A new Bloomberg column on the rating agencies:
“Standard & Poor’s called for more regulation of credit-rating companies, recommending a global framework that would eliminate potential conflicts of interest, increase transparency and create an industry code of ethics.
New rules should ensure ratings are independently derived and unbiased, the methodologies used are disclosed, and regulators are given the authority to sanction companies if they fail to comply with “appropriate policies,” the unit of New York-based McGraw-Hill Cos. said today in a white paper outlining 10 goals for policymakers.
Ratings companies including S&P and Moody’s Investors Service, the two biggest, have come under fire from regulators and investors for the quality of their work. Flawed top ratings on securities that turned to junk lie at the root of the worst financial crisis since the Great Depression, Frank Raiter, a former S&P managing director, said last year. In the paper, S&P acknowledged assumptions haven’t held up in evaluating structured securities backed by subprime mortgages. . .
The U.S. Securities and Exchange Commission has criticized the ratings companies for conflicts of interest that may have led to excessively high bond ratings and a failure to warn investors about default risks. Financial institutions worldwide have taken almost $1.2 trillion in writedowns and credit losses since the beginning of 2007 as the subprime mortgage market collapsed, weakening the global economy.”
I call on Congress to investigate the fees the agencies charged for junk paper, payola rated AAA, and consider a full disgorgement of fees
Let’s start looking into the firms that started the credit crisis in the first place . . .
S&P Calls for Greater Regulation on Credit Ratings
Bloomberg, March 4 2009