Flawed Credit Ratings Reap Profits As Regulators Fail Investors
Professor Joseph A. Grundfest is quoted by Bloomberg in an article about the role of credit rating companies in the global financial collapse and what can be done to improve oversight of the ratings system:
Notwithstanding the role the credit companies played in fomenting disaster, the U.S. government is relying on them to help fix the system they had a hand in breaking.
The Federal Reserve’s Term Asset-Backed Securities Loan Facility, or TALF, will finance the purchase by taxpayers of as much as $1 trillion of new securities backed by consumer loans or other asset-backed debt -- on the condition they have triple-A ratings.
At the April 15 SEC hearing, Joseph Grundfest, a professor at Stanford Law School in Stanford, California, suggested a variation of Dinallo’s idea [i.e. a government takeover of the rating business]. He said the SEC could authorize a new kind of rating company, owned and run by the largest debt investors.