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Securities Law

SEC Chair Criticizes Pay Model for Ratings Agencies

U.S. Securities and Exchange Commission chairwoman Mary Schapiro criticized the dominant pay model for ratings agencies on Tuesday.

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Comments (1)
Ms. Schapiro's comments to SIFMA reveals an unfortunate flawed analysis of the rating agency industry. The implication of her remarks is another revenue model would reduce conflicts in the rating industry. Not so! Logic tells you that an investor pay model has similar conflicts. Depending on whether an investor is a buyer or seller, he would have an economically driven motive to see the rating higher or lower. The issuer pay model is not what caused the massive rating failures in RMBS during the housing bubble. Rather, it was the concentration of rating purchasing power exercised by RMBS investment bankers, sometimes referred to as "rating shopping." If XYZ Investment Bank didn't like Moody's RMBS rating, it simply said "no thanks", we'll get the "right" rating from Fitch!
Posted by mdwjr | Wednesday, October 24 2012 at 11:11AM ET
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