myth that the rating agencies have promulgated, namely, that their ratings mean the same thing, in terms of default risk, across products. That practice started slipping in the early 1990s, yet the agencies continued to maintain that their ratings standards were the consistent across products.

Note also that this proposal fails to acknowledge the fundamental conflict of interest that created this mess, that the ratings agencies are paid by issuers, when their ratings are for the use of investors. Taking that one on is too hard for an SEC ideologically opposed to meaningful intervention, no matter how patent the need for it is.

Contrast this attitude with the tough words from an EU regulator, as quoted in Reuters:

European Union Internal Market Commissioner, Charlie McCreevy, warned on Wednesday that if credit ratings agencies did not correct the lack of distinctive ratings for structured finance products, he would take action.

“If the proposals are not forthcoming in coming months, I would not hesitate to move forward to have it addressed with regulatory action,” McCreevy told the Society of Business Economists in London….

“I am not going to be prescriptive today but I will say this: strong independent professional oversight of the credit professionals within the rating agencies…and of the operation of the ratings function is absolutely essential if market and regulator confidence is to be restored with respect to the effective management of the conflict of interest inherent in the rating agencies’ business models,” McCreevy told the audience in London.

Now consider the harebrained statements from the SEC, via Bloomberg:

The U.S. Securities and Exchange Commission may propose new rules for credit-rating companies to help evaluate securities following investor losses related to subprime mortgages, the agency’s chairman said.

The rules would increase disclosure about “past ratings” to help determine whether rankings successfully predicted the risk of default, SEC Chairman Christopher Cox said at a securities conference in Washington today. The regulations may also address the differences between ratings on structured debt and rankings for corporate and municipal bonds.

Investors could then use the enhanced disclosure to “punish chronically poor and unreliable ratings,” Cox told reporters after his speech. “The rules that we may consider would provide information to the markets in a way that facilitates” comparisons, he said.

Punish chronically poor and unreliable ratings? What in God’s name is that supposed to mean? The market already disagrees plenty with published ratings. Has Cox ever looked at the AAA ABX index? And all of this patently obvious repudiation by the market of rating agency grades has had zero effect on their behavior. Even the specter of monoline credit default swaps of MBIA and Ambac priced at distressed levels still has not embarrassed them into making downgrades. Why? They are paid by the issuers! What investors and the market thinks has zero effect on their bottom line. If months of horrific press won’t induce them to clean up their act (the reforms proposed by S&P are similarly cosmetic), a mere tabulation of past performance certainly won’t.

In case you think I am being unfair, consider this excerpt from the Wall Street Journal story:

SEC Chairman Christopher Cox said the potential rules “would require credit-rating agencies to make disclosures surrounding past ratings in a format that would improve the comparability of track records and promote competitive assessments of the accuracy of past ratings.”

He added that the SEC “may propose rules aimed at enhancing investor understanding” about the differences between how ratings are treated for standard municipal and corporate debt, as compared with innovative financial instruments crafted by Wall Street banks.

Translation: the problem isn’t that the ratings are bogus, it’s the investors’ fault that they don’t understand that the ratings are bogus. So we’ll try harder to educate those dumb investors.

Just as the EU is having to do the heavy lifting on antitrust with Microsoft, so too will they with rating agency reform. The US seems unwilling to take steps that will reduce a company’s God-given right to its profits, no matter how much their actions cost the greater economy.

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  1. Francois

    One can only shake his head in disbelief. On the other hand, I would love to get the contact info of the dudes that provide them with the weed they smoke: it’s gotta be strong grade-AAA stuff man, the real deal!

    I truly fail to see how these people, ensconced in the rigid ideological universe of “Thou shall not regulate” and “Thou shall never ever inconvenience corportations”, regardless of the consequences, can be different from the Iranian ayatollahs or the Komissars from the Politburo.

  2. Anonymous

    I just read through this very boring and IMHO stupid fluffy/bogus CC for Moody’s, which sounds like a group of preppy punks on a golf course waiting for a snack to be served and more vodka; highly un-impressive questions and dumb replies — suggestive of a culture at home at the country club, but out of touch with reality!

