SEC to Sit on Debt Rating Scam?
Ask folks in the know about the entire mortgage backed securities Ponzi scheme, and they'll tell you that a prime cause was the bogus ratings applied to these un-knowable, unfamiliar securities by the ratings agencies. The mirage that fooled investors the world over into buying these things ("triple-A = safe") not only spawned the industry, it made instant riches for banks, ratings agencies, monoline insures, lenders, hedge fund managers and HELOC-dependent U.S. consumers.
Trouble is, the SEC is threatening to take away the punch bowl and make ratings agencies rate this opaque zuppa di stronzo as something other than the same ratings given to munis or corporate bonds. Make perfect sense, right?
Not to the folks who hawk this junk, nor the folks who make money rating it. They're afraid (with good reason) that their precious dog-food triple-A won't be treated the same as real AAA. That would mean pensions, government entities, insurance companies, etc. might not be fooled into buying the drek.
Sounds like a great idea for the world economy, but since it means that the ethics-impaired MBS salesment out there will have to buy shorter yacths, expect them to put up tons of political pressure to make sure it doesn't happen.
---------From the WSJ----------
The staff of the Securities and Exchange Commission is expected to propose rules for credit-ratings companies that would require risk rankings for complex financial instruments -- a move opposed by rating entities, investment banks and others.
The move would distinguish these so-called structured products, which have been blamed for the recent financial crisis, from more-traditional corporate and municipal debt. Ratings companies have been widely blamed for giving overly rosy ratings to mortgage-related securities, and for being slow to downgrade those assessments when the housing market turned.