Tightening Regulation On Credit Ratings

One big slice of the blame for the mortgage mess is the credit rating agencies who were way off in their ratings of mortgage-backed securities. They rated a lot of stuff AAA — which means really good — that turned out to be junk.

Now Barney Frank and friends want to tighten regulation on the big three credit rating agencies.

There's no talk however of opening up this monopoly to competition.

Why are we only allowed three credit rating agencies?

The Washington Post reports:

A House panel on Wednesday voted to tighten controls on credit-rating firms in response to complaints that the firms misjudged the risks of many of the mortgage-related securities that sank financial markets last year.

The House Financial Services Committee threw bipartisan support behind a bill that would try to reduce the conflicts of interests at rating firms and make it easier to sue them when they make flawed findings.

The three big credit-rating firms — Moody's, Standard & Poor's and Fitch Ratings — have faced stinging criticism in the past two years for giving high marks to mortgage-related securities that were backed by subprime or otherwise risky loans, helping instill a false sense of confidence among investors in the investments being sold by banks.