Sarbanes-Oxley For Wall Street: Credit Rating Agencies And Other Issues

I first started to post about the possibility of a Sarbanes-Oxley-like bill for financial sevices back in March, long before the full extent of the current credit/financial/economic problems were known or felt.

That bill now seems as certain as anything can be in politics.  Just this past week,  Sara Ditta of CongressNow reported that House Financial Services Committee Chairman Barney Frank had a long list of the financial services reform issues on which his committee will be considering next year.

According to the article...

The top priority for (teh committee) in the 111th Congress will be to provide a set of government rules to constrain abuses within the financial industry while not stifling the more positive aspects of the industry.

A tool like securitization can be risky, as illustrated by the bundled mortgages that were sold prior to the subprime meltdown, he said. However, he acknowledged, securitization can also be beneficial because money can be lent without waiting for repayment, which can increase economic activity.

Establishing rules for these mechanisms will be among Frank’s priorities for the committee next year.

Frank said he expected passage of a bill to do away with yield-spread premiums, which benefit brokers. He also said he expected passage of legislation to provide appropriate liabilities to those who securitize.

Frank also addressed concerns that investor protection will become secondary to a focus on reducing systemic risk. However, he said he is determined to separate the functions of protecting the two areas. Otherwise, he is afraid consumers would lose out.

Protection against fraudulent credit cards and deceptive banks will also receive his panel’s attention, he added. Frank also cited his panel’s interest in curbing excessive executive compensation in the financial services industry.

Additionally, Frank cited the need for rules to unfreeze the markets by putting regulations in place to minimize risks in the lender-borrower relationship.

Frank expressed confidence that Congress will be able to prevent more bad subprime loans — that is, loans to borrowers with less-than-perfect credit or income prospects — from being made.

You don't spend that much time and effort if you're not also going to produce legislation.

The question now is what will that bill look like.  In this morning's New York Times, Gretchen Morgenson lays out a pretty convincing case that the actions of Moody's, Standard & Poors, and Fitch virtually require that credit ratings and credit rating agencies be included.

Any arguments?