The credit ratings agencies make an offer you can’t refuse — literally 

“Regulatory Robbery” is my phrase for companies who use regulation for profit. One method of Regulatory Robbery is the Overhead Smash — calling for regulations of your own industry in order to crush smaller competitors (see Wal-Mart, MattelPhilip Morris, and Big Food). Alternatively, play the game the hedge funds are playing and get government to force a competing industry to stop competing with you.

But Warren Buffett (who has played this game with regard to estate taxes) fessed up today to another sort of regulatory robbery — Making an Offer You Can’t Refuse. That is, lobbying to make your product mandatory. Obviously, the health insurers played this game during health-care reform, but the credit ratings agencies have, too.

Ira Stoll, at my favorite blog, “The Future of Capitalism,” describes the action:

Commissioner Douglas Holtz-Eakin bores in: “What is the source of the pricing power?” Mr. Buffett: “The source of the pricing power?….It’s required. It’s like an SEC filing fee….Often it’s by statute.”

Republicans have been worked up about the federal government’s requirement on individuals to buy health insurance under ObamaCare. But this is a mandate, too — if you want to issue securities, you pretty much have to pay Warren Buffett for a rating.

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Timothy P. Carney

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