    Moody’s Corp. Q4 2007 Earnings Call Transcript

    posted on: February 07, 2008 | about stocks: MCO

    Raymond W. McDaniel, Jr. – Chairman and Chief Executive Officer
    Thanks, Linda. I will now briefly summarize developments in the regulatory area. We continue to have active communications with regulatory authorities in the U.S. and International. As discussed last quarter the issues related to subprime residential mortgage and securitization have prompted significant focus by policy makers and regulators on the financial services sector including specific attention to the role and performance of rating agencies.
    A broad agenda was set by the G7 finance ministers and central banking authorities in their October 2007 meeting with the G7 asked the Financial Stability Forum or FSF to provide updates and recommendations by April 2008 on four topics. Including one about the role of credit rating agencies and evaluating structured finance products. This agenda has acted as a catalyst and encouraged global regulatory authorities in central banks to coordinate activities in time lines in order to provide their views to the FSF. These authorities include the BIS Committee on the Global Financial System and the International Organization of Securities Commissions or IOSCO.

    … And that process while it makes independent recommendations for behavioral processes and conduct at rating agencies, which IOSCO would expect us to implement, is also feeding into the broader process of review the rating agencies by the financial stability forum by the presents working group here in the U.S. and so there are independent efforts going on, which are funneling into an integrated review at the international level or pan national level.

    Lucas Binder – UBS
    Hi, guys. Couple of quick questions. Can you…. Ray you gave an update on IOSCO, but can you talk a little bit about where things are domestically with the SEC and the state’s attorney general? And then also are you within Moody’s analytics is their plan still break out that can be in research revenue breakdowns?
    Raymond W. McDaniel, Jr. – Chairman and Chief Executive Officer
    Sure. With respect to the SEC and the various state’s attorney general, we… the SEC is continuing with what is now is normal inspection and review process that is new pursuant to the reform act and the propagating rules, but they have been in contact with us and we’ve been responding to inquiries and request for information from the SEC pursuant to that. And they have had particular interest I think not surprisingly in processes around structured financing and making sure that they understand those and are comfortable with the information that we are giving them there. And it’s a similar story with the state’s attorney general in that we are responding to information request making all the information that is being requested available on its timely basis as we can and those inquiries continue.

    Craig Huber – Lehman Brothers
    All right. Can you just give me more color then why you think costs in the upcoming first quarterly roughly $20 million higher? That number is not dramatic enough?

    Catriona Fallon – Citigroup Investment Research
    Okay. And then can you give us some directional you now if you have to actual numbers that’s fantastic, but directional ideas on the margins for this different types of relationships?
    Raymond W. McDaniel, Jr. – Chairman and Chief Executive Officer
    No I don’t think we are going to be able to make margins available on relationship versus transactional business, so I just don’t have that available.
    Catriona Fallon – Citigroup Investment Research
    Okay. Thanks so much.
    Raymond W. McDaniel, Jr. – Chairman and Chief Executive Officer

    Raymond W. McDaniel, Jr. – Chairman and Chief Executive Officer
    Okay, well thank you everybody for joining and for your detailed and enthusiastic questions. We look forward to speaking with you after the first quarter. Thanks.

  3. Anonymous

    Ok, so lets see what those kids are saying:

    FSF sets out policy directions for strengthening the resilience of the financial system (February 2008)

    The FSFís Working Group on Market and Institutional Resilience has sent an interim report to G7 Finance Ministers and Central Bank Governors.

    Where market discipline fails,
    expanding the scope of regulatory coverage must be considered. But not every market failure
    in financial systems has an appealing or effective regulatory solution. Additional regulations
    can also create new areas for regulatory arbitrage or promote moral hazard where they stretch
    the resources of supervisors and regulators too far. Authorities therefore need to be careful
    that their efforts to correct one market distortion do not create a new one.

    >> 3. The uses and role of credit ratings
    • Investors, many of whom have relied inappropriately on ratings in making investment
    decisions, must obtain the information needed to exercise due diligence. Investment
    guidelines should recognise the uncertainty around ratings and differentiate products
    according to their risk characteristics.

    Huh…thats it….whad a buncha crap! These are the shills that are in charge of offering FINANCIAL STABILITY? Oh great, everyone can relax!

