Senator Sanders calls for the ratings agencies to be nonprofit

[gkishot]

I think there is widespread confusion here both on the concept of a non-profit and the concept that there are humans in the world not motivated purely by making large sums of money. First, it seems obvious but non-profit employees are not volunteers. In fact non-profits like the Gates Foundation are built on the idea that if you pay competitive salaries and benefits you can attract top employees to a non-profit. I'd challenge any of you here to claim that Gates Foundation employees or their work are "mediocre". The world is full of very intelligent, highly motivated individuals, who could be making significantly more in the private sector but choose to work for government, non-profits, and NGOs. I've personally served with many in the military. To dismiss all these individuals as "mediocre" simply because they're not motivated by money in the same way you are is very shallow at best and says far more about you than them if you hold that view.
The primary difference between a non-profit and for-profit is the fiduciary duty of the employees. In a for-profit, including the ratings agencies, the employee's fiduciary duty is to the owner of the company. For Moody's, for example, which is a publically traded company, the employee's fiduciary duty is to maximize profits for shareholders. Not to have accurate credit ratings, that's only their fiduciary duty to the extent that accurate credit ratings align with maximizing profits for shareholders. For a non-profit, the employee's fiduciary duty is to the goals of the non-profit. If the non-profit is a credit rating agency, the employee's fiduciary duty could very well be to provide accurate credit ratings, full stop. It's not a given that a non-profit could do a better job than the current credit ratings agencies, but it certainly seems it would be a big advantage for employees of a credit rating agency to have a fiduciary duty to provide accurate credit ratings rather than to maximize profit for their shareholders.

Do you hear yourself? Gates Foundation is build a-priory around a huge chunk of capital. So who will be the provider of capital to the rating agencies? Bernie Sanders or Bill Gates?
Can you name at least one rating agency in existence that's based on altruism?

 

[Sig]

The employees of a rating agency don't have a fiduciary duty to the shareholders. The corporation does. Big difference.

OK, the employees duty is to the corporation, the corporations duty is to the shareholders, by transitive property the employees duty is to the shareholder. So no, there isn't a "big difference". But semantics aside, any way you look at it the fiduciary duty of a for-profit rating agency is not necessarily aligned with providing accurate credit reports, where it can be fully aligned with that goal for a non-profit.

 

[Cswim63]

OK, the employees duty is to the corporation, the corporations duty is to the shareholders, by transitive property the employees duty is to the shareholder. So no, there isn't a "big difference". But semantics aside, any way you look at it the fiduciary duty of a for-profit rating agency is not necessarily aligned with providing accurate credit reports, where it can be fully aligned with that goal for a non-profit.

If it provides inaccurate credit reports, can it expect to stay in business?

 

[Sig]

I'm also skeptical that a nonprofit can attract the same quality of talent as a corporation. Money might be a motivation for some.

OK, take a look at Jake Harriman (http://www.nuruinternational.org/about-us/team/). Decorated Marine special forces, Stanford Graduate School of Business grad, non-profit employee. You're seriously going to tell me this guy's "mediocre"! That he isn't the "same quality of talent"? And most of his team I'd hire in a minute to work for me at my for-profit business. He happens to be one example of many like him that I know personally, and the world is full of more. Again, this idea that for-profit employees are somehow better than non-profit or government employees is both insulting and ignorant.

 

[Sig]

If it provides inaccurate credit reports, can it expect to stay in business?

Um, you were you around in 2008? They're all still in business. That pretty much answers the question.

 

[Cswim63]

Um, you were you around in 2008? They're all still in business. That pretty much answers the question.

I'm not disagreeing with you on either point. My question is then why are they still in business. Maybe there's no alternative. I don't know enough about the business mechanism to go further. Does the market really pay attention to these ratings, or is it just a formality at this point?

 

[Cswim63]

I'm not disagreeing with you on either point. My question is then why are they still in business. Maybe there's no alternative. I don't know enough about the business mechanism to go further. Does the market really pay attention to these ratings, or is it just a formality at this point?

Why don't we just get rid of the ratings agencies and let people think for themselves?

 

[Cswim63]

Why don't we just get rid of the ratings agencies and let people think for themselves?

What happens to the theoretical non profit if they make a mistake? I mean a bad mistake. Like failing to uncover a fraud. Usually in these circumstances it is found upon investigation that an employee or two knew what was going on but was ignored repeatedly by management. Same as in the private sector.

 

[Cswim63]

What happens to the theoretical non profit if they make a mistake? I mean a bad mistake. Like failing to uncover a fraud. Usually in these circumstances it is found upon investigation that an employee or two knew what was going on but was ignored repeatedly by management. Same as in the private sector.

The problem for Bernie is no one woke up this morning and decided to start a non profit ratings agency.

 

[piezoe]

Do you hear yourself? Gates Foundation is build a-priory around a huge chunk of capital. So who will be the provider of capital to the rating agencies? Bernie Sanders or Bill Gates?
Can you name at least one rating agency in existence that's based on altruism?

I think if you go back and read my prior post it will be clear to you where the source of funding for a non-profit rating agency lies. [see post#16, this same thread.] There would be little difficulty funding such an agency at minuscule cost relative to the size of the bond market.