Securities and Exchange Commission Chairman Christopher Cox.
Securities and Exchange Commission Chairman Christopher Cox. - 


Renita Jablonski: As we know too well, many subprime mortgage holders began defaulting on their loans last year. But Wall Street credit rating agencies continued to give the securities backed by those loans top rankings. The chairman of the Securities and Exchange Commission, Christopher Cox, will be on the hot-seat this morning. Senate Banking Committee members will ask why the agencies under his regulatory control gave their seal of approval to risky investments. John Dimsdale has our preview.

John Dimsdale: Columbia University securities law professor John Coffee says the ratings companies didn't do enough of their own research and merely believed the assurances of the banks that were selling the investments.

John Coffee: Right now, rating agencies are basically flying blind when they accept at face value these statements made by the issuer or underwriter about what the quality of the loan collateral is.

Another problem: Ratings firms have too many business ties to the sellers of mortgage securities. And that's a conflict of interest, says Jim Kaitz of the Association for Financial Professionals.

Jim Kaitz: We want to make sure there's a real firewall between the people that are actually rating the debt instruments and those people that are perhaps helping the banks structure those investment vehicles.

Chairman Cox says the SEC is working on tighter regulations over ratings agencies. Senators are likely to ask him to work faster.

In Washington, I'm John Dimsdale for Marketplace.