Good Job, Financial Reform!

Posted: Jul 21, 2010 9:57 AM
Coming on the heels of accusations that the Obama administration's economic policy is causing confusion due to rules vagaries, the Wall Street Journal reports that Wall Street ratings agencies are refusing to rate new bonds until they understand what kind of legal liability they'll be held to.

The nation's three dominant credit-ratings providers have made an urgent new request of their clients: Please don't use our credit ratings.

Standard & Poor's, Moody's Investors Service and Fitch Ratings are all refusing to allow their ratings to be used in documentation for new bond sales, each said in statements in recent days. Each says it fears being exposed to new legal liability created by the landmark Dodd-Frank financial reform law.

The new law will make ratings firms liable for the quality of their ratings decisions, effective immediately. The companies say that, until they get a better understanding of their legal exposure, they are refusing to let bond issuers use their ratings.

Hat tip: my favorite economist.