FFA should now stand for Federal Financial Authority

Syndicated financial columnist Scott Burns tells what’s missing from financial regulations proposals so far: regulation of financial ratings agencies. Here’s his ideas for tackling the Moody’s, et al, that wrote blank check AAA ratings for CDOs and other complex financial instruments and thus cause much of our current problems:

Federal Reserve Chairman Ben Bernanke should call for the establishment of an FFA – a Federal Financial Authority. Similar to the Food and Drug Administration, the FFA would rate financial securities. It would place warning labels on subprime mortgages and securities derived from them. The FFA would also rate the safety of investment banks, insurance companies, hedge funds and commercial banks.

Yes, this is a major government intrusion. But it is richly deserved. Credit markets are seizing. Unemployment is rising. The stock market has been tanking. Consumer confidence is plunging. Home values are sinking. Today our collective actions – whether firing workers, canceling orders or dumping assets – are ensuring a weak economy, largely because Wall Street has destroyed our trust.

And, Burns says the time to act is NOW:

Wall Street risk-taking has put all of us on a knife edge between asset collapse and rampant inflation.

Are we overdramatizing? We don't think so. With the Bear Stearns bailout, Mr. Bernanke has pledged $330 billion to shore up banks, investment companies, hedge funds and quasi-governmental lenders. This is a pittance measured against the $10 trillion in mortgages or mortgage-backed securities held by these institutions.

It’s true that the ratings companies, and the incestuous relationships they have had with investment banks for years, is at the heart of the something that is rotten on Wall Street.

Here’s hoping somebody in Congress is reading Burns’ column and acting.