Why Congress Can't Fix the Ratings Mess

Credit ratings wonks will love the detail in Christopher Whalen's interview with Drexel University's Joseph Mason today. But my favorite bit is a remark near the beginning:

Mason: I have been meeting with some large pension funds outside the US, large state run pension plans with a lot of exposure and a lot of losses. As a group these funds are very angry at the inaction by the Congress, which held a few hearings last year but then followed up with absolutely nothing. Congress's treatment has been to wait and see if this crisis clears up because dealing with it directly is going to be very difficult.
Whalen: Well, to be fair, there is no one to talk to on Capitol Hill today, is there? Can you even think of a single member of either house who really understands finance well enough to investigate this mess?
Mason: No, none of them understand it. They understand that the problems are really big. But in a way, the congressional hearings last fall worked to the advantage of the ratings agencies. They called the legislators' bluff. They said, "This is so big, you figure out how to fix it." When legislators didn't know how they decided to wait and see if the crisis would blow over.

The ratings agencies have done very well out of the status quo, even as investors - and municipalities - have suffered. They're never going to be the agents of change, and Congress isn't going to change anything either. Which is probably one reason why Warren Buffett is perfectly happy holding on to his 19% stake in Moody's.

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