SURPRISE SURPRISE SURPRISE

(In Gomer Pyle's voice)

A good idea from AEI!

CAPITOL REPORT

Credit-rating agencies return to crosshairs
By Robert Schroeder, MarketWatch
Last Update: 4:06 PM ET Nov 26, 2007

WASHINGTON (MarketWatch) -- It's tough to be a credit-rating agency these days. And it may just get tougher.

The ratings agency model is "now broken," says Kyle Bass, a managing partner at Hayman Capital Partners.

He was answering a question posed at a recent event at the American Enterprise Institute titled "Is the rating agency system broken or fine?"

Having to ask the question in the first place probably means it's at least shaky if not broken. What to do about it is more difficult, but there is no shortage of ideas.

Bass and others say the companies should get rid of the "issuer-pays" system, for one thing. It strikes many as a big conflict of interest that Moody's and others are paid by the companies they rate. But the companies argue the current system saves investors money.

Alex Pollock of AEI has another idea: let those who buy decide.

"Why couldn't a group of major institutional investors set up their own rating agency?" Pollock asked the other day. Under Pollock's proposal, the agency would be capitalized by and paid for by the investors and work from their point of view.