Sen. Al Franken is gearing up to take on the credit rating industry, which he says is too big and too closely tied to the financial industry. An amendment to the financial reform bill being debated in the U.S. Senate, authored by Franken and co-sponsored by Democratic Sens. Bill Nelson of Nebraska and Chuck Schumer of New York, would eliminate entities hiring raters and instead would have the Securities and Exchange Commission assign the raters. Franken says it would eliminate a conflict of interest that results in AAA ratings for entities that don’t qualify for such a rating.
Franken was interviewed by the Washington Post’s Ezra Klein on Friday about the amendment:
Why did you decide to focus on the rating agencies?
The agencies were an enormous part of the problem. They were giving AAA ratings to products that didn’t deserve them. There’s this inherent conflict of interest where the issuers of these financial products were shopping for raters. It’s become very clear that what’s going on was they had an incentive to inflate the ratings to get more business. In some cases the agencies were just stupid, but there was also a reason to be stupid. They had motive.