Franken expects his piece of finance reform bill to passby Martin Moylan, Minnesota Public Radio
St. Paul, Minn. — U.S. Sen. Al Franken expects his proposed legislation to establish an independent system for assigning credit ratings to investments will become law.
Franken wants an independent board, appointed by regulators, to choose the firms that rate investments, such as bundles of mortgage-backed securities. Historically, investment firms that created the securities have picked ratings firms. Franken says that was foolish.
"Rating agencies knew that if they gave a bad rating to an instrument then they wouldn't get the next job to do the rating," Franken said. "So, what it did was it incentivized inflating the ratings. That's why we have all these AAA-rated instruments that turned out to be junk."
Under Franken's amendment, an independent board, appointed by regulators, would choose the rating firms.
Franken's plan was included in the Wall Street Reform bill the Senate passed. That bill is being reconciled with similar legislation passed by the House.
That piece of it, which is having an independent third party choose the rating agency on each security that is issued, I think that will be intact," Franken said.
Franken expects his proposal will be part of a combined bill that goes to the president for approval.