By
The Last Word
updated 5/14/2013 11:48:17 AM ET 2013-05-14T15:48:17

In his first primetime cable interview, Sen. Al Franken discussed his efforts to eliminate credit rating conflicts that emerged during the 2008 financial crisis, when rating agencies gave their highest marks to mortgage securities.

What is Democratic Sen. Al Franken’s big idea to clean up the credit rating system? Transparency.

Franken, a junior senator from Minnesota, criticizes the Securities and Exchange Commission’s inaction on a 2010 amendment he sponsored that would have eliminated conflicts of interest in the credit-rating business model.

“Our financial system is kind of rigged,” Franken said in his first prime-time interview Monday with The Last Word with Lawrence O’Donnell.

Franken wants to institute an independent board made up of investors, financial analysts and bankers who would determine rating criteria, instead of the ratings firms.

“They made a lot of money, but Americans lost trillions of dollars, they lost their homes, lost their businesses, they lost their pension savings, they lost their jobs,” Franken said of the failure of the ratings process that contributed to the financial collapse of 2008.

“Minnesotans lost their jobs because the credit rating agencies didn’t do the only job they’re supposed to have, the only job they had, which is to give accurate, objective ratings to financial products,” he said.

The current system also allows Wall Street firms to choose—and then pay—the credit ratings agency that will award them the highest rating, an inherent problem that Franken seeks to eradicate. Since Franken’s proposed measure to the Wall Street reform act of 2010, very little has changed, and an SEC report has proposed more discussion, rather than an overhaul.

A round-table hearing will be held Tuesday to discuss the credit-rating agencies’ business model with representatives from the financial services industry, analysts, and investors. Skeptics of the proposed independent board have warned that rating agencies will in turn become a government-endorsed ratings assignment board, leading the to further bureaucracy.

But Franken argues that eliminating problematic relationships through an independent board would address the conflicts of interest, heighten transparency, and clean up the credit rating system.

“It all goes back to this conflict of interest. It would be like a figure skater bribing the judges and they’re all giving 10′s,” Franken said.

Video: Sen. Al Franken: ‘Our financial system is kind of rigged’

  1. Closed captioning of: Sen. Al Franken: ‘Our financial system is kind of rigged’

    >>> in the spotlight tonight, democratic senator al franken . that's the shortest introduction i have done in the history of the program. kind of the man who needs no introduction sort of introduction.

    >> i'm honored.

    >> so you are here because i know you are pushing this transparency issue that you fought for in the banking reform bill . you only got 64 votes in the senate.

    >> right.

    >> so of course it didn't become law.

    >> well, it kind of became law. let's start with what we're talking about here. we're talking about how our financial system is kind of rigged and talking about you know those moody's, standard and poors .

    >> tell you this is a good investment.

    >> gave aaa ratings to financial products that were junk.

    >> like all the bad mortgages that were out there.

    >> like the subprime mortgage backed securities. and what happened, what it was, there's inherent conflict of interest here, and a bank would issue a financial product and it would shop around for a rating agency to give it a aaa . the rating agencies , moody's, fitch, s and p knew if they didn't give aaa to this instrument wouldn't get the next gig and big bucks for giving that aaa rating. it was a total conflict of interest .

    >> and it was very much part of the collapse. these ratings they were saying, all of this stuff is good, then it all collapsed.

    >> this is why it collapsed. at a certain point they ran out of subprime mortgage backed securities, so they had nothing else to securityize, they decided to do bets. then they did bets on the bets and bets on the bets.

    >> and the bets have to be rated.

    >> they had to be rated, aaa , it was great for everybody, they made a lot of money, but americans lost trillions of dollars, lost their homes, they lost their businesses, they lost their pension savings. they lost their jobs. minnesotans lost their jobs because the credit rating agencies didn't do the job they had, the only job they had was to give accurate, objective ratings to financial products .

    >> you're discussing a wall street issue and people at home go what does this have to do with me?

