Transcripts

The SEC's New Rules For Credit Rating

PAUL KANGAS: The nation's top investment cop wants to wean investors and Wall Street from an over reliance on credit ratings. The Securities and Exchange Commission proposed new rules for the agencies today, sparked by complaints that Standard & Poor's, Moody's and Fitch contributed to the credit crisis by carrying high ratings on risky sub-prime securities. As Stephanie Dhue reports, the SEC wants investors big and small to do more due diligence.

STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Just as investors rely on credit ratings to assess risk, so too, does the Securities and Exchange Commission. It has 44 rules that use credit ratings. Today it proposed changing 38 of them. SEC Chairman Christopher Cox says the goal is to encourage investors to make their own judgments.

CHRISTOPHER COX, CHAIRMAN, SECURITIES AND EXCHANGE COMMISSION: The recommendations we consider today are designed to ensure that the role we assign to ratings in our rules is consistent with the objective of having investors make an independent judgment of the risks associated with a particular security.

DHUE: The proposed rules include letting money market fund managers invest in short-term debt without a credit rating. Fund managers would have more leeway in figuring out an investment's liquidity, volatility and risk of loss. Commissioner Paul Atkins says ratings have become a crutch for investors and regulators.

PAUL ATKINS, COMMISSIONER, SEC: Blind reliance on ratings is not something that the SEC should foster. Unfortunately by putting them in our rules, we did just that. It's the inevitable law of unintended consequences.

DHUE: But critics say an unintended consequence of the proposed changes could be that money market portfolio managers move into riskier securities. The AFL-CIO's general counsel Damon Silvers says the proposed rule takes away an external check.

DAMON SILVERS, ASSOCIATE GENERAL COUNSEL, AFL-CIO: It's rather like saying after you've de-funded the fire department, it's rather like saying oh, we were over-relying on the fire department, you ought to buy a bucket.

DHUE: Back in 2003, the SEC tried to make similar changes, but the effort was widely criticized and the rules never adopted. Observers say the same thing could happen again. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.