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Opalesque Exclusive: David Einhorn`s suggestions how to fix the ratings agency mess In yesterday's Briefing, we featured a commentary from the FT which demanded “regulators must pay better attention to incentives. If a rating firm receives 90 per cent of its compensation for ratings from sellers of securities, it is difficult to envision that the interests of investors are paramount....This issue of incentives is all the more pressing given the great difference ratings make to a bank's capitalisation requirements.”

Greenlight Capital's David Einhorn contacted Opalesque with a few more thoughts:

“I'd add a suggestion to fix the ratings agency mess:

Insist that any info given to the rating agency by the issuer be public.  That way, diligent investors can do their own work and decide whether they agree or disagree with the rating.  A problem we have now is the rating agencies are the only ones with the information.  Keeping everything confidential also makes it very hard to clear the paper overhanging the market.  Neither the sellers or the potential buyers have enough info to make truly informed decisions. 

Further, that would make a rating an “opinion” just as the rating agencies say.  Right now we have, “we’ve rated this X and we know more than you do.”  Therefore, you are in no position to argue.

The rating agencies should also lose their exemption from Reg FD.

We should be prepared to bid a tearful farewell to one of the credit agenci......................

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