    The whole problem seems to hing on investors not doing DD and then falling for those bogus ratings from the rating agencies. Thank God for full disclosure and transparency, now we can get back to re-packaging derivatives into more interesting securities that wont need to be rated or disclosed…..which sends me to my notes, e.g, here is some transparent full disclosre:

    J/P/Morgan Chase Commercial Mortgage Securities Trust 2007-C1 · 8-K · For 12/20/07 · EX-4
    Filed On 1/4/08 4:29pm ET · SEC File 333-140804-06 · Accession Number 914121-8-8

    Forget about off balance sheet derivatives and entities, the new game is all about: “Book-Entry Certificates and Registered (Certificated) Receipts, Insured Custodial Receipts, Variable Rate Demand Obligations,certificated depositary interest — all packaged into hyper-dimensionalal REMIC Certificates that will end up being Privately Issued Mortgage-Backed Securities and you aint never gonna know what country or what vault has what.

    Oh but wait, it gets better, not only will you not know whats what or what its called, but then you can add this to the mix (andthe fact that this are cross-border and can spin any direction in any time zone 24X7): 

LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory 
requirements, the Fund may lend its portfolio securities to brokers, dealers 
and other financial institutions, provided that such loans are callable at 
any time by the Fund (subject to certain notice provisions described in the 
Statement of Additional Information), and are at all times secured by cash or 
money market instruments,……

  4. Anonymous

    The US Securities and Exchange Commission (SEC) has stepped up its inquiry into Merrill Lynch’s accounting of its sub-prime mortgage investment portfolio at the same time as federal prosecutors have opened a criminal investigation into the Wall Street firm.

  5. Independent Accountant

    The SEC will have all the success in fixing the rating agencies, it’s had with the CPA profession since 1976: none at all.

  6. Karolus

    Conflicts of interest embedded within the Nationally Recognized Statistical Rating Organizations’ rating process:

    A testimony from holders of defaulted sovereign bonds.

    Dear Mr. Secretary,

    In the recent past you have stated that it would be necessary to examine the role of credit rating agencies (nationally recognized statistical rating organizations, NRSROs), including transparency and potential conflicts of interest.

    1. Identified conflicts of interest

    Because ratings are deeply embedded in financial investment regulation, the NRSROs have in fact been handed an oligopoly; because they are paid by the issuers of the securities they rate, not by investors, they suffer a conflict of interest; and because their ratings are deemed mere opinions and thus protected as free speech, the NRSROs are unaccountable.

    Over the years NRSROs have often come under very strong criticism in these respects. The ENRON debacle was a case in point.

    2. Habitual defense of NRSROs

    When this happens, one finds the NRSROs usually claim that although the ratings they attribute always fully reflect the information which has been disclosed to them, they cannot be held responsible for not reflecting any items which may have been withheld from them.

    3. Testimony from the French: the Russian Federation is in default

    In 1999 a French government survey found 316000 bondholders of defaulted pre-1917 Russian bonds. France’s highest jurisdiction, the Conseil d’Etat, has repeatedly found that the rights of bondholders against the Russian Federation are not extinct. Bondholders estimate the present value of monies outstanding to be well in excess of US$ 100 billion.

    I am writing to you because I believe I can bring relevant information to those whose task it is to examine the role of the credit rating agencies.

    French bondholders believe the NRSROs’ habitual defense as quoted above to be fallacious, and I would like to bring to your attention one very precise, verifiable and irrefutable instance which I believe will prove my point.

    I realize this instance might seem somewhat removed from the causes of the current market turmoil, however I believe it stems from the very same conflict of interest which lies embedded in the rating process and which has led to the unjustifiably inflated ratings which the main NRSROs attributed to many Collaterized Debt Obligations and various asset-backed securities before these suffered the sudden downgrading process which sparked the current sub-prime crisis; which is why I respectfully bring it to your urgent attention.

    The instance is the unjustified “investment grade” rating attributed to the sovereign issues of the Russian Federation, a government which has consistently refused to honor the debt of its predecessor internationally recognized government prior to 1917, in flagrant violation of the successor government doctrine of settled international law.

    By refusing to settle its predecessor government’s debt the Russian Federation has thus notoriously defaulted on its obligations, a default which has been officially notified to the main NRSROs.

