Marketplace has a new podcast for kids, "Million Bazillion!" EPISODE OUT NOW

SEC calls in ratings agencies

Amy Scott Jun 11, 2008
HTML EMBED:
COPY

SEC calls in ratings agencies

Amy Scott Jun 11, 2008
HTML EMBED:
COPY

TEXT OF STORY

Scott Jagow: The big three ratings agencies will be called into the principal’s office today. I’m talking about Fitch, Moody’s, Standard & Poors. The SEC wants to know how in the world these guys gave triple-A ratings to mortgage bonds that turned out to be junk. Marketplace’s Amy Scott has more.


Amy Scott: The SEC is expected to take aim at conflicts of interest in the ratings business. Investment banks pay Moody’s, Fitch, and Standard & Poors to rate their bonds. Critics say competition for that business led the agencies to throw objectivity out the window.

Joseph Mason teaches finance at Louisiana State University. He says the ratings agencies often help design the very bonds they rate. The SEC is considering putting a stop to that.

Joseph Mason: That is one of the many open secrets on Wall Street. Ratings agencies continue to insist that they don’t engage in this practice. And yet everyone on the Street knows they do.

Commissioners may require more disclosure of the agencies’ ratings methods. They could also propose a separate rating scale for volatile securities like mortgage-backed bonds. The public will have a chance to comment on the reforms before a final vote.

In New York, I’m Amy Scott for Marketplace.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.