How To Avoid the Next (Worse) Crisis. Democratize Ratings.

Of all the causes which have contributed to the crisis we identify ratings, and rating agencies in particular, as the single key factor. According to the Financial Crisis Inquiry Committe in January 2011: \"The three credit rating agencies were the key enablers  of the financial meltdown\". Credit rating agencies play a pivotal role in the economy. They process, filter, and funnel information from the financial industry and economy in the form of ratings onto the markets. Markets and investors rely on this information. The processes that lead to a rating are:- massively expensive- subjective- not transparent- not suited for a turbulent economyIt is not difficult to imagine how conflict of interest fits into the picture. However, credit rating agencies are tremendously powerful and continue to thrive in a business-as-usual fashion, as if nothing had happened. That is a reflection of immense power. In effect, a downgrade of a country\'s economy by a single notch means billions of losses for that country. Overnight. Now that\'s power. Until we can break the above scheme, there is no real reason to believe that situation will change. However, breaking the scheme is, given the power concentrated in the hands of the rating agencies, almost a practical impossibility. Therefore, a different approach is necessary. If credit rating agencies are left to operate then they will surely spark another crisis. This is becau...