Charles Babbage at work. I am grateful to the vice chancellor of La Trobe University, Professor Paul Johnson, for introducing me this morning to the wisdom of the 19th century writer Charles Babbage who argued that the payment of commissions (he called them "bribes") to financial agents would inevitably lead to the mis-spelling of investments. No sooner had I read the Professor's piece in the Melbourne Herald Sun than I stumbled across all those stories of executive pay rises which far outstrip those of ordinary workers. With the Babbage these in my mind it became clear that the principal reason for the outrageous salary increases of the past decade is the influence of those head hunters and executive pay consultants whose fee depends on the amount of remuneration that is eventually paid.
You can apply the same logic to the ratings agencies.