Senator and presidential candidate Senator Elizabeth Warren, D-Mass., wants the SEC to take "immediate" and "meaningful action to curb" inflated ratings by bond rating agencies.
In a letter to SEC Chairman Jay Clayton, Warren, citing a recent Wall Street Journal analysis, writes there are "strong indications" that ratings agencies are giving undeserved higher ratings to risky financial products, much like they did in the lead-up to the last great financial crisis. The recession that followed cost the U.S. economy as much as $14 trillion, according to Warren.
At the root of the problem then and now is the "issuer-pays model" whereby a corporate bond issuer pays a bond rating agency to rate their new issues. That provides an incentive for the rating agency "to give better ratings, regardless of the risk," writes Warren.
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Bernice Napach
Bernice Napach is a senior writer at ThinkAdvisor covering financial markets and asset managers, robo-advisors, college planning and retirement issues. She has worked at Yahoo Finance, Bloomberg TV, CNBC, Reuters, Investor's Business Daily and The Bond Buyer and has written articles for The New York Times, TheStreet.com, The Star-Ledger, The Record, Variety and Worth magazine. Bernice has a Bachelor of Science in Social Welfare from SUNY at Stony Brook.
