the ratings agencies are approved by federal regulators and are protected from real competition.
I'm confused. Surely if I decided to set up my own bond rating agency nobody could stop me?
I'm confused. Surely if I decided to set up my own bond rating agency nobody could stop me?
The catch is that the biggest rating agencies accept payments by the company issuing the bond. What happens is that Bank of Insanity gives Moody's a check for $500k to rate their super-senior diseased livestock bond. Moody's then says "at least 5% of the cows will probably survive, and $500k is a lot of money, so this bond is investment grade!"
That's why things work out so poorly.
Nobody can stop you, but nobody can legally use your ratings in regulatory filings.