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Senator to Meet with Financial Experts to Reform Wall Street, Credit Rating Institutions

By Sally Maison
Published: Monday, October 19th, 2009

Senator Amy Klobuchar is set to hold a meeting that will highlight the need for reform on Wall Street to prevent another huge economic downfall. The roundtable discussion will be held tomorrow at the University of Minnesota with finance experts from the state to share their views on saving United States’ economy. Reforming the credit rating industry will also be another major agenda during the one-day summit.

Senator to Meet with Financial Experts to Reform Wall Street, Credit Rating InstitutionsSeptember 13 last year, Lehman Brothers Holdings, Inc. ended its nearly 160 years of history when it crumbled down because of bankruptcy. Another long-established American business institution, Merrill Lynch, fell on its knees when recession made its weight unbearable. They are followed by Bear Sterns, a banking giant, and more than a hundred other notable bankruptcies. Legislators feel that last year’s financial crisis could have been avoided.

As the United States is recovering from the aftermath of recession, people are left wondering whether last year’s downfall could have also been caused by credit rating firms. Analysts say companies such as Fitch Ratings, Moody’s Corporation, and Standard & Poor’s, which dominate

American credit rating industry, should have provided reliable judgments in order to avoid potential risks of investments. The economic crunch revealed conflict of interests within the credit rating industry with experts saying that raters have been giving questionable and overly optimistic assessment on investments. The Securities and Exchange Commission (SEC) concluded that conduct by credit rating companies is a major and an underlying cause for recession.

In order to provide necessary reforms in the industry, Sen. Klobuchar is co-sponsoring the Rating Accountability and Transparency Enhancement (RATE) Act. It will allow SEC to have greater regulations over Nationally Recognized Statistical Rating Organization (NRSROs), whose main task would have been to give accurate ratings on investments. RATE Act will allow investors to sue a firm that fails provide accurate reviews.

Financial analysts say there is a need for a number of changes in order to sustain economic recovery. They add that changing the roles of NRSROs is necessary for long-term changes. They add that financial crisis came after investors kept pumping money into mortgage-backed securities since rating organizations gave out over positive views for the industry. As could be seen from last year’s crisis, ratings were not as accurate as they were regarded to be.

Being quasi-judicial bodies in the financial market, these firms gained high degree of confidence among government units and businesses. But the economic downfall last left many, including Sen. Klobuchar, wondering if those firms should keep their status.

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