    All three major agencies publish their rating rules and definitions; for example Standard and Poor’s state, in particular, that their ratings are, among other things, an evaluation of the issuer’s willingness to pay its financial obligations (see exhibit A), a willingness all too clearly absent in the case of the Russian Federation:

    Indeed, while the Russian Federation punctually pays both capital and interest on modern-era Russian Federation bonds listed on the Luxembourg exchange, it never has done so on pre-1917 Russian bonds, which have thus remained unserviced since 1918, despite the fact that no agreement has ever been reached with the bondholders, that the debtor is now notoriously affluent, that France’s highest jurisdiction (Conseil d’Etat) has repeatedly ruled that the rights of the bondholders against the Russian Federation are not extinct, and that the defaulted bonds have been continuously listed on the regulated section of the Paris exchange (until NYSE-Euronext’s French subsidiary Euronext Paris S.A. definitively struck them off the list on October 24th 2007 – that is only three months ago – for no stated reason).

    The agencies have a specific rating for such circumstances – which Standard and Poor’s call “SELECTIVE DEFAULT” or SD – (exhibits B and D), which quite clearly applies to the Russian Federation; although Standard and Poor’s will very probably remind us that:

    “The sovereign is also regarded as having resolved its default in the rare instances, usually relating to a change in regime, in which governments repudiate certain types of obligations altogether and either reject creditor efforts to get compensation or, many years after the default, make token payments to creditors as settlement. Historic examples involving repudiations of foreign currency bonds include the Soviet Union in 1917, China in 1949, and Cuba in 1960. Had Standard and Poor’s rated these sovereigns at the time, it would have lowered the ratings to “D” to reflect the debt repudiation. However, even if there is no resolution of a default through the courts or by the parties involved, Standard and Poor’s eventually removes the default ratings based upon the diminished prospects for resolution and the lack of relevance of the default ratings in the context of the market. Standard and Poor’s forward-looking sovereign ratings typically refer only to debt that the present government acknowledges.” (exhibit C).

    The result of such policies is that despite its notorious default the Russian Federation has been attributed “investment grade” ratings by all three major agencies, instead of the obviously justified DEFAULT.

    Indeed, at one stage, while placing the ratings of the Russian Federation under review for possible upgrade, Moody’s actually wrote that “the government’s improved willingness and ability to meet its debt servicing obligations is matched by its improved willingness and capacity to increase tax collections and close tax loopholes” (exhibit E), thus openly negating the Russian Federation’s unwillingness to face its internationally recognized obligations.

    Yet Moody’s is even less entitled than Standard and Poor’s to make such a statement since, contrary to Standard and Poor’s, it does dot make provisions by claiming to rate only the debt that the present government recognizes.

    3. Investors suffer severe prejudice from attribution of unjustifiably high ratings

    The natural inference from Standard and Poor’s above disclaimer is that in order to “resolve its default” all a revolutionary sovereign need do is repudiate its obligations, reject creditor efforts to get compensation, and wait until “Standard and Poor’s eventually removes the default ratings based on the diminished prospects for resolution”. It must in addition be noted that the removal of the default rating, which Standard and Poor’s claims to be justified by the “diminished prospects for resolution and the lack of relevance”, is precisely what irrevocably leads to diminished prospects for resolution and lack of relevance, since it enables the defaulted and unwilling debtor to emerge from the process with a rating normally only associated with willingness to pay and thus to tap markets on accessible terms without having honored its previously outstanding debt.

    The end result of such a disclaimer is to negate both the default and the unwillingness to pay of a solvent debtor, although he has defaulted and is unwilling to pay. Thus, by removing the only argument which could have led the defaulted sovereign debtor to the negotiating table, NRSROs deprives bona fide creditors of any means of making good on their bona fide claims, which they cannot take through the judicial system since sovereigns are very often protected by sovereign immunity.

    As stated above, the prejudice is well in excess of US$ 100 billion.

    4. Rating policies viewed as disingenuous and fuelled by conflict of interest

    In view of the massive profits which NRSROs stand to gain from attributing investment grade ratings to such defaulted issuers as the Russian Federation – as demonstrated below – bondholders views NRSRO justifications, disclaimers and policies with respect to the Russian Federation’s ratings as disingenuous.

