With Moody's being assailed for misleading statements in a regulatory filing, and two opposing amendments to a Senate financial 'reform' bill dealing with the rating agencies, it looks like Moodys, Fitch and S&P are finally getting their turn for scrutiny from the fallout of the mortgage-backed securities-induced financial sector meltdown.
One of the amendments to Dodd's disastrous regulatory "reform" bill would strip the rating agencies of their special, government-designated status. Another amendment, by comedian, now Senator Al Franken, would wrap even more red tape around the ratings agencies, cocooning them under yet another special oversight board.
Guess Franken hasn't left the comedy field just yet.
Paradoxically, both amendments have passed votes to attach them to the Senate bill.
If you have much exposure to the financial sector, then you probably will be rooting for the 'less is more' approach that removes the agencies from any federal imprimatur of credibility. S&P, for the record, backs this step.
Back in the days of little information and poor communications, ratings agencies provided low-cost, widely-disseminated creditworthiness judgements when most investors lacked the resources to undertake their own due diligence.
That's no longer the case. The ratings agencies enjoy monopolies from a long-ago era, much like the airlines before Alfred Kahn liberated them from their anti-competitive industry structure.
It's high time institutional investors quit hiding behind the rating agencies, yet also taking money for allegedly making hard choices concerning investment instruments.
It's not clear there's even a role for the agencies anymore. If so, it's probably not going to be rating instruments for pay from the originators.
Something else will have to replace that now-tainted model.
It's long overdue.
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