WASHINGTON – Sen. Al Franken said Thursday that he will push the Securities and Exchange Commission in the coming months to remove conflicts of interest between securities rating agencies and the companies that pay them to rate financial products.
Franken, a Minnesota Democrat, discussed his plans barely a week after the Justice Department charged the Standard & Poor's rating agency with fraud for blessing what the rating agency allegedly knew were dangerously risky securities and derivatives backed by subprime mortgages.
Defaults on those mortgages eventually helped sink the global economy and plunged the United States into the biggest financial crisis since the Great Depression.
"Our nation's financial meltdown happened in no small part because of conflicts of interest in the credit rating industry," Franken told reporters in a conference call. "The agencies gave Triple-A ratings to junk that they knew was junk."
Franken and Sen. Roger Wicker, R-Miss., co-sponsored an amendment to Wall Street reform to force a study of conflicts of interest caused by companies directly hiring and paying rating agencies to grade their products.
In December, the SEC reported that those conflicts do exist and contributed to the recession. Now, Franken and Wicker say they want the commission to quickly make new rules to eliminate them.
"We gave the SEC authority to end the conflict-of-interest problem," Franken said. "And it is time for them to use it."
Franken and Wicker said they want the SEC to convene a roundtable of interested parties to discuss new rules within the next three months and to produce a written plan and timetable for putting new rules in place. Along with Sen. Charles Schumer, D-N.Y., they wrote a letter to the SEC Thursday calling for action.
