Senate Majority Leader Harry Reid has slated an important vote for later today on financial reform legislation. The Senate should move forward on this bill, although a number of provisions still need work.
The measure wouldn't eliminate bailouts, for example, despite President Barack Obama's claims.
In dealing with a foundering bank, regulators could determine which creditor gets what, allowing officials to choose winners and losers among creditors. Officials could even decide that taxpayers don't need to be paid back if the U.S. Treasury was one of the lenders. These provisions should be tightened.
The Senate bill's attempt to deal with the ratings agencies is unaccountably lax. Outfits like Moody's for years gave their highest rating — AAA — to many securities, even though the bonds were backed by toxic subprime mortgages.
The bill increases the raters' lawsuit liability if they get it wrong again, but it lets them retain their position as official assessors of risk. The House version is better: It would open up the financial ratings field to more competitors.
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