Tuesday, March 17, 2009
The Credit Rating System Stupid
First things first: Happy St. Patrick’s Day to everyone that celebrates this day of friends, fun and drinking.
Yesterday at The White House there was a ceremony with President Obama and small business people from around the country. President Obama announced that the Federal Government would be buying between $10 and $20 billion in Small Business Administration loans from commercial and community banks. In his presentation at The White House, President Obama made mention of the fact that in order for banks to be able to continue to lend money to small businesses, that they would need the Federal Government to buy up these loans, so they can make new loans when they sell the old loans to the Federal Government. This is all well and good, but $10 to $20 billion is not enough to really get this economy moving.
A better way to do this is for the Federal Government to take over the credit rating responsibility from the credit rating agencies and guarantee that the Federal Government will stand behind the credit ratings of the small business loans that would then be bundled into bond issues and then sold around the world. If the Federal Government did this, the restriction of $10 to $20 billion would be unnecessary as supply and demand would take over.
I do not mean to continue to beat a dead horse, but when are these experts at the Treasury Department and the Federal Reserve Bank going to wake up to the fact that they can get a lot more money in the hands of small businesses around the country if they simply fix what is broken -- the credit rating agencies. As I have written before, this is not brain surgery or rocket science. Bundling loans into debt obligations is nothing new as we have been doing this for years. With a responsible credit rating system the flow of credit can once again be up and running.
At some point, these bright well educated men have to figure this out. It is the credit rating system stupid.