By: Daniel Scheeringa
In the aftermath of the financial crisis, Congress passed the Dodd-Frank Financial Reform Act, which sought to prevent its repeat. Yet the new House Republican majority is taking aim at a key provision of the law, which sought to give investors more accurate information by holding credit rating agencies legally liable for giving high ratings to low quality mortgage-backed bonds. While there are other ways to ensure accurate credit ratings than enhanced liability, congressional Republicans are removing an imperfect protection without replacing it with anything better.
The financial crisis of 2008 provided enough blame to go around for almost everyone involved; big banks, mortgage lenders, government, and even homeowners. But a great deal of responsibility for the crisis is allotted to the credit rating agencies (“CRA’s”), most famously Moody’s, S&P, and Fitch. The CRA’s gave mostly favorable credit ratings to mortgage backed Collateralized Debt Obligations (CDO’s) which … Read the rest