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Finance: What is the Credit Rating Agency Reform Act Of 2006? 4 Views

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What is the Credit Rating Agency Reform Act Of 2006? As signed by President George W. Bush in 2006, the Credit Rating Agency Reform Act required that securities ratings agencies, i.e., Moody’s, Standard & Poor’s, and Fitch, all be registered with the SEC, along with any other ratings agencies. The goal was to give the public a greater array of choices and to prevent collusion among the big 3. In retrospect, this was largely symbolic, as no new credit rating agency of any significance has emerged in over a decade since the law was signed.

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00:00
Finance allah shmoop what is the credit rating agency reform
00:07
act of two thousand six otherwise known as crack are
00:12
out out something like that All right yeah that's How
00:16
the real pros said anyway this act was meant to
00:19
improve the quality of company credit ratings like a blindfold

00:24
and dartboard should not be involved in making up are
00:27
you know coming up with corporate credit ratings Well the
00:30
law was ironically enacted in the hope that we would
00:33
avoid nightmares like the subprime mortgage crisis that almost brought
00:37
down the finances of while the entire country in world
00:40
And yes it worked in the same way that a
00:43
scale works in an embarrassing episode of the biggest loser
00:47
The idea was that the big three agencies moody's s
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and p and fitch were colluding with each other and
00:54
raiding every security as a okay sort of the same
00:58
way wall street cell site analysts were leaned upon in
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the nineties by bankers who paid them to rate every
01:05
company of strong by so that the companies would favor
01:08
the investment banks when doing lucrative secondary offerings and other
01:13
personal wealth management services for the founders and senior executives
01:17
Newly ridge from you know aipo booty The big three
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then produced a product that wasn't reflective of the real
01:24
risks inherent in the marketplace Basically they had been labeling
01:28
pink slime and hot dog meat as great a sirloin
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Yeah well the act made it much easier for smaller
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firms to compete for business by doing high quality research
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and not being afraid to give bad ratings tow bad
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money butchers will The credit rating agency reform act of
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o sixth gives both businesses and the government the tools
01:49
they need to fight off the shady hucksters of the
01:51
world And make sure the pink slime never you know 00:01:55.443 --> [endTime] such a cz your plate financially
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