Thursday, May 20, 2010
No Competition Catch-All
Competition fixes a lot in markets; not everything, like this for example:
In the case of the credit ratings agencies competition seems to be exactly what the problem is! As long as the credit ratings agencies' customers are the companies seeking a rating, and as long as those same ratings agencies have a stake in the success of the raising of financial capital for the bond issue, there will be moral hazard in the market. Competition will not improve the problem, because as the piece notes, companies are already shopping around for the "best" deal!
In the case of the credit ratings agencies competition seems to be exactly what the problem is! As long as the credit ratings agencies' customers are the companies seeking a rating, and as long as those same ratings agencies have a stake in the success of the raising of financial capital for the bond issue, there will be moral hazard in the market. Competition will not improve the problem, because as the piece notes, companies are already shopping around for the "best" deal!
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