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May 16, 2013

Why Won't the SEC Rein In the Firms That Tanked America's Economy?

It looks like one of the primary causes of the 2007 financial crash may be here to stay.

Before the crisis, the credit-rating agencies (such as Fitch, Moody’s, and Standard & Poor’s) that evaluate the relative risk of investment products offered by Wall Street banks, routinely assigned their highest ratings to bonds built out of junky, high-risk mortgages. Because of those ratings, the bad bonds sold like hotcakes, which in turn encouraged lenders to make more high-risk loans to package into bonds to sell to the banks—and so on until the house of cards came down. (For a great read on all of this, see Michael Lewis’ “The Big Short.”)

Part of the reason the ratings agencies behaved so recklessly is that they were (and still are) paid by the banks whose products they rate. Yet even now, years after the financial crisis, the Securities and Exchange Commission isn’t sure what it wants to do, if anything, about this loaded situation. So it held a roundtable discussion on Tuesday to think about it some more.


Hence Tuesday’s roundtable. But financial-reform advocates say this second go-around also amounted to little more than a study group: Dennis Kelleher, whose advocacy groupBetter Markets took part in the discussion, characterized it as “eight hours with 25 or so panelists and speakers almost guaranteed not to point in any particular direction.”


Read full Mother Jones article here

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