    >> well, it created the great recession. so there you go. i mean, people who again lost their homes, their jobs, their businesses, people lost their jobs and lost their self worth and sometimes their families. i mean, and it all goes back to this conflict of interest . it would be like a figure skater bribing the judges, and they're all giving 10s.

    >> when you do a big banking reform bill , you try to get it in there as an amendment.

    >> yes. i introduced an amendment with roger wicker , a conservative republican , from mississippi, gets 64 votes, 11 republican votes. we go to conference and it gets downgraded, if you will, to a study, which --

    >> the house didn't pass a provision like that. senate had it in their bill, house didn't have it.

    >> i had enough champions in the conference to say the sec will do a study, and if conflict of interest exists after this, they have to do something. and the study came out a few months ago, we're having a roundtable tomorrow. this is why i'm on your show tonight, because i've been following that, i've been pushing this for over two years.

    >> what are the stakes tomorrow?

    >> well, this still exists, conflict of interest still exists.

    >> as the study shows.

    >> as the study shows. now it is time for the sec to act. what we did in our amendment is we set up an independent ward underneath the sec that sec appoints one time, then self regulating after that, for people that do pensions, university endowments, and some people from credit rating agencies and some people from the banking industry and some academics, and they, they choose when a bank puts out a structured financial product , that board chooses the rating agency that does the initial rating on the instrument based on the credit rating agency 's expertise, their capacity to do this job, and over some time their track record, so will reward accuracy. if the conflict of interest is gone, so it will be paid for performance, not pay to play . and it is time for the sec, we're having a roundtable tomorrow. i'm speaking first. it is time for the sec to get rid of the -- look, i was in wilmer, minnesota this past weekend, dealt with eight or nine leaders in that meeting in central minnesota . they're mainly republicans, you know, the guy owned a contracting business, couple ag businesses, community bankers. they just said look, wall street is fixed.

    >> yeah.

    >> and main street , they just don't think about main street . and that is true. and that's what happened here. and i want to end that. i want to protect minnesota's jobs.

    >> is it within the sec's jurisdiction to decide to do this?

    >> yes, yes. this is -- the law says if conflict of interest is shown to still exist when this study is produced, and it is, that they shall address this, they shall fix this. they don't have to adopt my model, but i haven't seen anything better.

    >> this reminds me of the legislative fights that come down to the word may or shall. when you get the word shall in there --

    >> i fought to get shall in there during that conference, it was very important, they shall do this. we're going to see if the sec, if the fix is in, you know. the sec has a job to do, and they should do their job which is to regulate this.

    >> three things before you go. the irs so-called scandal. what's your reaction to what we know so far?

    >> well, look, looking into the 501 c 4s is a legitimate inquiry, should be even handed, let's do the investigation, see what happened here. if the irs is being biased and partisan, that's wrong.

    >> and the other thing that the president addressed today, the benghazi investigations that have gone on, where do you think this story is now in congress and where do you think it should go? i mean, did anything happen in the house hearing last week that made you think there are more questions to ask here?

    >> well, i guess they're going to be focusing on the talking points in the house. important thing to me is that four americans died and that we have to learn from it so that our diplomats that are doing the work that they're doing overseas who are in dangerous areas are safe as they can possibly be. i think you are right that that hearing in the house showed that they could not rescue those people, they could not, no assets close enough proximity to do that.

    >> and lost is the fact that the pickering report found awhile ago that the state department was at fault for not anticipating the need for more security in that area.

    >> there is fault to go around. there is not voting enough money, funds to do security, but -- and the pickering commission i think issued like 29 recommendations and the state department says they're going to adopt them all. what's important to me is that our diplomats overseas who are doing tremendous work are safe.

    >> senator al franken , thank you very much. your first prime time cable news interview. we're here almost every night. you can drop by.

    >> this is the exception that proves the rule , and it is lawrence, right?

    >> that's correct, sir. i don't expect to see you again for a long time. thank you very much, senator franken.

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