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Dean Baker: NYT and WAPO Can't Find Out About Franken Amendment on Bond Rating Agencies
NYT and WAPO Can't Find Out About Franken Amendment on Bond Rating Agencies
It's so difficult when you run a major national newspaper to find out about the laws passed by Congress and signed by the president. Clearly that would be the conclusion drawn by readers of the NYT and Washington Post's coverage of a suit brought by the Justice Department against S.&P. over its ratings of mortgage backed securities during the housing bubble.
Both pieces note the obvious conflict of interest of having the rating agencies paid by the issuer. This gives the agency an incentive to provide a strong rating in order to continue to get business from the issuer.
The Franken Amendment to the Dodd-Frank bill eliminated this conflict by requiring an issuer to contact the Securities and Exchange Commission (SEC), which would then arrange for a rating agency to be assigned. By taking the hiring decision away from the issuer, the rating agency would no longer have an incentive to falsify its assessment.
It is incredible that neither article mentioned the amendment. It won an overwhelming majority of votes in the Senate, attracting bi-partisan support. It would have gone into effect with the rest of the bill, except that Barney Frank, then head of the House Financial Services Committee, arranged to delay its enactment by requiring a SEC study (i.e. he had the SEC use taxpayer dollars to figure out what it would mean to have the SEC call a bond rating agency rather than the issuer).
- more -
http://www.cepr.net/index.php/blogs/beat-the-press/nyt-and-wapo-cant-find-out-about-franken-amendment-on-bond-rating-agencies
It's so difficult when you run a major national newspaper to find out about the laws passed by Congress and signed by the president. Clearly that would be the conclusion drawn by readers of the NYT and Washington Post's coverage of a suit brought by the Justice Department against S.&P. over its ratings of mortgage backed securities during the housing bubble.
Both pieces note the obvious conflict of interest of having the rating agencies paid by the issuer. This gives the agency an incentive to provide a strong rating in order to continue to get business from the issuer.
The Franken Amendment to the Dodd-Frank bill eliminated this conflict by requiring an issuer to contact the Securities and Exchange Commission (SEC), which would then arrange for a rating agency to be assigned. By taking the hiring decision away from the issuer, the rating agency would no longer have an incentive to falsify its assessment.
It is incredible that neither article mentioned the amendment. It won an overwhelming majority of votes in the Senate, attracting bi-partisan support. It would have gone into effect with the rest of the bill, except that Barney Frank, then head of the House Financial Services Committee, arranged to delay its enactment by requiring a SEC study (i.e. he had the SEC use taxpayer dollars to figure out what it would mean to have the SEC call a bond rating agency rather than the issuer).
- more -
http://www.cepr.net/index.php/blogs/beat-the-press/nyt-and-wapo-cant-find-out-about-franken-amendment-on-bond-rating-agencies
Directed by Sen. Franken's Credit Rating Amendment, SEC Releases Report Confirming that Conflicts of Interest in Rating System Hurt Consumers
Senator will fight to eliminate conflicts of interest, protect consumers
Tuesday, December 18, 2012
Today, the Securities and Exchange Commission (SEC) released the results of its inquiry into alleged conflicts of interest in the credit rating system, finding that conflicts do exist and were a contributing factor in the economic collapse of 2008. The SEC's report was required by an amendment Sen. Franken wrote into the 2010 Wall Street reform law.
"People all over the country, including thousands of Minnesotans, lost their homes or their life savings because of the greedy practices of Wall Street, and the credit rating agencies were a big part of the problem," said Sen. Franken. "I'm pleased that the SEC confirmed what I've always believed - that dangerous conflicts of interest continue to put investors at risk - and I'm going to work with the SEC to implement a solution to this problem."
Sen. Franken's bipartisan Restore Integrity to Credit Ratings amendment ordered the SEC to investigate allegations that banks and financial institutions are able to shop around among credit rating agencies in order to get the best rating. If the SEC can not develop a mechanism to address the conflicts of interest inherent to the process, Sen. Franken's amendment will create a board, overseen by the SEC, that will assign credit rating agencies to provide initial ratings.
Today's SEC report outlines three possible proposals to end the conflicts of interest inherent in the credit rating industry, and recommends that the SEC take action to determine which proposal should be adopted. The full SEC report is available HERE.
In August 2011, Sen. Franken authored an op-ed outlining why credit rating agency reform is a critical part of the Wall Street reform law passed by Congress in 2010.
http://www.franken.senate.gov/?p=hot_topic&id=2262
Senator will fight to eliminate conflicts of interest, protect consumers
Tuesday, December 18, 2012
Today, the Securities and Exchange Commission (SEC) released the results of its inquiry into alleged conflicts of interest in the credit rating system, finding that conflicts do exist and were a contributing factor in the economic collapse of 2008. The SEC's report was required by an amendment Sen. Franken wrote into the 2010 Wall Street reform law.
"People all over the country, including thousands of Minnesotans, lost their homes or their life savings because of the greedy practices of Wall Street, and the credit rating agencies were a big part of the problem," said Sen. Franken. "I'm pleased that the SEC confirmed what I've always believed - that dangerous conflicts of interest continue to put investors at risk - and I'm going to work with the SEC to implement a solution to this problem."
Sen. Franken's bipartisan Restore Integrity to Credit Ratings amendment ordered the SEC to investigate allegations that banks and financial institutions are able to shop around among credit rating agencies in order to get the best rating. If the SEC can not develop a mechanism to address the conflicts of interest inherent to the process, Sen. Franken's amendment will create a board, overseen by the SEC, that will assign credit rating agencies to provide initial ratings.
Today's SEC report outlines three possible proposals to end the conflicts of interest inherent in the credit rating industry, and recommends that the SEC take action to determine which proposal should be adopted. The full SEC report is available HERE.
In August 2011, Sen. Franken authored an op-ed outlining why credit rating agency reform is a critical part of the Wall Street reform law passed by Congress in 2010.
http://www.franken.senate.gov/?p=hot_topic&id=2262
SEC report: http://www.sec.gov/news/studies/2012/assigned-credit-ratings-study.pdf
Franken's August 2011 op-ed: http://www.franken.senate.gov/?p=news&id=1700
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