Obama takes on credit rating agencies!

Obama takes on credit rating agencies!

Officials said they want rules to eliminate conflicts of interest at credit rating agencies that gave top investment grades to the exotic and ultimately shaky financial instruments that have been a source of market turmoil. The core problem, they said, is that the agencies are paid by companies to help them structure financial instruments, which the agencies then grade.

"Until we deal with the compensation model, we're not going to deal with the conflict of interest, and people are not going to have confidence that the ratings are worth relying on, worth the paper they're printed on," Mary Schapiro said in testimony earlier this month before being confirmed by the Senate to head the Securities and Exchange Commission.

Timothy Geithner, the nominee for Treasury secretary, made similar comments in written and oral testimony before the Senate Finance Committee.

They are also taking on mortgage brokers...

Aides said they would propose new federal standards for mortgage brokers who issued many unsuitable loans and are largely regulated by state officials. They are considering proposals to have the SEC become more involved in supervising the underwriting standards of securities that are backed by mortgages.

...and derivatives...

The administration is also preparing to require that derivatives like credit default swaps, a type of insurance against loan defaults that were at the center of the financial meltdown last year, be traded through a central clearinghouse and possibly on one or more exchanges. That would make it significantly easier for regulators to supervise their use.

...and continuing to rebuke Bush policies...

Officials have been grappling for nearly a year to figure out how to better oversee the financial system, particularly as a number of large and inadequately supervised companies have encountered problems. In a sweeping regulatory blueprint unveiled last March, Treasury Secretary Henry Paulson Jr. proposed a broad consolidation of banking and financial agencies, including merging the Securities and Exchange Commission and the Commodity Futures Trading Commission. That proposal is not included in the current plans.

...and hedge funds (with another rebuke of Bush)...

Other elements of the regulatory overhaul, such as the requirement that hedge funds register with and be more closely supervised by the SEC, would mark a sharp departure from the policies of the Bush administration.