SEC requested to ramp up ratings regulation

Given that the big credit rating agencies -- Moody's (NYSE: MCO) and McGraw-Hill's (NYSE: MHP) Standard & Poors -- completely failed in their assessment of risk when it came to mortgage-backed securities, it's no surprise that the SEC is being asked to take a look.

Senator Charles Schumer (D-NY) has met with SEC Chairman Chris Cox to discuss conflicts of interest and disclosure problems. The Wall Street Journal quotes (subscription required) the senator as saying that "There has to be a lot more done about conflicts of interest at the agencies."

Among the worst of the rating agency abusers has been MBIA (NYSE: MBI) which, back in March, had the gall to ask Fitch to drop its coverage of the firm because they didn't like Fitch's opinion. To its credit, Fitch stayed strong and later downgraded the company's credit rating.

But wait, there's more: In a devastating piece on Friday, The Wall Street Journal reported (subscription required) on Moody's efforts to cozy up to issuers in exchange for more business, possibly at the expense of the integrity of their ratings.

This is essentially a replay of the issues involving conflicted analysts like Henry Blodget who, at the height of the internet stock bubble, sacrificed his research to the investment banking arm of his firm. It will take a tough regulator to clean up this mess, and I seriously doubt that Chris Cox is the man for job.