Investors wallop credit rating agencies

June 13, 2010 | By Jim Kim

The uncertainty about the future of the credit rating agencies (credit rating news) has punished the stocks of some companies. Moody's, a decent proxy for the industry, has fallen to the mid-$20s from a high of about $71 in June of 2007. It could have been a lot worse.

The regulatory picture is clearing up only slowly. The Securities and Exchange Commission (SEC news) this month introduced new rules, called rule 17g-5r, requiring huge amounts of disclosure about the information used to rate securitized deals in the hopes of encouraging others to analyze it too, notes the Financial Times. Also, the financial reform package might create a bureau that would assign raters to deals.

Another law would open these firms up to more lawsuits from issuers and investors. But so far there's been no real move to reform the fundamental conflict, which is that the issuers pay for their own securities to be rated. A nascent move toward investors paying hasn't really picked up steam. However, we can be encouraged that a few other companies are offering to either enter the market, like K2 Global Partners set up by Jules Kroll, or provide more tools for investors, like Bloomberg.

For more:
- here's the FT article