Washington, D.C. – Stephen W. Hall, Legal Director and Securities Specialist for Better Markets, issued the following statement as Better Markets issues a fact sheet detailing the conflicts of interest that inflate credit ratings and sow the seeds for investor harm and financial turmoil.
“As the coronavirus pandemic sweeps over the country, we see fresh evidence that inflated credit ratings are again contributing to chaos in the financial markets. Waves of credit rating downgrades appear almost daily. And we’re seeing reports that the dominant firms continue to inflate ratings to win and retain lucrative business from companies that need high marks for their investment offerings. These conflicts of interest lure countless unsuspecting investors into risky and complex investments. They also lead to the dramatic downgrades we’re seeing today, which intensify market instability.
“As detailed in our fact sheet, we saw the damage that inflated credit ratings can do during the 2008 financial crisis. Grossly inflated credit ratings assigned to thousands of mortgage-backed securities in the years leading up to that crisis, followed by sudden downgrades, helped bring our economy to its knees. Now it appears to be happening again.
“In the 2010 Dodd-Frank Act, Congress required the SEC to fix the problem by implementing a new assignment system. The intent was to ensure that the rating agencies would no longer have an incentive to boost ratings to please their paying clients, at least for the most complex securities offerings. But the SEC never followed through, and now investors and financial markets appear to be paying the price. In our fact sheet, we call upon the SEC to eliminate once and for all the powerful conflicts of interest that corrupt credit ratings, hurt investors, and set the stage for financial crisis.”
Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.com.