WASHINGTON — Sen. Al Franken’s amendment to the Wall Street reform bill that had been hailed as “the toughest new reform to date” on credit-rating agencies may now be softened into a study instead.
Franken’s proposal would form a new ratings agency commission that would independently assign a ratings agency to rate any new financial product. 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.
There is no corrolary House provision to Franken’s amendment, meaning that negotiators must decide between adopting it, stripping it or, as House negotiators seem wont to do, compromise.
So the House-Senate conference committee will consider today a proposal by Massachusetts Democrat (and lead House negotiator) Barney Frank that would authorize the Security and Exchange Commission to do a feasibility study on Franken’s proposal and recommend any changes they deem necessary.
“What we have done is try to meet the Senate halfway,” said Steve Adamske, spokesman for the House Financial Services Committee (of which Frank is the chairman).
“Let’s go ahead and have the SEC study this for up to 12 months and see what the potential pitfalls and benefits are,” Adamske said.
Among the questions: How would it work? How would it make credit rating agencies more honest? Ultimately, Adamske said, the goal is that investors do more of their own due diligence and not rely on credit rating agencies as much when making decisions — especially when said investor is a fund manager investing on behalf of someone else and with someone else’s money.
Franken fights from the sidelines
Franken spokeswoman Jess McIntosh called the House offer “very concerning.”
“We don’t believe a study is necessary,” she said. “We know what went wrong with Wall Street’s credit rating system — conflicts of interest eroded it by rewarding cozy relationships instead of accuracy. And we know how to fix it — the Franken amendment that passed the Senate with broad bipartisan support.”
Franken and his chief Republican co-sponsor, Roger Wicker of Mississippi, along with Sen. Carl Levin of Michigan, sent a letter to the conference committee advocating that the amendment stay in wholesale.
“The amendment’s broad bipartisan support reflects that this approach is not a partisan one — it’s simply a common sense solution,” the trio wrote. “The conflicts of interest in the credit rating industry not only wreaked havoc on Wall Street, but also permeated our entire economy, including the large losses in millions of hard-working Americans’ retirement accounts.”
Politically speaking, Franken is in a bit of a difficult position. Start with the fact that he’s not on the conference committee, so the fight for his provision will be led instead by New York Democratic Sen. Chuck Schumer. That’s the good news.
The bad news: the Senate’s chief negotiator, Chris Dodd of Connecticut, was one of only five Demcorats to vote against Franken’s amendment in the Senate and the House’s chief negotiator, Frank, offered a counter proposal.
That all being said, a study isn’t in and of itself a loss, as McIntosh acknowledged.
“The upside of a study is that they usually end with findings. And you can be sure that if such a study came back, it would confirm the conflicts of interest.
“It just makes more sense to end the delay and instate the reform now.”