As this CNN piece explains
Credit agencies that rate Wall Street's big banks
were blamed for playing a pivotal role in the financial meltdown, but
those agencies are still being paid for their work by the very banks
they rate. That was one of the root causes of the financial crisis of
2008, according to a bipartisan Senate subcommittee that investigated
the crash. Senator Al Franken, D-Minnesota, wants to stop what he calls this
"pay to play" rating system. He is meeting with the Security and
Exchange Commission [today] to discuss credit rating reform, and the
problems with "rate shopping." "Let's say an investment bank created a financial product, say,
subprime mortgage-backed securities and they wanted to get a rating on
that. So, it would go shop its two different credit rating agencies and
make sure that they got a AAA, whoever they picked would give them a
AAA," said Franken. "It was sometimes unspoken, but the credit rating
agencies knew that they wouldn't get the next gig if they didn't give a
AAA." * * * Franken's bill would require an independent board to assign the initial
rating of any structured financial product issued by a bank, and assign
it to a credit rating agency based on the agency's expertise and track
record.
Go here or click on the embedded video below to see Sen. Franken discuss the issue. Definitely worth watching.
