Credit rating agencies under fire

Posted by Anthony Jackson | No Comments »

It might be hard to understand how the actions of a small committee in one part of the country can affect the price we pay for mortgages loans or our ability to access credit cards.

But today the Securities and Exchange Commission took a long-awaited step to bring greater transparency to the practices of credit rating agencies – the organizations which calibrate the relative difficulty or ease with which businesses and consumers can access lines of credit.

In a 5-0 ruling today, the SEC committee, headed by chairman Christopher Cox, outlined a number of tightened rules designed to bring greater scrutiny to the internal workings of such organizations – which include high-profile names like Standard & Poor’s, Moody’s Investors Service and Fitch Ratings.

Such agencies come under a storm of criticism recently amid suggestions that lax rating practices had contributed to the speed of the U.S. economic collapse once the problems with sub-prime borrowing began to unravel.

Today’s measures – which include new restrictions on the system of incentives available to staff responsible for rating assets – are intended to go some way toward cleaning up an industry often viewed as ‘behind closed doors’ by the average American.

“Conflicts of interests were amplified as credit rating agencies sought to gain market-share in an industry that is vital to capital formation,” Cox was quoted by Marketwatch as saying.

Not that this means the U.S. consumer is out of the woods when it comes to safer access to credit-rated products such as a home equity loan.

Although retail sales over the Black Friday weekend were higher than expected in light of the weak economic data of recent months, many retailers have resigned themselves to a grim holiday season as disposable income drops and the debt burden of the average consumer continues to rise – leading to a spike in delinquency rates.

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