Last week, as the U.S. House debated the Wall Street reform package crafted largely by Frank, the Massachusetts Democrat quietly slipped regulations into the bill that would force the most significant overhaul of the credit rating industry to date.
The top raters–Standard & Poor’s, Moody’s and Fitch–seemed ripe for regulation ever since they awarded inflated grades to investments that ultimately unraveled the economy.
If the provisions in the bill, passed by the House last Friday, make it through the Senate, investors who lost billions of dollars on those top-rated financial products would likely find it easier to sue the raters for fraud. Also, by no longer mandating that mutual funds buy only top-rated investments, the bill has the potential to squeeze the raters out of their special status in the financial system.
I still think S&P, Moody’s, and Fitch need to go the way of Arthur Andersen.