Credit Agencies, Oligopolies, and Free Speech

Frank Partnoy has a smart paper from 2006 on the role of credit agencies in capital markets. They are under increasing regulatory pressure right now, what with a sense in some quarters that the agencies have a modicum of blame for the subprime problems.

My take: It’s government that got us into this fix. There is an issuing requirement that bonds/debt/whatever have an attached credit rating from a Nationally Recognized Statistical Rating Organization (NRSRO), which is awfully nice of the government if you’re in the oligopolistic credit rating business. After all, no-one says new equity issues must have analyst ratings attached from your choice of Goldman, Merrill, or Citi –what makes debt so damn special?

Go read Partnoy on the issue.


  1. As a former bond I-banker, there is, in fact, NO requirement that bonds get a rating before issuance. You’ve never heard/seen an unrated piece of debt?
    One of the main complaints of the duopoly is that if you don’t buy a rating from them, they rate you ANYWAY and it’s a screw job.
    Common myth, but I, personally, structured debt that was unrated. This is common in proj fin.