If it's broke, fix it.

That's what critics of the nation's credit rating agency system believe, contending that it's in sore need of overhaul to prevent a repeat of the financial meltdown of 2008.

Sen. Al Franken (D-Minn.) exhorted the Securities and Exchange Commission to provide a major makeover to the nation's credit agency system that he called "fundamentally flawed." 

Franken was one of three panelists who participated in a conference call on Thursday sponsored by Americans for Financial Reform.

The Dodd-Frank Act passed in July 2010 was supposed to clean up the credit rating agencies. But Franken said the legislation, as well as changes now being considered by the SEC, don't actually address what he called the "inherent flaws'' in the credit rating system.

Under the current system, Franken said, banks and corporations that issue debt pay the rating agencies to assign their bonds a credit grade. But if a ratings client is unhappy with his rating, he can just pick up his business and go to another credit rating agency.

"This inherent conflict of interest where the client is paying the agency for its own credit rating hasn't been addressed yet," Franken said.

Franken has proposed an amendment to Dodd-Frank that would create an independent body or board to assign ratings to different agencies. "This is a common sense idea," he said. "Instead of 'pay-for-play' as we have now, we'd have 'pay-for-performance.'''

But rather than create an independent body, Congress instead requested the SEC to study the feasibility of using an independent body to assign ratings. In the meantime the SEC is fielding comments on Franken's proposal until Sept. 13.

Barbara Roper, director of investor protection for the Consumer Federation of America, criticized the SEC, contending it hasn't crafted any proposed credit agency changes that have teeth to them.

"The SEC proposals now on the table don't match the severity of problem that they're intended to address," Roper said.

"It [the credit rating problem] is not over-we're not at the endpoint," Roper added. "We're at a point where there are decisions that still could be made that would dramatically improve the [credit rating] system. These are critically important issues; we've got to get them right or we will end up back where we were in 2008."

Eric Kolchinsky, former managing director of Moody's business line responsible for rating collateralized debt obligations backed by subprime mortgages, offered a ray of hope.

"The solutions here are not especially difficult," he said. "They're implementable, they're practical and they can be done. We cannot rely on the ratings agencies to police themselves."

--Jim McConville