It may surprise most people to learn that it was only two years ago that a century of self-regulation in the ratings industry came to an end. Despite efforts by Moody’s, S&P, and Fitch to derail the legislative effort, Congress passed the 2006 Credit Rating Agency Reform Act, granting the SEC supervision over the large rating firms for the first time. To boost competition in the ratings industry, the act invited new entrants to come in and compete with the larger agencies for a designation known as Nationally Recognized Statistical Rating Organization (NRSRO).

Two years and one financial crisis later, competition inside the ratings industry is still largely absent.

This is in part, observers say, because of changes made to the 2006 act in the eleventh hour. Knowing what we know now about the central role the Big Three rating agencies played in the banking crisis, it’s hard to resist giving credit to those who helped water down the 2006 piece of legislation — an act intended to help protect investors.

According to The New York Times, U.S. Senator Charles E. Schumer did not stop the 2006 act from passing, but he managed to get the measure amended so that it explicitly prohibited the S.E.C. from regulating the procedures and methods the agencies use to determine ratings. Read the article here.

One wonders whether Sen. Schumer would have acted differently in hindsight. Of course, it’s not as if a less watered-down 2006 law would have saved us from the financial crisis. Two years ago, the horse had already left the barn. However, Schumer’s actions suggest he may have had a hand in saddling it up. ###