LyrArc Article Gist
After a severe financial crisis that could have snowballed into a Depression type situation and the credit rating agencies playing their critic-for-hire role in causing the crisis, there has been very little done to reform or correct the basic way in which credit ratings are made. Other than small patches to the system that failed the country badly by 2008, it has been left alone by Congress, the Obama administration, and regulatory agencies. The Attorney General of Ohio, Richard Cordray, says the "rating agencies total disregard for the life's work of ordinary Ohioans caused the collapse of our housing and credit markets and is at he heart of what's wrong with Wall Street today." Richard Blumenthal, Connecticut's Attorney General says he plans to join the suit against the credit rating agencies, Fitch, Standard and Poors and Moody's. Cordrays suit was filed Nov. 20, on behalf of Ohio's pension funds. It seeks billions of dollars in damages from these ratings agencies and accuses the agencies of negligence and fraud.
About the failure of Congress to make even the basic change to the system of ratings, Joseph Grundfest, a professor of securities law at Stanford says ; "What you see in these bills are Botox shots, for a little while everyone is going to be frozen into a grin, and then the shots are going to wear off.'' A deputy dean at Yale Law School, Jonathan Macey, was a member of a bipartisan task force on credit ratings reform and met with lawmakers in Congress on this issue. He says its mortifying to see that this problem which is different from other complicated issues like water shortages around the world has been left unsolved, as it could be easily solved if there was even a basic degree of political will to do so. Congress looked at the option of creating an independent fee financed credit rating agency along the lines of the Public Company Accounting Oversight Board, established after the Enron, but did nothing with this idea.
Rep. Kanjorski and Senator Reed have led the efforts to look at the credit ratings agencies in Congress and have basically decided this to leave the system very much the same as before the crisis, with the conflict of interest problem and incentives to improve profitability at the expense of the integrity of the ratings process still intact. Bills in Congress give more oversight powers to the S.E.C. and require companies to strengthen their compliance teams. In the period leading to the 2008 crisis the internal compliance teams did not get top management support at the credit rating agencies and there is skepticism about the effectiveness of compliance teams. S.E.C. regulatory efforts face push-back from the credit ratings agencies and the effectiveness of S.E.C. regulatory supervision is uncertain given the critical role that is given to credit ratings in bond and securties issuance....
