I fail to see how "open[ing] up the duopolistic world of rating agencies to greater competion" would result in "better performance" unless the business model is also changed (On the Waiting List at the Debt Rating Club. Sunday Business, February 10, 2013: B1, B7).
If the issuers still employ and pay the rating agencies, more
competition will result in a drive to the bottom, with raters giving
high ratings to worse and worse debt issues. The problem is that an
investor cannot detect a low quality AAA rating until after the issuer
In my view, there are only two solutions. Either, have the raters
paid by the purchasers of the debt, perhaps through a tiny Tobin-type
tax, or nationalize the rating agencies and have a government agency
carry out the ratings. I would favor the prior approach as competition
would encourage accuracy in the ratings.
Sent to New York Times