Last week, the federal government announced its intention to sue S&P over the ratings of various mortgage-backed securities leading up to the housing crisis.  While I could provide any number of examples of various members of the government and the federal reserve making the same mistake, that is not exactly the point of this post.

The point of this post is to remind everyone that S&P (along with Moodys and Fitch) was granted (and continues to enjoy) a monopoly in bond rating services (technically I guess this forms a tri-opoly, but the point still stands).  Regardless of party affiliation or economic school, everyone basically agrees that monopolies are bad, and that competition is good, as it improves the quality of available services.  Except in certain specific cases, the government insists to us that a monopoly is necessary.  For our own good.

Now of course the government is shocked, just shocked, that the monopoly it created did a very poor job of serving the public interest.  Why ever could that be?  Of particular interest should be the fact that at no point has the government admitted this mistake, or made any suggestion that they might consider removing this monopoly privilege and allowing free competition among rating agencies.  Instead, they are simply demanding millions of dollars of fines, and then they will allow the inefficient and incompetent rating agencies to continue to enjoy their protection.  In a free market, you wouldn’t have to sue the S&P for giving awful ratings.  They would have already collapsed after their credibility was destroyed, and more capable competitors would have taken their place.

Unfortunately, that is not a market we are allowed to have.  You know, for our own good.