S&P, Fitch and Moodys Under Congressional Review

Implications: Congress is expressing concern that the rating agencies have an inherent conflict of interest clouds the objectivity of their ratings. Hearings and Congressional attacks on the rating agencies will be forthcoming. However, the likelihood of substantive Congressional legislative is less than the propect of new and tougher regulations by the SEC. These regulations may have a significant impact on the profitability and business models used by the rating agencies.

Analysis: When potentially hundreds of thousands of homeowners facing foreclosure and the financial markets in turmoil, the political demands require Congress to take action. Congress has to show their constituents that they are doing something, and part of that process is to identify a culprit. In this case, the rating agencies appear to be a prime candidate. However, aside from hearings and public statements, there is little that Congress can actually do directly. Rather, it is more likely that the SEC will be pressured to take action, and exactly what the SEC will do will be the significant development for this industry.The most important factor to watch is the SEC and the statements of its senior staff.