Martin Wolf answers your questions: Topic two - Reforming credit rating agencies

We invited readers to send questions this week to Martin Wolf, the FT’s chief economics commentator. Here is the second question, from Kevin P.Gallagher. Martin’s response is below.

Kevin P. Gallagher: In the US, and to some extent the EU, credit ratings agencies will remain largely unscathed in financial regulatory reform packages. How can we prevent another crisis, or mitigate one, without fundamental reforms of the CRAs?

Martin Wolf: It is scandal that the model of payment for the credit rating agencies has not been changed. They should be paid by agents for the buyers not by the sellers. More important, the regulatory role of ratings should be removed altogether. They have no credibility, in this regard. My own view is that, at best, ratings are a lagging indicator of what is happening in the market. At worst, they are actively misleading. Nobody should be required to hold assets of a particular grade. Will this failure cause another crisis? I don’t know. But it won’t help us avoid one, that is for sure.

Read Martin’s response to the first question – on income distribution and the crisis.

In depth coverage on rating agencies (FT)

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