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Given the problems caused by the rating agencies and their central role in the debacle of subprime lending, the proposals just announced by the US Securities and Exchange Commission (SEC) to improve the system fall a long way short of what is required.
There are at least three issues that need to be addressed. The first is that companies pay the agencies to rate their securities and this creates a conflict of interest at the heart of the system. It is as if one side in a football match paid the referee. Second, a long time ago the SEC gave its seal of approval to just three agencies, and intentionally or otherwise, created an oligopoly, and it shows.
Third, the existence of ratings made fund managers lazy. Too often, they did not look at what they bought, but just read the rating label on the tin. Banking regulators fell into the same trap when they made the credit rating an integral part of the Basel 2 capital adequacy regime, so they no longer had to think for themselves what banks were doing. Regulators have also often decreed that certain funds for the retail investor should be allowed only to buy products with the "right" label.
It is this last issue that most of the SEC's reforms seek to address, but there is a much simpler solution. Why not abolish ratings agencies altogether? Make the banking regulators responsible for assessing the quality of banking assets. Make the fund manager responsible for assessing the quality of the securities he buys.
If either of these parties does not feel competent to make such assessments - or employ staff who can - they should question whether they are in the right job. However, if it really is too difficult for them, they should commission the likes of PwC or Deloitte to assess the merit of the investment for them - a service for which they would of course have to pay.
If one was charitable, one could allow the rating agencies to survive and compete for this work. But, given their recent performance, why would you? Maybe taxpayers who, through direct bailouts and tax reliefs for losses will eventually pay the $700 billion (£354.6 billion) or more this crisis will cost, should have the last word on that.
Takeover with iron in its soul
It is interesting this week after Rio Tinto announced it has successfully increased the selling price of its iron ore to the Chinese by 97% for next year's contracts, the response from its major rival BHP Billiton was that this was not enough. Its chief executive made it quite clear he was going to hold out for something higher still.
Of course this is the same BHP Billiton which is currently trying to buy Rio Tinto in what would be one of the biggest takeovers the world has ever seen. But if these companies have so much strength and market power that they can double prices to customers when they are competitors, what chance will the unfortunate client have if they are ever allowed to combine into one?
Rio Tinto is resisting the offer, and it may not happen. But if it does the monopolistic implications, particularly in iron ore, hardly bear thinking about. Some of the world's competiton authorities had better start thinking, however - and before it is too late.
Caledonian roast for the Roosters
Anyone who knows Peter Buckley, chairman of Caledonia Investments, knows him to be a robust and uncompromising supporter of the Conservatives. That is a given, but to judge from his comments in Caledonia's just published annual report his patience with the Government seems finally to have snapped.
To get a flavour, consider the following: "In the past year many of their chickens have come home to roost and what a shabby lot they look. Shorn of integrity and economic competence, Rooster Brown has even less feathers than Rooster Blair and lacks the latter's knack of preening himself." Who says chairman's statements are bland?
It will be little comfort for the Government, perhaps, but US investment bankers also catch it in the neck, because it was their greed which provoked the subprime crisis. But his most telling observation is closer to home.
He writes: "What is particularly distressing in all this is a growing politicisation of the civil service and the lack of example being set by those at the top in both politics and banking, with self-interest dominating the willingness to take responsibility, which is hardly the right ethic to instil in future generations."
You don't have to be a supporter of the Conservatives to concede that on this he has a point.
