New Federal Financial Authority would rate the quality of securities
in the same way the FDA rates food and drugs

DALLAS – March 28, 2008 –  Scott Burns, chief investment strategist for AssetBuilder and one of America’s best-read financial columnists, and Laurence J. Kotlikoff, Boston University economics professor and author, recommend in a column to be published Sunday that the U.S. government establish a Federal Financial Authority to rate securities – effectively placing warning labels on high-risk investments.

Burns and Kotlikoff lay much of the blame for the subprime mortgage crisis at the feet of credit rating agencies such as Moody’s and Standard & Poors, which granted asset-backed securities higher ratings than they deserved. The authors say the agencies, whose fees are paid by borrowers, acted in their own self-interest in a practice they call “insider rating.”

“The credit crisis has lots of fathers. But the ‘See No Evil, Hear No Evil, Speak No Evil’ practice of the rating companies has the closest-matching DNA. Like Enron's accountants, the rating agencies knew where their bread was buttered. Now we have trillions of dollars of securities that no one is willing to touch,” Burns and Kotlikoff write in a Universal Press Syndicate column to be published March 30 by newspapers nationwide.

“We need to put an end to insider rating. Federal Reserve Chairman Ben Bernanke should call for the establishment of an FFA -- a Federal Financial Authority.”

The Federal Financial Authority: An FDA for Financial Securities

Among its responsibilities, the FFA would rate the quality of financial securities similarly to how the FDA is mandated to regulate food and drugs, Burns and Kotlikoff said.

“[The FFA] 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…,” the authors propose.

“Wall Street risk-taking has put all of us on a knife edge between asset collapse and rampant inflation … The first step toward a long-term solution is to establish the Federal Financial Authority and restore the credibility of our rating system.”