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Reforming the Rating Agencies

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Financial Reform | Wall Street

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Watching the Watchers

The corruption of credit-rating agencies was at the heart of the financial collapse. So far, Congress has not had the nerve to pursue fundamental reform.

American Prospect

By James Lardner

The first imperative of reform, then, is to align the incentives of these badly corrupted entities with their mission. The most promising proposal, outlined in a policy paper by David Raboy, an economic consultant to the congressional panel overseeing the bailout, envisions an independent clearinghouse to collect fees from securities issuers and assign bond offerings to ratings agencies at random. This would be a game changer: The rating agencies, which have lately become Wall Street players in their own right, would go back to being the cautious, green-eyeshade types they once were -- and the cool observers of the bond market that we need. Their executives and lobbyists would holler in protest; that, too, would be a plus.

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