07.24.10

An Early Effect of FinReg

Posted in Financial Markets, Politics and Policy at 11:19 am

The business press has been making noise about FinReg holding up a Ford bond issue.  The legislation opens up the possibility of holding Credit Rating Agencies accountable for defective ratings.  As a result, the CRAs are refusing to allow bond issuers to disclose ratings in prospectuses.

http://finance.yahoo.com/tech-ticker/ford-first-victim-of-battle-between-reg-reform-and-rating-agencies-524246.html?tickers=F,GM,XLF,FAZ,MCO,MHP,BRK-B

In response, the SEC has issued a statement that it will temporarily allow bond sales to go on without ratings.  This decision should be made permanent.

The above article asks two good questions:

  • Why does anyone still care what the rating agencies say, anyway?
  • If rating agencies now won’t let their ratings be included in offering documents, what’s the point of having them in the first place?

The second question gets to the heart of the matter.  The business press is acting silly when they “blame” FinReg for the situation.

3 Comments »

  1. Quick follow up on RAs, the new regulatory regime, and its discontents « naked capitalism said,

    07.24.10 at 1:26 pm

    [...] I see Disequilibria sort of agrees with me, plus a linked [...]

  2. MichaelC said,

    07.25.10 at 12:01 am

    Agree the second question gets to the reality of the matter,but the first gets to the messy policy details of the matter.

    What’s the BIS to do with it’s capital framework if the ratings agencies don’t have a role? If the ratings agencies won’t participate in the fiction that they know what their doing, unless they remain legally blameless and overpaid, then who can step in to prop up that piece of the bigger fiction? Yikes

    Every new issue would therefore be unrated and subject to max capital charges. Not bad. Maybe that’s the elegant, unintended consequence, that will price all the crap out of existence.

  3. MonkeeRench said,

    07.25.10 at 11:37 am

    The RA’s should be the intense focus of the DOJ & FBI (still emasculated by earlier funding cuts in favor of the “War on Turrists”) until all the criminal Bankster involvements are rooted out and all the perps (Wall Street, K Street & Pennsylvania Ave- both ends) are safely put in state & federal prisons.

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