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A comment on Moody’s: Why the U.S. Is Still AAA. Parent comment

Re:Moody’s: Why the U.S. Is Still AAA by hugh3 on Monday August 08, 2011 @05:24PM (#2861647)
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?

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Re:Moody’s: Why the U.S. Is Still AAA by MartinCron on Monday August 08, 2011 @05:35PM (#2861685)
I think that it's a de-facto monopoly in that if you set up your own bond rating agency, nobody would be compelled by law to only invest in things that your rating agency considered "investment grade".
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Re:Moody’s: Why the U.S. Is Still AAA by hugh3 on Monday August 08, 2011 @05:47PM (#2861729)
Ah, now I understand, thanks. Anyone can rate bonds, but the ratings issued by the "blessed" agencies have legal significance and mine don't.
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Re:Moody’s: Why the U.S. Is Still AAA by OstiaAntica on Monday August 08, 2011 @08:06PM (#2862096)
That's right. The ratings agencies sit at a critical junction in the American (and global system) so when they fail, or have mixed incentives, the whole system breaks, which is a major part of the story of 2008.
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Re:Moody’s: Why the U.S. Is Still AAA by MartinCron on Monday August 08, 2011 @11:41PM (#2862805)
It wasn't always that way. There's a Planet Money podcast covering how the ratings agencies came to be and how thet got their legal significance. Interesting story.
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Re:Moody’s: Why the U.S. Is Still AAA by Daniel_Newby on Tuesday August 09, 2011 @11:38AM (#2864394)
These days it is a bit more complicated. Now just about anyone sensible can become a "blessed" agency, a Nationally Recognized Statistical Rating Organization (NRSRO).

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.

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Re:Moody’s: Why the U.S. Is Still AAA by chriserin on Monday August 08, 2011 @06:49PM (#2861879)
http://en.wikipedia.org/wiki/Nationally_recognized_statistic...

Nobody can stop you, but nobody can legally use your ratings in regulatory filings.

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