As Wall Street tanks, S&P's downgrade reverberations abound, our S&P labeled dysfunctional government, legislators are fighting back. Beyond the mealy mouthed put downs coming from the administration, the Senate Banking Committee is doing something a little more serious. The Senate panel is now probing S&P for possible violations:
The U.S. Senate Banking Committee is looking into the decision by Standard & Poor’s to downgrade the nation’s credit rating for the first time in history, according a committee aide briefed on the matter.
Senate Banking Committee Chairman Tim Johnson, a South Dakota Democrat, is gathering more information on the Aug. 5 decision, which has been criticized by Treasury Secretary Timothy F. Geithner and other officials in President Barack Obama’s administration, according to the aide, who declined to be identified because he wasn’t authorized to discuss the matter publicly.
Senate Banking Chair, Democrat Tim Johnson:
I am deeply disappointed in S&P’s decision to enter into the game of political punditry.
The thing is, the Senate already held hearings on the credit ratings agencies and they know how absolutely corrupt the system is.
They had a chance to reform them and basically did little. Yet, there are some ill defined new rules and an SEC Office of the Credit Ratings agencies.
From the Financial Reform bill summary (pdf):
New Requirements and Oversight of Credit Rating Agencies
- New Office, New Focus at SEC: Creates an Office of Credit Ratings at the SEC with its own compliance staff and the authority to fine agencies. The SEC is required to examine Nationally Recognized Statistical Ratings Organizations at least once a year and make key findings public.
- Disclosure: Requires Nationally Recognized Statistical Ratings Organizations to disclose their methodologies, their use of third parties for due diligence efforts, and their ratings track record.
- Independent Information: Requires agencies to consider information in their ratings that comes to their attention from a source other than the organizations being rated if they find it credible.
- Conflicts of Interest: Prohibits compliance officers from working on ratings, methodologies, or sales.
- Liability: Investors could bring private rights of action against ratings agencies for a knowing or reckless failure to conduct a reasonable investigation of the facts or to obtain analysis from an independent source.
- Right to Deregister: Gives the SEC the authority to deregister an agency for providing bad ratings over time.
- Education: Requires ratings analysts to pass qualifying exams and have continuing education.
- Reduce Reliance on Ratings: Requires the GAO study and requires regulators to remove unnecessary
references to NRSRO ratings in regulations.
Is it possible the Senate and this administration finally gets serious of credit rating agency reform, especially considering credit ratings agencies wield more power than nation-states? That credit ratings agencies were essential to create the global financial meltdown in 2008?
It's yet to be seen, but regardless of the right or wrong of S&P's current AA+ U.S. rating, it is obscene when a for profit, private agency has more economic power than a nation-state. That cannot possibly be a good thing.