The Securities and Exchange Commission gained new regulatory power over credit rating agencies last year. Today marked the first time the Commission has proposed new rules for the agencies. Clearly, these rules won’t be the last. The business model of the credit rating agencies presents a conflict of interest. The companies that issue debt pay for the rating. In the case of sub-prime mortgage backed securities debt, the conflicts went further. The rating agencies made a business out of consulting with the debt issuers to help the debt reach a certain rating. The SEC has proposed banning this practice.

The SEC also made a point of banning gifts to issuers of more than $25.00. The Commission is in the process of completing an investigation of the rating agencies and will soon issue a report. While SEC Chairman Christopher Cox said the investigation helped inform the commission on its rules today, he said he will “let the report speak for itself.” You have to wonder what kind of gifts were being lavished on credit raters that the SEC took steps to ban them.