Money talks. In the continuing dispute over the all-too-cozy relationship between the people who create and sell financial products and the people who rate their risk, the money says: Shut up and let us do what we want.
Minnesota Sen. Al Franken and Mississippi Sen. Roger Wicker — the first a Democrat, the second a Republican — are pushing the Securities and Exchange Commission to act on the myriad conflicts of interest in the ratings process. Specifically, they want the SEC to create a commission that would name the agencies that rate such investments as mortgage-backed securities.
The credit raters don’t want to eliminate the conflicts. Nor do the banks and brokerages. They want to continue to have the people who create the packages of debt they intend to sell select their own raters, an arrangement that encourages the raters to rubber stamp pretty much everything as an AAA investment.
There is no incentive for a rater to conclude that a specific package is anything less than high-grade; do that, and the creator will simply find another rater who’ll be more accommodating.
That arrangement led during flush times to a sea of debt that was far more risky than anybody on the outside of the process realized — and whose massive collective failure underlay the financial meltdown of 2008 that created the Great Recession.
The raters and the creators have, and have always had, their own interests in mind. The SEC should be more interested in the common good, and the common good demands that the financial elites not be allowed to jeopardize the economy in pursuit of their short-term gain.