RE: Absence. Yeah, yeah. I know. But there is this whole world out there away from the Intertubes, and it calls to me.
And to cheapen this first post back from over a month away even more… I’m just going to link to another blog.
Via Economist blog Democracy In America
PAUL KRUGMAN says the really glaring malefactor wasn’t Goldman Sachs; it was the rating agencies. The problem, he says, is rooted in the notorious system in which the rating agencies are paid by the issuer of the security being rated, and he suggests a proposal by Matthew Richardson and Lawrence White of New York University to have the SEC pick the agency to rate each security. Dean Baker likes this solution too. Kevin Drum demurs:
I guess this is my question: if you do this, the ratings agencies no longer have any incentives to do much of anything. There are three of them, and presumably each one would get a third of the business at a price set by the SEC. So their incentive would be to hire the cheapest possible analysts and cut costs to the bone. The result would be ratings agencies even less able to cope with complex modern securities than the current ones.
This is what stonkers me about the ratings dilemma: there just doesn’t seem to be any good answer. Turning the ratings agencies into regulated utilities might be better than the current situation, but not by much. And if you’re going to do that, why bother with ratings agencies at all? Why not just have the SEC provide ratings?
Ezra Klein replies: “Actually, why not?” Indeed, it seems like a good question. My instinct is that it’s better to keep the ratings agencies as heavily-regulated public utilities than have the government actually assume their function. There are lots of reasons why certain things work better as regulated utilities than as government agencies. Electricity transmission, for example, is pretty much a natural monopoly, but we don’t have the Department of Energy just take over the whole business.
Indeed. The idea that a private business whose core business is to basically provide a public service — for example, financial ratings agencies, utilities, product safety ratings businesses — should have the same opportunities for unlimited growth and profit potential than say, a company that actually makes stuff, seems to me to be a bit silly. Sure they can make money and people who are interested in this kind of thing either from a sense of wanting to do well by doing good, or as a way of having a nice, “safe” job are going to want to do it. But that doesn’t mean that you are going to get filthy rich.
Just as there are different career options for people of differing skills and ambitions in life, it seems to me that a free market system can have room for different business models.
