Levin Takes on the Ratings Agencies

It looks like Senator Carl Levin’s investigations panel is coming up with some good dirt on the ratings agencies:

In another bit of explosive evidence, the panel on Friday will release an email from a Standard & Poor’s employee acknowledging complicity in building up a doomed market.

“Rating agencies continue to create an even bigger monster — the CDO market. Let’s hope we are all wealthy and retired by the time this house of cards falters,” the employee wrote on Dec. 15, 2006.

The question, however, is what is congress going to do about this. Any one ratings agency can lose market share if it screws up and attracts a bad reputation. But the ratings agencies can’t collectively lose market share in part because their use is legally mandated in most contexts and additionally because those same measures make it essentially impossible to start up a competing firm. The situation is absurd, and simply exposing malfeasance ex post won’t really solve anything.