Monday, April 28, 2008
SEC, Investors' Friend, Fiend?-2
"The [SEC] was on the defensive as lawmakers pressed the agency to quickly increase its oversight of credit-rating firms in order to bolster confidence in financial markets. At a Senate Banking Committee hearing, lawmakers questioned whether some of the ideas for new rules presented by SEC Chairman Christopher Cox in private hearing would go far enough to fix and proactively stave off problems. Mr. Cox outlined a series of steps that the agency is considering, most of them focused on greater disclsoures. Others being discussed would seek a greater separation of the rating and business sides of the firms. ... Cox said that 40 SEC staff members were conducting reviews of the seven largest credit-rating firms, including Moody's Investors ... [S&P] and ... Fitch. ... So far, the SEC has uncovered violations of internal conflict-of-interest policies that occurred earlier this year. ... 'Who is rating the rating agencies?' asked Sen. Jack Reed. ... Under the law, the SEC is required to monitor policies and procedures, including conflicts of interest at ratings firms. ... Sen. Christopher Dodd, the chairman of the committee, and Sen. Shelby pushed the SEC to take a hard line, asking Mr. Cox repeatedly if he would revoke a rating firm's charter if it consistently resulted in poor ratings. ... Cox responded that Congress didn't give the SEC authority to revoke a license for getting ratings wrong. If ratings were consistently wrong because firms weren't following internal procedures, 'then [the registration] could be revoked,' he said", my emphasis, WSJ, 23 April 2008.
Cox, does your SEC accept a ratings agency's procedure if it consistenly looks into Ed McMahon's "hermetically sealed mayonnaise jar", and its ratings were no better than chance? I think Shelby misspoke. I think he meant to ask: would the SEC revoke a rating agency's NRSRO status? Well? Hey Mark Olson, have we an opportunity for you. Have the PCAOB adopt "Generally Accepted Ratings Agency Standards". Then you can conduct agency reviews. This will not ensure the quality of their work, but it will give the PCAOB something else to do. Besides, you guys need a "product extension". Nothing Cox suggested will do more to improve a rating agency's product than peer reviews did for the CPA profession. 31 more years are coming.