[hugofirth]

This might be stupid - but why are these credit ratings agencies allowed to exist in a comparatively free market? Surely a function like the one they provide is better handled by a Not-For-Profit governmental body?

Without this - or incredibly tightly policed regulation of the existing private agencies, I don't see how an outcome like the one described here isn't mathematically guaranteed?

[sytelus]

Bond rating is literally a speculation. Government body would need deterministic definitive rules to assign bond rating which would immediately be gamed. The idea of having private firm do speculation instead is that if they are not good at it then people will stop using them and strongest would eventually survive. Unfortunately, they are well enough "protected" to go away.

[cjcole]

What we need is credit rating agency rating agencies.

Then, of course, ...

[theWheez]

The $ Combinator

[Afforess]

Agreed, profit motive in the rating agencies was to blame during the 2008 financial crisis buildup:

>The Financial Crisis Inquiry Commission estimates that by April 2010, of all mortgage-backed securities Moody's had rated triple-A in 2006, 73% were downgraded to junk

>many of their ratings turned out to be catastrophically misleading, the large rating agencies enjoyed their most profitable years ever during the past decade.

I think we should have new state run ratings agency, one that competed for ratings at market rate. This would force the private labels to at least give out more plausible ratings.

[1] http://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf [2] https://www.sec.gov/news/speech/2009/spch020609klc.htm

[tim333]

> why are these credit ratings agencies allowed to exist...?

Are you going to ban people from giving opinions as to whether various investments are good or not? As well as being anti free speech it would make life harder for investors. However I guess you could have a government controlled agency in parallel. Or regulate the agencies that their ratings have to be reasonable to get a license and ban/fine them if they are giving AAA ratings to junk.

[hwillis]

> Are you going to ban people from giving opinions as to whether various investments are good or not?

We already do basically do that for legal and medical advice.

[rcxdude]

And it is regulated in the financial space as well.

[hugofirth]

There are plenty of industries where companies don't exist in a particularly free market, and have to operate according to extremely strict regulation. Thats all I meant :)

[tw1010]

I guess the standard argument is that a governmental credit rating body would slow things down. If fintech startups needed some new feature from the credit rating agency, they might not be able to get it in a reasonable amount of time. Is that slowdown worth the tradeoff of occasional crises like this? I guess society has made its choice.