IT'S ABOUT DAMN TIME

The SEC is FINALLY looking into the credit rating agencies! It looks the Free Market Fairy has let us down again.

SEC probing main credit rating agencies
Mon May 26, 2008 2:47pm EDT

By Sudip Kar-Gupta

PARIS (Reuters) - The U.S. Securities & Exchange Commission (SEC) is looking into the workings of the three main credit rating agencies, prompted by their handling of the subprime crisis and a report of computer errors at Moody's.

"We sent letters to Moody's, Standard & Poor's and Fitch asking for them to get back to us on aspects of their methodology," said Erik Sirri, director of the SEC's trading and markets division.

"We asked them to explain the policies and procedures used to detect errors in ratings of structured finance products and to tell us about any errors that they found in structured finance products over the last four years, including steps that they followed to correct the problem," he added.

SEC Chairman Christopher Cox had earlier told Reuters that his regulatory body had started an inquiry into Moody's, whose shares have plummeted over the last week on concerns that it may have made ratings errors.

"We have ample jurisdiction to look into this," said Cox.

"On June 11, the SEC will formally propose new rules concerning credit rating agencies," he added.

Cox, who was speaking on the sidelines of the 2008 International Organisation of Securities Commissions conference in Paris, said there were long-running problems concerning the rating agencies.

The agencies had already come under fire from 2001-2002 for not having spotted signs of problems at Enron and WorldCom, the U.S. utility and telecoms giants that went bankrupt after the publication of fraudulent accounts.

Cox said there were similarities between the rating agencies' decision to rate certain subprime assets with investment grade ratings and earlier decisions to give out similarly high ratings to assets that later proved worthless.

"In the largest municipal bankruptcy in American history, in Orange County (1994), we had the same problem of paper being rated very highly on the eve of collapse," said Cox.

"These problems are long-standing, and they need to be addressed."