A few weeks ago, as Congress raked various Goldman suits over the coals for peddling financial products they had later bet against, some observers complained lawmakers’ ire was being directed at the wrong culprits. It was the ratings agencies, the critics argued, that had made these doomed-to-fail packages of debt glimmer and shine. (Our colleague Barbara Kiviat described it as “slapping AAA lipstick on collateralized debt pigs.”)

The problem is a matter of incentives. Financial institutions pay ratings agencies to grade their products. The banks have all the leverage: if they don’t like a rating, they can walk and take their money with them. Compounding the problem is the fact that these firms are turning around and selling these instruments to someone else, so their motivation is to shop around for a favorable rating rather than an accurate one. The result, of course, is a bunch of securities that look very, very good but that can go very, very bad.

So while Senators chewed out Wall Street execs for hawking gilded garbage, an underlying systemic problem remained. Making matters worse was that the fact that the financial reform legislation being debated in Congress did little to address the problem. The Senate bill fell back on that easiest of deferrals — a commissioned study to examine the problem [punting noise].

Today, the Senate passed an amendment 64-35 that takes a legitimate crack at addressing the issue. Under the new measure introduced by Minnesota Democrat Al Franken, the SEC would form a panel to pick which ratings agency gets to grade each financial instrument, using either a lottery or rotating assignment system. But here’s the crucial twist: The chance any given agency has of being assigned to provide a rating would be weighted. The more accurate ratings an agency gives over time, the more business gets steered its way. Functioning properly, the system would undo the shop-around culture while incentivizing more precise ratings.