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Home Publications Blogs Beat the Press NYT and WAPO Can't Find Out About Franken Amendment on Bond Rating Agencies

NYT and WAPO Can't Find Out About Franken Amendment on Bond Rating Agencies

Tuesday, 05 February 2013 05:39

It's so difficult when you run a major national newspaper to find out about the laws passed by Congress and signed by the president. Clearly that would be the conclusion drawn by readers of the NYT and Washington Post's coverage of a suit brought by the Justice Department against S.&P. over its ratings of mortgage backed securities during the housing bubble.

Both pieces note the obvious conflict of interest of having the rating agencies paid by the issuer. This gives the agency an incentive to provide a strong rating in order to continue to get business from the issuer.

The Franken Amendment to the Dodd-Frank bill eliminated this conflict by requiring an issuer to contact the Securities and Exchange Commission (SEC), which would then arrange for a rating agency to be assigned. By taking the hiring decision away from the issuer, the rating agency would no longer have an incentive to falsify its assessment. 

It is incredible that neither article mentioned the amendment. It won an overwhelming majority of votes in the Senate, attracting bi-partisan support. It would have gone into effect with the rest of the bill, except that Barney Frank, then head of the House Financial Services Committee, arranged to delay its enactment by requiring a SEC study (i.e. he had the SEC use taxpayer dollars to figure out what it would mean to have the SEC call a bond rating agency rather than the issuer). 

The SEC did finally complete its study in December of 2012, but the final status of the Franken Amendment is not yet clear. It would be helpful if these papers could hire reporters who know how to find out the status of laws passed by Congress.  

Comments (5)Add Comment
written by Union Member, February 05, 2013 8:18
If the NYT and Washington Post assign reporters to cover Congress the public might even want to pay for news.
written by Brett, February 05, 2013 12:58
It's incredible that such an amendment is still not law. The corruption of the Ratings Agencies was (in my opinion) the biggest factor in the spread of subprime-backed securities to god knows how many banks, financial institutions, and so forth. Without their cover, they just would have been "high risk", "high return" assets, and priced and bought accordingly.
Franken amendment already old-hat mis-reporting by NYT
written by JaaaaayCeeeee, February 05, 2013 6:50

"New deficit projections will define the scope of the nation’s spending problem and will help to shape the contours of the fiscal fights between Mr. Obama and the Republicans in Congress in the coming years".

Here begins a string of editorializing about our 'spending problems' in news reports. Lists our budget busters as Medicare, Medicaid, and Social Security, then notes that health care costs continue to rise. So the news is that fixing health care costs is, if at all, our 4th most important spending problem. Military spending doesn't make the list at all. Stenographically lets Republican quotes blame the White House for no budgeting from Congress, blame Obama for destructive sequester cuts, and reports that the CBO blames future deficits on entitlements for the aging. Reports that while the administration says sequester cuts hurt the neediest, the WH is agressively warning of the irresponsibility of defense cuts. I'm sure that there'll be a nice editorial eventually, but editorializing for the .1% daily is fit to print as news.
written by JDM, February 05, 2013 8:08
I always admired the balls it took for Franken And Davis to do a version of "Who's on First". Like Ray Stevens' version of "Misty", it wasn't as good as the original, but it was a gutsy thing to do. Nice to see Franken keeping up these gutsy moves, now in a more important arena (although I think comedy is important too: we all need a good laugh once in a while).
goofy regulators chasing regulators...wow!
written by pete, February 05, 2013 9:16
First we establish a non competitive ratings system, by saying that you can be chosen as a rater by the SEC if you are a good rater, then oops that is dumb so instead of increasing competition, we increase the limitation, allowing the SEC, so un political (sigh) to pick among the 3. Oh this is just sweet. This will surely (sigh) eliminate conflicts of interest.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.