When you're running for president on a platform of universal health care, free college and breaking up the big banks, pretty much everything else seems small bore.
And so it was last week when Bernie Sanders laid out his financial reform plan, which included a proposal to turn the credit rating agencies into nonprofits and remove their conflict of interest.
The goals of the plan were clear, but specifics absent. The Sanders campaign provided more detailed points about how exactly he plans to overhaul companies that had said before the 2008 recession that tens of thousands of mortgage securities had basically no risk of default. (Those mortgage bonds were in fact risky enough that their fall in value triggered a global financial crisis.)
Under the Vermont senator's plan, instead of issuers being able to choose which agency rates their debt based on who they think would give it the best rating, the ratings agencies' work would be assigned by an independent investor board, Sanders' senior policy advisor Warren Gunnels told The Huffington Post. The members of the board would be picked by the Securities and Exchange Commission. And while a Sanders' administration couldn't directly control who the SEC picked, Gunnels said he envisioned the board being made up of representatives from pensions, mutual funds and organized labor.
The transition of the ratings agencies to nonprofit entities would be phased in over two years. Eventually, ratings agencies would be funded by a fee paid by issuers and collected by the federal government. Gunnels said an SEC rule-making process would decide the precise amount of the fee and how it would be collected.
Congress has tried to reform the credit rating agencies before, and the outcome shows how uninterested the SEC is in aggressively pursuing the issue. In 2010, Minnesota Sen. Al Franken (D) got a provision requiring securities to be randomly assigned to raters included in the version of the Dodd-Frank financial reform bill the Senate passed. It also called for more business to be directed toward the rating agencies that got their ratings right.
That provision was watered down to simply asking the SEC to examine the issue, which it took more than two years to years to do, before waiting another two years to roll out ineffectual new rules.
In response to Sanders' proposal, Franken, who has endorsed Hillary Clinton, told The Intercept, "The financial stability of millions of hardworking Americans remains at risk because the Securities and Exchange Commission still hasn’t moved to implement my reform measure to clean up credit ratings agencies."
Standard & Poor's and Moody's declined to comment. Fitch did not respond to a request for comment.