SEC follows reverse Robin Hood system?

David Einhorn has often asserted that because the ratings agencies are paid by the issuers, they have every incentive to rate credits in such a way to encourage more business for themselves. His solution to this problem, let users pay rating agencies.

Now he’s back asking - “weren’t ratings agencies on the job to police what was going on in the canyons of Lower Manhattan?”

Mr. Einhorn runs Greenlight Capital, a successful hedge fund. He also isn’t an infallible observer of human lapses and regulatory failures — he invested in and briefly served on the board of New Century, a subprime mortgage lender that later went bust amid accounting problems.

He smirks at the relaxation made by SEC in “Alternative Net Capital Requirements for Broker-Dealers that are part of Consolidated Supervised Entities” that significantly reduced the capital back up that had to underlie assets. After the recent collapse of Bear Stearns, he now calls it “Bear Stearns Future Insolvency Act of 2004” in retrospect.

Another of his favorite moniker referring to the Congress recommended a bail out of Bear Stearns partly by tax payer – “Private profits at socialized risk” or alternatively “reverse Robin Hood system”.

So very apt.