Representatives and Senators are getting together to square their differing financial-reform bills at 11 this morning in the first working meeting of the conference committee (I'll be live-tweeting, nerds). Today's agenda include how to regulate private equity, hedge funds and insurance companies; regulatory consolidation; and ratings agency reform. While something of a consensus already exists on the first three issues, there will be a conflict over how to fix the rating agencies.
You may remember that Senator Al Franken proposed a new system to eliminate conflicts of interest for rating agencies (like Moody's or S&P) that are paid to evaluate securities by the very people who want them highly valued -- a key problem in a crisis where junk investments were rated triple-A. Franken's amendment, which is in the Senate bill, would create a new industry-run organization to assign ratings agencies to different clients, eliminating pernicious competition to attract clients. While I don't think this is the best approach -- see here for different philosophies on ratings agency reform -- it's certainly better than the status quo.
Hence, I don't quite understand the House proposal, released yesterday, to strike Franken's reforms and replace them with a year-long SEC study of potential regulatory reforms that Congress could adopt in the future. (Conference Chairman Barney Frank's staff has not responded to requests for comment.)
It's one thing to have a difference of opinion over how to approach reform, but it's an entirely separate problem to replace a decent idea with a delay and hand-waving. I'll be watching today to see if the Senate's manager in the conference committee, Chris Dodd, fights this change on behalf of his colleague from Minnesota, who isn't part of this ad hoc committee, whose members are collectively ambivalent about Franken's proposal.
-- Tim Fernholz
