< Return to Bears page

Regulation

Right now, the government is busy rescuing the economy (read: banks), afterwards, they will turn to regulation. There are two sides to this:

(1) The government may find it best to REDUCE competition in the market to promote independence (e.g. no "shopping around" for ratings). This would be a highly favorable outcome for Moody's. The problem is, it doesn't look like punishment. The ratings agencies failed miserably in blocking the foolish financial behavior that got the US and world economies to this point. I don't know that the political will exists for this solution anymore.

(2) The government may do something radical. They may ban the issuer-pays model, forcing Moody's to return to the investor-pays model of the pre-70's period (note: they weren't growing anywhere near as much before 1980 or so). I find it hard to believe that ratings themselves would disappear, but (worst case scenario) the government may choose ban private debt ratings and instead to create a regulatory authority that rates debt -- sending Moody's and S&P to, effectively, zero (a low-probability worst-case scenario).

The question is, are you willing to risk the potential losses of outcome #2 in order to get the potential gains of outcome #1?

Wikinvest © 2006, 2007, 2008, 2009. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.