Sen. Franken, Rep. Sherman and Ohio AG Codray call for credit rating overhaul
On the day the Financial Crisis Inquiry Commission held hearings on the role credit rating agencies play in the economic meltdown, Sen. Al Franken (D-MN); Rep. Brad Sherman (D-CA); Ohio Attorney General Richard Cordray and James Lardner, senior policy analyst at Demos, called for ensuring the financial reform bill keeps strong accountability measures for credit rating agencies. The raters were all too ready to slap AAA ratings on risky securities sold by the banks that paid their fees. Sen. Franken successfully amended the Wall Street reform and accountability legislation that passed the Senate in May to strengthen oversight of credit rating agencies and reduce the conflicts of interest inherent in banks choosing their own agencies. Rep. Sherman supports similar provisions. Ohio Attorney General Richard Cordray is suing Moody’s Investors Service, Standard & Poor’s and Fitch, claiming that they had cost state retirement and pension funds some $457 million by approving high-risk Wall Street securities that went bust in the financial collapse. “My amendment cleans up Wall Street’s dishonest credit ratings system and replaces it with one that rewards accuracy instead of fraud," said Sen. Franken. "This idea isn’t conservative, or liberal, or even moderate. It’s just plain common sense. That’s why it passed the Senate with the support of colleagues on both sides of the aisle." “The credit rating agencies gave AAA to Alt-A – that is to say their highest ratings to some of the worst mortgage-backed bonds," said Rep. Sherman, a senior member of the House Financial Services Committee. "The problem is that you cannot run a league in which the umpire is selected by the one of the teams. As long as those packaging and selling investment products are able to choose the credit rating agency, credit rating agencies will compete by offering easy ratings. The amendment I offered last November, which was the basis of Senator Franken’s successful effort in the Senate last month, would have the credit rating agencies selected by an impartial panel. No longer would credit rating agencies secure multi-million dollar engagements by offering high ratings." “As revelations continue to unfold about the actions of the Wall Street rating agencies, the need to enact real financial reform is obvious," said said Ohio AG Cordray. "The greed and reckless leverage on Wall Street simply were not appropriately curbed or evaluated by the rating agencies in the go-go years. As legislative proposals continue to move through Congress, we must be watchful all the way to the finish line to protect the interests of American consumers against the ferocious lobbying by the special interests." Lardner added, “Credit-rating agencies exist to evaluate the safety of debt securities. Imagine for a moment that they had done their job—the only job they have—a few years ago, when financial go-getters began churning out wildly complicated new bonds that rested on a foundation of sketchy loans and the fantasy of ever-rising home prices. Properly labeled as junk, those bonds would have found few buyers. And millions of Americans might still have the jobs, homes, retirement savings, and economic security they lost. Why did the rating agencies gloss over the huge risks of mortgage-backed bonds and collateralized debt obligations? Because that was the way to attract business from the securities issuers who paid them, picked them, and, in many cases, had their help structuring securities to achieve the desired rating.” Click here to listen to an audio transcript of the conference call. For more information, visit www.ourfinancialsecurity.org.