I read or heard recently that the NFL is considering placing cameras on the goal lines of football fields. That is great that the NFL wants to get it right on every touchdown. Now all we need to do is put "cameras" on Wall Street so we get the bond ratings right.
It was just a few weeks ago that the three heads of the three largest rating companies sat before a committee of Congress and told our Representatives that the bond ratings they gave out were only opinions.
I know for many of you that read my blog, the few that put themselves through this torture, bond ratings are not the most pressing thing for our economy to correct. Nevertheless, like playing with a bad deck of cards, bond ratings and the confidence that flows from the financial concepts that these ratings nail down are vital to the flow of capital and the creation of jobs throughout the country.
By restoring confidence in the entire rating system and process would go a long way towards rebuilding the confidence in the financial instruments that are traded everyday in the fixed-income markets.
Back 40 or 50 years ago bond ratings did not mean as much to the financial system as they do today because the size of the debt instruments outstanding were not as large and everything then was "plain vanilla" as far as bonds were concerned. Today, the creation of asset-backed bonds and their derivatives has made the situation a lot more complicated as well as the size of the bond market.
Without some serious changes to the rating of debt in this country, and a rebuilding of confidence in the debt securities that are underwritten and sold, the economic recovery will not get off the ground. Secretary Paulson, if you are any kind of a financial mechanic you will understand this. The head of the Fed, Ben Bernanke, better get on top of the rating disaster too. This problem will not take care of itself.
I guess I will never understand why, we as a nation, are more interested in getting our touchdowns right than our bond ratings. But, I will leave that one to our professors of sociology to answer.
Stay tuned.
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2 comments:
Well, it's because touchdowns are worth six points. Accurate bond ratings are only worth a point or two, at most. Of course, two points on a million bucks ain't nuthin' ta sneeze at, it ain't.
I am beginning to wonder if they, Paulson and Bernanke, know what they are doing. I wonder if either one of them every did anything with their hands other than push a pencil? A good mechanic knows when you can get away with a minor repair or a small patch job, but it takes someone who is a master mechanic to know when the whole roof needs to be done or the whole engine needs to be rebuilt. They will futz around with this financial crisis until the markets tell them that a patch job will not get the job done. Perhaps then they will see the light and call for the placement and responsibility of debt ratings to rest with the Federal Government. No one should be able to "shop" a AAA rating. When they realize that the market is looking for that kind of leadership from the government, then perhaps we will see the markets move back up in value.
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