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Sunday, December 13, 2009

Meltown causes are still in place

I agree with your op-ed writer, Frank Porter, that the rating agencies cannot continue to go on as they have in the past (Meltdown causes are still in place, Boston Globe, December 9, 2009: A19).

My solution would be a bit different, let the agenies' paymasters be the investors. Each financial transaction would have a small fee attached to it, like a Tobin tax. These fees would be used to pay the rating agencies; to keep them honest, a portion of the pay would be tied to achievement, that is the medium and long term accuracy of their ratings.

Such a system would eliminate the current conflict of interest faced by the rating agencies who are paid by the very firms/issuers they rate.

Sent to the Boston Globe (also sent a similar letter to the NYTimes)

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