The Credit-Ratings Business May Never Get Fixed
U.S. senators rightly question the “issuer pay” model, but a reasonable alternative remains elusive.
It’s still pay-to-play.
Photographer: Thomas Coex/AFP/Getty Images
Here’s an idea from a bipartisan group of four U.S. senators: The credit-ratings industry needs an overhaul.
Obviously, this is not a novel concept. It seems as if at least once a year, financial journalists publish an investigative piece that highlights how firms including S&P Global Ratings, Moody’s Investors Service and Fitch Ratings are loosening their standards, likely in an effort to win more business. The takeaway is that the industry’s core model — issuers paying for their own grades — is broken, distorts markets and sets the entire financial system up for an even bigger fall when the economic cycle turns.