Intermediation is crucial to a modern economy, but it also creates a lot of principal-agent problems. Some of these are well modeled and studied, but some that, to my knowledge, are not are related to the ease with which some kinds of information can be conveyed relative to other kinds of information; where relevant information is predominantly quantifiable, at least some of the problems that are created and/or solved by intermediation are comparatively minor, whereas when relevant information is effectively tacit, it will often become a large friction in making things work.
To be more concrete, there is a recent story about Ben Bernanke's being unable to refinance his mortgage, and
the LA Times says he probably could if went to a lender who meant to keep the loan, as opposed to a lender who wanted to pass it along to other investors in a security. If you're trying to make a lot of loans on a small capital base, you have to keep selling off old loans in order to get the money to lend to new borrowers, but the people buying the loans may not fully trust your underwriting; on the other hand, the purpose of the intermediation is that the people with the money don't have to go to all of the expense associated with doing a full underwriting themselves. What's left is to look at a set of easily communicated information about the loan, preferably something that can be turned into a small set of meaningful statistics about a pool of loans. This means that, even more than in a market where all underwriters were holding their loans until maturity, your ability to get a loan will depend on the information that can be easily gathered and communicated, and less on qualitative and less concrete information.
In an economy in which some agents are good at doing underwriting and other agents have capital to invest, it seems like a good equilibrium would be one in which the underwriters can develop and maintain a reputation such that "This security was underwritten by Jens Corp, which gives it a rating of BB+" or some such; the rating provided by the underwriter incorporates the unquantifiable information and makes it (in some sense) quantitative.* Note here that I'm asking the issuing agent itself to provide a rating; if an outside credit agency is to provide a rating accounting for all of the information that was put into underwriting the loans, that agency would have to either do all of the underwriting work over again, rely on the issuer's reputation in the same way I'm proposing investors could, or rely again on quantitative metrics. Ten years ago credit agencies had chosen the last of these three options, and issuers gradually figured out to sell off loans with bad qualitative characteristics and good metrics that fit the credit agencies' bills. This ultimately is the bias I'm trying to avoid.
There might be some value to having a rating agency that knows the reputation of a number of small shops and can, in some manner, pass that along to investors, but that, too, will depend on an equilibrium in which the issuing financial company is issuing a credible indicator of the quality of the loans. Even if a financial company could get to that equilibrium, somehow developing this reputation through a history of responsible issuing and pronouncements, maintaining the reputation may depend on outside observers' believing that the company's management and culture and future interests promote its maintaining that reputation, i.e. that the company and its agents will at every stage find it less valuable to sell a set of bad loans for a high price than to maintain its ability in the future to sell a set of good but hard-to-verify loans for a high price; this requires that a disciplined underwriter would expect to maintain a certain amount of business by being able to find a sufficient stream of people who are hard-to-identify good credit risks. I like to think this could happen, but I'm not sure it's the case.
* It may well be that the most plausible world in which this could come about would be one in which the information conveyed would be effectively multi-dimensional; rather than just "these loans have approximately this likelihood of default", you might convey "the loans have approximately this likelihood of default under each of the following macroeconomic scenarios:", etc. In an age of computers, it might even be acceptable to have something that seems, to humans, fairly complex, as long as it can be readily processed by computers in the right ways; it is worth noting, though, that higher complexity may make it harder to verify, even after the fact, which might hurt reputation building. If I sell off 100 loans and say that each has a 5% chance of default, and maybe 3–7 of them default, that seems about right, and I manage to do it several more times, and it can be noted that my assertions seem to be borne out by experience, but if I say 10 of them are in this bucket, and another 10 are in a different bucket, and so on, then, while overall levels of default can still be verified, it becomes harder to verify that each separate bucket is right, and I think that the opportunity to lie about one tenth of my portfolio, while still (perhaps?) keeping my reputation fairly intact on certain kinds of loans, give me more incentives to attempt to liquidate parts of my reputation and make it more likely for an equilibrium to collapse. The extent to which this is a concern is going to come down to how credible "I guess I'm just not good at underwriting X kind of loan anymore, but we're still doing great at everything else!" is, and how many times I can do it before nobody takes me seriously anymore.