WASHINGTON — One of the hardest steps to advancing a potentially controversial amendment in the Senate is securing that must-have Republican cosponsor. Unless someone was lined up in advance, it’s usually a process that involves days or weeks of courting, with hours of staff meetings over the minutia of some paragraph or subsection.
Sometimes, however, it’s simply a case of being in the right place at the right time. Thursday evening was one of those times.
The amendment in question is one from Al Franken that calls for increased regulation of credit rating agencies.
It would add a new ratings agency commission that would assign a ratings agency to rate any new financial product. How that assignment would be made — randomly, or if some preference would be given to those with a better track record — is a decision that would be left to the new commission.
Currently, firms hire their own ratings agencies, a process Franken says leads to shopping by large financial firms for the ratings agency they know in advance will give them the best rating. It’s a shell game, he said, that led to subprime loans being classified as safe, AAA-rated investments.
In an otherwise unremarkable step, Franken took to the Senate floor to state his case for his own amendment. Usually, that involves a senator speaking to an almost-empty chamber with just one or two members on the floor at any given time.
As luck would have it, one of the most conservative men in the Senate, Mississippi Republican Roger Wicker, happened to be standing on the floor as Franken described his amendment and took the floor after Franken finished.
“I had not intended to speak tonight, but having heard my friend the senator from Minnesota speak about the problems with the rating agency, I thought I would rise to say that, in many respects the senator from Minnesota is correct,” Wicker said. The existing bill, he said, doesn’t deal with credit rating agencies.
That prompted an immediate rebuttal from Connecticut Democrat Chris Dodd, the chief architect of the Senate financial services bill who, notably, has not signed on to Franken’s amendment.
“I’m not suggesting that you’re going to love every dotted I and crossed T,” Dodd replied. “We do cover rating agencies. There’s a complex area on how to do this but the legitimate point raised by the senator from Minnesota and others about the rating agencies is something we share, and in Title 9 we try to address ways in which we could get far more accountability out of these agencies.”
Technically speaking, Dodd is right. About 40 pages of his bill are dedicated to credit rating agencies. However, some analysts say that while the measure certainly addresses rating agencies, it doesn’t much change the way they already operate.
Daniel Indiviglio, a staff editor at The Atlantic, ridiculed Dodd’s 40 pages of reform as equivalent to “giving a new coat of paint and oil change to a rusty 1973 Ford Pinto with an engine that once exploded: even if you get it running once more, it might just blow up again under certain conditions.”
There’s a requirement that raters be trained (they already are), a rule that they must have methodologies by which they rate securities (they already have them) and another that would give the Securities and Exchange Commission the option to deregister poorly performing agencies. Given that some 93 percent of subprime products given AAA ratings before the crash are now at “junk” standards, either the SEC would have taken the unlikely step of delisting every major rating agency, or would have passed on enforcing that option.
On Thursday, Indiviglio wrote that Franken’s amendment represented “the toughest new reform to date to eliminate the conflicts-of-interest that many blame for their bad ratings of mortgage securities.” Wicker, apparently, had come to the same conclusion.
“I think the senator [Dodd] would also concede that there are many in this body,” Wicker replied, “who would make the case that the bill is far from adequate as it regards the rating agencies, and we’ll have a debate about that.”
On Friday, Wicker became the first Republican co-sponsor to Franken’s credit ratings amendment.