The Senate on Thursday voted to impose tighter regulations on credit-rating agencies, which have been criticized for misjudging the risks of debt instruments at the core of the 2008-2009 financial crisis.
The ratings services were tied to the banks that were using them so here's a tool stripped away that helps perpetrate corruption on Wall Street.
Chris Bowers at Open Left had a good summary of the amendment this morning:
Making the bill stronger: Sen. Franken (D-Minn.) creates a Credit Rating Assignment Board which would assign the credit rating agency that does each initial rating in order to reduce the inherent conflict of interest in the current business model - where the person who hopes to sell the rated product pays the rater. This amendment stops securities issuers from shopping around among credit rating agencies for the best rating, leading raters to inflate their grades as they scrap for market share.
Why it matters: Credit Rating Agencies got paid to slap AAA ratings on packages of dangerous investments they did not even try to understand or evaluate. Their triple A ratings created huge markets for these investments, and spread them through every corner of the market. When the House of Cards built on their false promises collapsed, millions of Americans lost their savings.
The financial reform bill gets stronger and stronger by small increments. This is a good result. Let's hope there is more like it to come.
This week, CalPERS, the largest U.S. public pension fund, won a court ruling allowing it to proceed with a lawsuit accusing the three biggest rating agencies of assigning "wildly inaccurate and unreasonably high" ratings, causing $1 billion of losses. The agencies say they expect to eventually prevail on the misrepresentation claim.
The clearinghouse measure could give smaller ratings agencies a chance to challenge the dominance of the top three firms.
Sen. Al Franken made a rare national media appearance on Lawrence O'Donnell's show on MSNBC this Monday evening to discuss his participation in the SEC's roundtable on credit rating industry reform this Tuesday. Read more...
All In's Chris Hayes sat down with Rolling Stone's Matt Taibbi to discuss his new article on the ratings agencies that helped trigger the financial meltdown -- and surprise, surprise, nothing's been done to fix the problem.
President Obama will discuss the implementation of the Dodd-Frank reform bill with financial regulators at the White House on Monday, which comes as the President has been debating who will replace Ben Bernanke as head of the new Federal Reserve. Read more...