On the day the Financial Crisis Inquiry Commission held hearings on the role credit rating agencies play in the economic meltdown, Senator Al Franken (D-Minn.), Rep. Brad Sherman (D-Calif.), 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.
Click here to download audio of AFR Press Call 6-2-10
FOR IMMEDIATE RELEASE
June 2, 2010
Senator Franken, Rep. Sherman, Ohio AG Call for Real Reform of Credit Raters
**Audio of the Call Available Here**
On the day the Financial Crisis Inquiry Commission held hearings on the role credit rating agencies play in the economic meltdown, Senator 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. 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,” Senator Al Franken (D-MN).
“The credit rating agencies gave AAA to Alt-A – that is to say their highest ratings to some of the worst mortgage-backed bonds. 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, “said Congressman Brad Sherman (D-CA), a senior member of the House Financial Services Committee.
“As revelations continue to unfold about the actions of the Wall Street rating agencies, the need to enact real financial reform is obvious. 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,” said Ohio Attorney General Richard Cordray.
“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,” said James Lardner, senior policy analyst at Demos. “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.”
For more on the Credit Rating Agencies and the Franken Amendment, please see the latest from Demos: http://www.demos.org/publication.cfm?currentpublicationID=F68A14B1-3FF4-6C82-51CF8955309A97FD
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