The three major credit rating agencies-Moody's, Standard & Poor's ("S&P"), and Fitch-have attracted an increasing amount of media attention over the past five years. They were clearly central players in the housing bubble and collapse of the late 1990s through the mid 2000s and the financial debacle that followed, and they have more recently gained notoriety in downgrading the debt of various European countries-with S&P even downgrading the United States in August 2011.
So, who are these guys? What do they do? Why are they so important? Why did they err so badly with respect to mortgage bonds in the United States in the mid 2000s? In what direction should public policy go? And, since there are only three major rating agencies, is there a role for competition policy?