    It has been made blatantly clear above that contrary to the argument they habitually put forth in their defense it is not through lack of knowledge, but on the contrary despite irrefutable knowledge of a default, and in violation of their own published criteria, that after considerable contortions the agencies have attributed the Russian Federation with what are in our view unjustified “investment grade” ratings instead of the deserved “default” ratings. As a result, past, present and future investors are being very seriously misled on issues worth hundreds of billions of dollars, as they have recently been in the case of certain asset-backed securities.

    Why is this so?

    It is common knowledge that both public and private issuers from the Russian Federation have issued stocks and bonds in increasingly massive quantities over the past decade in international markets. Obtaining an investment grade rating is, for a new issuer, a prerequisite for any significant placing of bonds in international markets; therefore the prospect of these issues, particularly in bonds, has represented massive potential windfall profits for the agencies, whose revenue will in this respect be a percentage of the capital amount of the issues rated.

    As is well known, it is not the custom for a rating agency to attribute a better rating to any private issuer of a given country than the rating attributed to that country’s government. French bondholders believe that therefore, had the agencies attributed to the Russian Federation government the “DEFAULT” rating it quite obviously deserves, the agencies would as a consequence have forfeited all the anticipated revenue stream from subsequent private Russian issuers, since by virtue of the above custom these issuers would have been rated at best “DEFAULT” and could not, therefore, have accessed international markets; they would not have requested ratings, and the NRSROs would have been deprived of a revenue stream in the hundreds of millions of dollars.

    We believe this conflict of interest to be endemic. In the case of sovereigns it develops with particularly disastrous results for the investor.

    5. US holders of defaulted Chinese bonds hold similar views

    A very similar situation lies with the unjustifiably inflated ratings attributed to the People’s Republic of China, despite its default on pre-1949 Chinese bonds, of which I am sure you are aware; this situation, which directly affects the interests of many US citizens for amounts in the hundreds of billions of US dollars, is described in extremely well researched and prepared documents which are available on the website of Global Securities Watch:

    6. Need to revoke NRSRO recognition

    It is both within the Securities and Exchange Commission’s power and its mandate to revoke recognition from NRSROs who have engaged in wrongful pratice.

    7. Further need for regulation

    We believe the mechanism described above is very similar to that which has led to the attribution of inflated ratings to collaterized debt obligations, and to the current sub-prime crisis; although its effects are far more harmful to the investor in the case of sovereign ratings, since the holder of defaulted sovereigns has no legal means of seizing any underlying assets through the courts, because of sovereign immunity.

    In our view the actions of the credit rating agencies distort the true credit risk endemic to certain rated obligations, including sovereign obligations of the government of the Russian Federation and of the People’s Republic of China, and thereby pose a hidden danger to U.S. and foreign institutions and individual investors.

    Holders of defaulted Russian bonds believe continuation of what they view as wrongful practices by the rating agencies, which directly contribute to misstatement of risks and resultant investor losses, is antithetical and inimical to the interests of the public, both in the US and abroad. They believe unified legislation is warranted in order to remedy the continuation of practices described herein, provide relief to defaulted creditors from the injurious actions of the credit rating agencies, and preserve the integrity and transparency of international capital markets.

    They strongly advocate for appropriate regulation of the NRSROs in order to put an end to such questionable practices, and so that the Russian Federation should be appropriately rated as a defaulted sovereign until full settlement of their claim.

    I remain at your disposal to provide any documentary evidence to back up the above statements and remain,

    Sincerely yours,



    Exhibit A:

    Extract from “Standard and Poor’s criteria/Sovereign ratings: a primer”:
    “Sovereign credit ratings reflect Standard & Poor’s Ratings Services’ opinions on the future ability and willingness of sovereign governments to service their commercial financial obligations in full and on time.”
    (Full text at:

    Exhibit B:

    Extract from “Standard and Poor’s criteria/Sovereign ratings: a primer”:
    “An obligor rated “SD” (Selective Default) has failed to pay one or more of its financial obligations (rated or unrated) when it came due. An “SD” rating is assigned when Standard & Poor’s believes that the obligor has selectively defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations on other issues or classes of obligations in a timely manner.”
    (Full text at:

