A Tax to Support Ratings Agencies?

http://www.futureofcapitalism.com/2010/04/a-tax-to-support-ratings-agencies

"Particularly important is a change in payment of rating agencies. Since these provide a public good, they must be funded by a general levy," writes Martin Wolf in the Financial Times today. How is it a public good to have organizations running around misjudging risk? And why should they be rewarded for their failure by winning a claim on a permanent funding stream of tax dollars?

We already have a system in capitalism for rewarding those who make accurate judgments about risks -- it's called profits on investments. The idea that the taxpayers should attempt to set up and fund a parallel risk-assessment and rating system is odd. Why would someone with skill at assessing risk want to work for a government-funded rating agency when the rewards in the private sector for accurately assessing risk are so high?

I understand that the current system of having ratings agencies paid by the firms they rate creates an apparent conflict. But it's not clear that the best way to manage the conflict would be to have the government take it over.

by Ira Stoll  |  Apr 28, 2010 at 10:28 am Related Topics:  Capital Markets Regulation, Taxes receive the latest by email: subscribe to the free futureofcapitalism.com mailing list