This is the Cato Daily Podcast for Friday, July 22nd, 2011. I'm Caleb Brown.

One top tier American rating agency has already downgraded U.S. debt issues. It's Egan Jones, a key reason for the downgrade not thrashing

over the debt ceiling. It's the US debt to GDP ratio and an unwillingness to cut spending.

Mark Calabria, director of financial regulation studies at the Cato Institute, offers his thoughts.

For many decades, for the bulk of the 20th century, there were three, sometimes sometimes four and then back to three credit

rating agencies since reforms adopted in 2001 and 2006 I think there are now 10 or 11 rating agencies that's correct you

had over time a variety of rating agencies that have come into play that you have had the dominant three

that have been around since they almost 100 years for some of them.

After changes both in Sarbanes-Oxley in 2002 and in the credit Rating Agent Reform Act of 2006, you had some changes,

particularly in the 2006 Act to try to increase competition, bring more rating agencies

into the process. Now a lot of these rating agencies into the process.

Now a lot of these rating agencies existed beforehand, but they were not nationally recognized

statistical rating organizations.

It's an incredibly important caveat.

We have had a number of rating agencies that have been out there, that have been in the marketplace,

but again, are not recognized by the Securities Commission and they're not recognized in a way that would allow them to be broadly used

by broker-dealers or by commercial banks.

And often one of the primary reason that they're recognized is in the setting of capital requirements

for both investment commercial banks and even insurers the state insurance

commissioners use these ratings as well and so what happens is the regulators

would go into a bank for instance and look at the

loans on its books the bonds on its books and for those that arrayed a certain

...