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Rating The Rating Agencies

Publication Date: 
April 14, 2009
CNN Money
David Ellis

Professor Joseph A. Grundfest is quoted in CNN Money in an article about a Securities and Exchange Commission-sponsored roundtable discussion that addresses how to improve oversight of credit reporting agencies. Grundfest participated in the roundtable in Washington, D.C. CNN Money writes:

The meeting will mark the latest efforts by regulators to keep a closer eye on a business that has been widely blamed for contributing to the ongoing financial crisis. Critics have maintained that many of the rating agencies were slow to lower the debt ratings for troubled financial firms and warn of the risks of bonds and other securities tied to subprime mortgages.


One participant, Joseph Grundfest, a former SEC commissioner and currently a professor of law at Stanford University, said he plans to propose an investor-owned and controlled agency at the meeting.

Under this model, investors would not only rate issued debt, but their assessments would accompany assessments published by traditional ratings agencies. The structure, he notes, would force firms to compete by providing the best information possible to the marketplace.

"The dominant rating agencies have very large market shares," he said. "Unless you change the fundamental economics of the industry, that won't change."