McCLATCHY COMES THROUGH AGAIN

Formerly Knight-Ridder, its reporters did an excellent job during the run-up to the Iraq War and later and now they are concentrating on how the ratings agencies were enablers of the creation of toxic assets. Unfortunately, the House committee doesn't seem to grasp that we need a major structural change on Wall Street.

Bill to tighten rules on ratings agencies has big loopholes
By Kevin G. Hall | McClatchy Newspapers
Posted on Tuesday, October 20, 2009

WASHINGTON — A key House of Representatives committee is set to vote soon on legislation that would overhaul financial regulation and produce greater transparency for investors, but as it's now written it fails to address many of the credit-rating agency missteps that helped fuel the global financial crisis.

Several sections of Kanjorski's bill discuss how to disclose information to the public about when an outside "third party" does due diligence on underlying mortgages or other loans that are being rated. However, the bill wouldn't require such independent due diligence, which was sorely missing during the boom in home prices.

The House legislation would direct ratings agencies to include at least two independent members on their boards of directors, and would mandate that compliance officers report to the boards. It wouldn't direct the Securities and Exchange Commission to work with the compliance officers, however, which could have helped regulators understand the looming sub-prime crisis in 2006 and 2007.

However, there's no explicit requirement to provide detailed cash flow and default assumptions in a ratings agency's model, an important part of what went wrong in the mortgage finance debacle.