New Federal Financial Authority Would Rate the Quality of Securities in the Same Way the FDA Rates Food and Drugs

DALLAS (Business Wire EON/PRWEB ) March 29, 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.

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 lay much of the blame for the subprime mortgage crisis at the feet of credit rating agencies such as Moody’s and Standard & Poor's, 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.”

About Burns and Kotlikoff

Scott Burns and Laurence J. Kotlikoff are authors of the soon-to-be-published Spend ’Til the End: The Revolutionary Guide to Raising Your Living Standard – Today and When You Retire (Simon & Schuster, June 2008) and of The Coming Generational Storm: What You Need to Know About America’s Economic Future (MIT Press, 2004).

Burns is a newspaper columnist and author who has covered personal finance and investments for nearly 40 years. Today, he is one of the five most widely read personal finance writers in the country, according to The Dallas Morning News. In 2006, he co-founded AssetBuilder, a Registered Investment Advisor (RIA), where he serves as chief investment strategist.

Kotlikoff is a professor of economics at Boston University, a fellow of the American Academy of Arts and Sciences, and a research associate at the National Bureau of Economic Research. He was a senior economist for the President’s Council of Economic Advisers during the administration of President Reagan.

About AssetBuilder

AssetBuilder offers weary investors a science-based alternative to the unnecessary costs, risks and complexity of traditional Wall Street firms. With fees that rank among the lowest in the financial services industry, AssetBuilder provides customers a menu of pre-constructed, risk-managed portfolios that make choosing and implementing a personal investment strategy simpler than ever. Co-founded by personal finance writer Scott Burns, AssetBuilder’s portfolios are an extension of Burns’ widely praised “Couch Potato” methodology. Based in Dallas, AssetBuilder is a Registered Investment Advisor. For more information, visit the company’s Web site at www.AssetBuilder.com.

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