Summary

The three major credit rating agencies -- Moody's, Standard  & Poor's, and Fitch -- played a central role in the subprime mortgage debacle of 2007 - 2008. That centrality was not accidental. Seven decades of financial regulation propelled these rating agencies into the center of the bond information market, by elevating their judgments about the creditworthiness of bonds so that those judgments attained the force of law. The Securities and Exchange Commission exarcebated this problem by erecting a barrier to entry into the credit rating business in 1975. Understanding this history is crucial for any reasoned debate about the future course of public policy with respect to the rating agencies. This statement examines the changes in regulation over time that elevated the judgments of the credit rating agencies about the creditworthiness of bonds, and some policy changes that can bring positive change going forward.