New Amendment Targets Rating Agencies

September 1, 2010 by · Leave a Comment
Filed under: Bond Regulation, The Rating Agencies 

Senators Al Franken (D-MN), Charles Schumer (D-NY), Bill Nelson (D-FL) and Roger Wicker (R-MS) have proposed an amendment to dismantle the “issuer pays” model that rating agencies currently use. The amendment would establish a Credit Rating Agency Board that would arbitrarily choose which rating agency would rate an issuer’s debt.

Taking aim at what they call a “permanent conflict of interest,” proponents of the amendment argue that this would make it more impartial as well as open up competition to smaller firms. The bipartisan proposal has received widespread support, including the endorsement of the Consumers Union consumer advocate group.

The rating agencies have unanimously come out against the amendment. “We believe the benefits of the issuer-paid model, combined with appropriate regulation, can far outweigh any potential conflicts of interest,” said Standard & Poor’s spokesman Ed Sweeney.

This is a bad idea (how come every problem can be solved with more government?). The only guys in America who didn’t know or understand this conflict existed were Franken, Schumer, Wicker, and Nelson. The new Board name should be aligned with the usefulness of the idea: Credit Rating Agency Panel.

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