Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Wednesday, June 16, 2010

How Do Credit Rating Agencies Escape Regulation?

We have known since the collapse of Enron and Worldcom about the flaws of the credit rating system, where the issuers pay the raters for their services.  Sarbanes-Oxley called on the SEC to study the problem, it did so, and the result was mild set of reforms that did not address the basic structural problem.  The subprime mortgage crisis again exposed the flaws in the system, as rating agencies rated investments based on information provided solely by the firm seeking the rating and performed none of its own due diligence.  Yet the latest word from the Conference Committee is that the proposed agency to regulate credit-rating agencies is dead, out of the legislation.  Are we really going to wait for the next financial crisis to see what harm the CRAs can do?  WPost, Panel Gives Wins to Savers, Raters

http://lawprofessors.typepad.com/securities/2010/06/how-do-credit-rating-agencies-escape-regulation.html

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