The U.S. Senate today passed a new Wall Street reform measure the credit rating agencies. Sponsored by Al Franken (D-MN), the amendment to the Dodd financial reform bill would prohibit the current practice of financial firms ‘shopping’ investments to ratings agencies that give higher ratings. As we have seen since details of the Crash of 2008, many banks and bond companies were paying or coercing these rating agencies to give ‘AAA’ status to investments that were dubious in nature. Many of the mortgage-backed securities, based on subprime loans, received AAA status despite the realities that they were hardly worthy of even a BBB ‘junk bond’ rating.

Franken’s amendment would create a pool of credit rating agencies, supervised by the SEC. This clearing house would then assign bonds, CDO and other investment instruments to an agency to be rated. The amendment also mirrors an earlier one proposed by Sen. George LeMieux (R-FL) to open the door to smaller rating agencies. The agencies would get incentives and more assignments based on the accuracy of their ratings. This would break up the ‘cartel’ currently enjoyed by Moodys, Standard & Poors and Fitch.

Sen. Chris Dodd (D-CT) is not pleased with Franken’s amendment, despite passing today 64-35 with 10 Republicans voting for it. Dodd opposed the measure from the start, and when asked if Franken’s amendment could be reconciled, Dodd answered, “Very good question.” Dodd is not the only one opposed to Franken’s amendment. So too are the current ratings agencies to be effected by the measure. Ed Sweeney, a spokesman for Standard & Poors, said that Franken’s amendment could have, “…unintended consequences”. He added that it would “discourage competition” and “deprive investors of valuable information“. I’m not sure what planet Mr. Sweeney is from, but my guess is ‘Planet Insider’.

The financial reform bill that Dodd brought to the Senate floor several weeks ago was a joke. It continues the Age of Bailouts and the concept of Too-Big-To-Fail. It does nothing to reform the derivatives market, Fannie Mae or Freddie Mac, nor does it tackle technical matters such as high frequency trading and flash trading. Dodd’s bill expands the power of the Federal Reserve and provides no meaningful oversight of it. It is basically a wedding present to Wall Street.

Al Franken’s amendment to financial reform may not be much but it is certainly a step in a better direction. How this clearing house would assign work to the credit rating agencies is not well defined, which leaves the door open for it to become corrupted, too. But Franken does offer some good ideas which could be incorporated in a fresh, new financial reform bill that would probably have bipartisan support and might even actually reform Wall Street.