Your discussion of the continuing failure of the rating agencies fails to mention the one real reform that would provide incentives to the agencies to provide accurate assessments (The Trade: Post Crisis, A Return To Old Habits, New York Times, January 6, 2011: B1, B11).
The agencies should be paid by the consumers of their information, not by the institutions whose products they are rating. There is no other market wherein the producer pays for a product's ratings.
What is needed is a small tax on every financial transaction. This tax would be used to pay the rating agencies. Pay would be based on performance. If a product received a higher rating than it deserved, the rating agency would forfeit its compensation.
This would remove the current conflict of interest in the market for ratings.
Sent to New York Times