Letter: Credit rating system needs reformLast week, the Senate passed an amendment I authored that ends the conflict of interest in Wall Street’s credit rating agency system.
By: Al Franken, Minneapolis, The Republican Eagle
To the Editor:
Last week, the Senate passed an amendment I authored that ends the conflict of interest in Wall Street’s credit rating agency system. This problem was a key reason for our economic collapse and fixing it will go a long way toward ensuring it never happens again.
Credit rating agencies are supposed to be independent, non-biased companies that evaluate the risk of complex investments so investors can make informed decisions. Right now, banks choose which credit rating agencies they will pay to rate bonds and other financial products. Banks would take their financial products to all three agencies and when the credit rating agency did not give them the high rating they wanted, they would not hire that rating agency the next time.
In fact, of all the subprime mortgage-backed securities issued in 2006 and 2007 that received a AAA rating over 90 percent have been downgraded to junk status.
Putting a stop to this isn’t a conservative idea, a liberal idea, or even a moderate idea. It’s just common sense.
My proposal creates a new clearinghouse, controlled by private investors, that assigns credit rating agencies to banks. The clearinghouse will reward agencies that are more accurate and give fewer assignments to those that are less accurate.
Al Franken, DFL, is the junior U.S. senator from Minnesota.