I don't know about you, but I for one woke up this morning and did a little heel clicking, finger snapping, hand clapping dance in the hopes that something would come along today oozing richness out of every orifice. Lo and behold.
As Congress and U.S. securities regulators gear to up explore regulatory reform for credit-rating agencies, a top credit-rating firm on Wednesday called for global regulatory changes to eliminate conflicts of interest and require more disclosure on rating methodologies.
In a new report unveiled this week, Standard & Poor's, a unit of McGraw-Hill Cos., acknowledged some of the problems that emerged in rating structured bonds backed by subprime mortgages. The rating agency said it would support regulatory changes to "enhance the ratings process and restore investor confidence."
S&P, however, shied away from addressing any potential reforms to the way it and rival agencies such as Moody's Investors Service are paid for rating debt. Critics have charged that because the debt issuer pays the agencies to rate its securities, there's a built-in conflict of interest: The rating agencies are tempted to rate securities more favorably -- to the detriment of investors.
These critics have also blamed overly generous credit ratings, which masked the risk in many types of bonds, for playing a role in the financial crisis. In its report, S&P acknowledged that some changes are in order.
"While regulation should avoid dictating how a rating agency should go about performing its analysis, ultimately, a well-functioning ratings process offers benefits for the economy as a whole by contributing to greater investor confidence," the report said.
Changes S&P said it would support include the creation of a code of ethics for firms and a regulatory structure that would require ratings agencies to disclose potential conflicts of interest and prohibit analysts from providing consulting services to entities they rate.