From AAA to F: How the Credit Rating Agencies Failed America and What Can Be Done to Protect Investors

In the fallout from the current economic crises, many have struggled to determine what went wrong. One factor contributing to the massive combustion of the U.S. financial markets (and thus the economy as a whole) was investors' heavy reliance on inaccurate, inflated credit ratings. Because of the long entrenchment of credit ratings in the regulatory structure and, perhaps more significantly, in the investment culture, reducing the reliance on those ratings is unlikely. This Note summarizes the increased reliance on credit rating agencies and credit ratings in the regulatory structure and examines some suggested models for reform. It argues that present reform efforts, however, address superficial flaws in the regulatory structure and fail to confront the real issues that undermine the validity of credit ratings. This Note proposes a model for regulating credit rating agencies in a manner akin to the regulation of broker dealers, through a self-regulatory organization. It argues that the SEC should seek to ensure the transparency and integrity of the markets by facilitating, through regulatory requirements, the formation of a self-regulatory organization with oversight of and responsibility for credit rating agencies.