Ratings Agency Showdown: Treasury vs Barney Frank

One of my Pet Peeves: The Payola business models at Moody’s Investors Services, Standard & Poor’s and Fitch Ratings – meaning the debt securities underwriters pay them for ratings — is unchanged in Obama’s Treasury Department reforms. All they want is some more disclosures and a few restrictions.

A certain Congressman is now convinced these measures are inadequate; Here is the FT:

Credit rating agencies would face a raft of new disclosure rules and restrictions but would not be forced to overhaul their business models under proposed US legislation sent to Congress on Tuesday.

The plan by the US Treasury is aimed at reducing conflicts of interest at rating agencies, boosting the regulatory authority of the US Securities and Exchange Commission over the agencies and reducing the financial system’s reliance on credit ratings.

But critics said the plan, an element of the Obama administration’s broader financial regulatory blueprint, fell far short of what was needed. The proponents of an overhaul of ratings agencies charge that they overlooked the risks of investing in complex, “structured” securities linked to risky mortgages, many of which carried triple A stamps of approval.

Barney Frank, head of the chairman of the House financial services committee, on Tuesday endorsed measures that would overturn requirements that require the use of the credit ratings agencies.

“There are a lot of statutory mandates that people have to rely on credit rating agencies. They’re going to all be repealed,” he told Reuters. (emphasis added)

Barney Frank vs Geithner & Summers. Let’s hope BF is tougher than he looks . . .


US rating agencies escape overhaul
Joanna Chung and Aline van Duyn
FT, July 22 2009

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