How cook was credit rating agencies?

Increasing in regulations and laws of credit rating agencies not only enhance and help managing, organizing, monitoring, and restraining the industry, but also demand and ask for self-controlling or disciplining, accountability, and liability. Gitman (2009) analyzes and argues the new legislation “gives the SEC (The U.S. Securities and Exchange Commission) the tools necessary to hold recognized rating agencies accountable if they fail to produce credible and reliable ratings” (p. 296). The SEC needs new and updated laws to back up and support prior to take any permissible or lawful actions. The results of all these have on the market share or stake of the largest rating agencies are reducing their dealings and businesses. Shecter (2008) claims, “the CFA Institute says more than 10% of investment professionals who responded to a recent poll said they have witnessed a credit rating agency change a rating in response to pressure from an investor, issuer or underwriter” (p.1). If they reported these cases to SEC, and stopped it right away, especially in the matters of subprime investment rating, will this financial crisis come up? How many retiree or investors lost their life savings or hard-earned investment because of the  conflict of interest in the industry? How do we manage the issue and keep high criterion and professionalism?

     The question: How will this legislation affect the process of finding ratings information for investors? As examining risk and return study in the financial markets bases on getting accurate and well-timed data or information. The increasing competition in the marketplaces with advancing of information technology (IT) and globalization, plus stepping up inspection or investigation from the authorities with redesign or build up organizational structure, business ethics, and culture, all these would improve the merit or quality of the ratings data for investors (Gitman). The payment system which offers to the credit rating agencies from institutions or financial companies that creates problems of conflict of interest, and it needs to redefine or restructure (e.g., must disclosure and open to the public). At the same time, in order to keep high standard, and up-to-date information and business knowledge or business ethics, all professionals in financial industry must pass their trade examinations or must register and keep accountability and liability. They must take update courses (or credits of retraining or reeducation) every two years before renew their licenses—as a financial advisor in Ontario, we have the most tough licensing system in the industry, this is one of the reasons why Canada has fewer banking problems in this crisis among the Group of Seven (G7) industrialized nations.

References    

Gitman, L. (2009). Principles of managerial finance (12th edition). Boston, MA: Prentice-Hall

Shecter, B. (2008, July 7). Credit rating problems real: CFA poll. Financial post. RetrievedFebruary 19, 2009, from http://network.nationalpost.com/np/blogs/fpposted/archive...