    Exhibit C:

    Extract from “Standard and Poor’s criteria/Sovereign ratings: a primer”:
    “The sovereign is also regarded as having resolved its default in the rare instances, usually relating to a change in regime, in which governments repudiate certain types of obligations altogether and either reject creditor efforts to get compensation or, many years after the default, make token payments to creditors as settlement. Historic examples involving repudiations of foreign currency bonds include the Soviet Union in 1917, China in 1949, and Cuba in 1960. Had Standard and Poor’s rated these sovereigns at the time, it would have lowered the ratings to “D” to reflect the debt repudiation. However, even if there is no resolution of a default through the courts or by the parties involved, Standard and Poor’s eventually removes the default ratings based upon the diminished prospects for resolution and the lack of relevance of the default ratings in the context of the market. Standard and Poor’s forward-looking sovereign ratings typically refer only to debt that the present government acknowledges.”
    (Full text at:

    Exhibit D

    Extract from “Moody’s Sovereign Ratings: A Ratings Guide”:
    “What Do We Mean By “Default?
    Moody’s defines default as any missed or delayed disbursement of interest and/or principal. We include as defaults distressed exchanges where: (1) the issuer offers bondholders or depositors a new security or package of securities that amount to a diminished financial obligation (such as preferred or common stock, debt with a lower coupon or par amount, or a less liquid deposit either because of a change in maturity or currency of denomination, or required credit maintenance facilities) and (2) the exchange has the apparent purpose of helping the borrower avoid default.
    Moody’s also classifies as a default when an issuer delays payment for credit reasons even when payment is ultimately made within the grace period provided for in an indenture or deposit agreement. Our rationale for including grace period defaults is simply that a contractual payment was not made when due.
    It is important to keep this definition in mind, because many commentators use “default” in a much narrower sense, that is, in the legal context of a creditor actually declaring a debtor in default on a particular obligation, resulting in a judgment by a court in favor of the creditor. Anyone who examines the post-World War II period will quickly recognize the significant practical difference between what we mean by default, and what a judge might determine to be a default in a legal proceeding.”
    (Full text at:

    Exhibit E

    Extract from Moody’s press release, September 8th 2005:
    “The creditworthiness of the Russian Federation continues to benefit not only from growing revenues and foreign currency reserves flowing from high commodity prices but also from prudent fiscal management and proactive debt management. The government’s improved willingness and ability to meet its debt servicing obligations is matched by its improved willingness and capacity to increase tax collections and close tax loopholes. State finances are, as a result, more secure.”
    (Full text at:

  7. Anonymous


    1. All ratings must be the form of a probability of default over 6 mo 1 year, 5 year etc up to the life of the bond. It must be a decimal ratio. It may be the reciprocal or complement of that ratio that is the probability of no default for convenience . No other form is permissible— period.

    2. The government must publish a quarterly report showing the variance between the default rate predicted by the NSRO's and the actually default rate. If the variance exceeds a given threshold ( to be determined ) NRSO status will be suspended pending review.

    3. No ratings given by an NRSRO will be acceptable for regulatory purposes if the variance as determined by the government report exceeds a given threshold ( also to be determined but it would be a higher level than that required for suspension).

    4. The government would have full audit authority over the ratings process for any NRSRO. Such audits would be conducted on a random basis on demand, but would be mandated if the Average variance exceeded a given threshold ( to be determined).

    5. NRSRO Status for any agency would be subject periodic review and any such review can be requested by the investing public on show of cause via process to be determined.

    6. The investing public may nominate ratings organizations for consideration for NRSRO Status and the government ( likely the SEC) must provide for a public hearing by a date certain.

    7. Funding for the ratings process must come from a double blind pool in which neither the issuer nor the investor will know who is rating what security until after the security is rated. It may be fee supported pool based on a % of the face value.

    8. At least 2 rating agencies must issue an opinion on an issue. If the variance between the opinions exceeds a given threshold ( to be determined) then a third will be required.

    9 At least 5 NRSRO are needed for any ratting issued by one of their number to have any regulatory effect

    These ideas, I am sure you will realize, are at best only half-baked but then I only did this in 20 Min.

    I hope the fools in Washington will at lest give it that much thought.


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