Credit Rating Firms Paid By GSEs

In the February 11th GSE Report (see PDF archives), some interesting congressional testimony came out. "Senator Richard Shelby noted that Moodys Investors Services Inc., Standard & Poors, and Fitch have captured 95% of the credit-rating market..(the) credit rating agencies..remain virtually unregulated although they serve as important gate keepers to the debt market..Specifically, he cited two conflicts of interest in the credit rating industry."

"First, the rating companies get the bulk of their revenue from the fees that they charge the entities that they are rating..second conflict of interest is the agencies sale of consultant advisory services to ratings clients, an issue similar to the auditor independence problems that existed prior to the implementation of the Sarbanes-Oxley Act, Shelby suggested."

Don't expect any professional skepticism from the debt ratings firms until the conflict of interest is eliminated. And this lack of objectivity only contributes to the questions swirling around the GSEs.