Wall Streeters Should Pay

Yesterday, a friend told me that she heard them talking about the credit rating agencies on National Public Radio (NPR). This is good news. With the recent vote in the Senate (95-5) for credit card reform, perhaps, now that all the BS issues have been played out, we will see a new direction being taken, and that the issue of bond credit ratings coming from public or privately held corporations will be debated.

I do not think that there are many people in the United States that would argue that credit cards are not a vital piece of our domestic economy. Just about everyone has at least one credit card. If you travel and check into a hotel, the first thing they ask you for is your credit card. If you go on-line to buy a plane ticket or anything else, such as a book, a pair shoes or even an HDTV, you need to use a credit card to complete the purchase. Credit cards facilitate, and credit in the 21st century in America is money. That the credit card receivables can be bundled and securitized, made into a security that can be sold and traded in the bond market, is yet another dimension of what in the old days was referred to as money and banking.

Now that we have established the importance of credit to our domestic economy, perhaps the issue of the credit rating agencies, and their relationship to the mortgage bond market, the underwriters of mortgages into mortgage bonds will be debated. Financial bubbles are facilitated by the flow of credit, and the credit rating agencies that place their triple-A rating on mortgage bonds enables that bubble to grow. The problem, and I have made the case several times, is that the credit rating agencies are public corporations whose need to grow their bottom line, and their executive’s greed for bigger salaries and bonus, leads to their triple-A rating being given to mortgage backed bonds that should not receive this highest of bond credit ratings.

It is my opinion, that without the responsibility of bond credit ratings being placed with the Federal Reserve Bank, so they can no longer be shopped by the underwriters, that it is just a matter of time before the next financial bubble will occur. While I have no illusions about the difficulty of the Federal Reserve Bank being true to their responsibility, if they took over the responsibility of placing credit ratings on mortgage backed bonds, I think that if the penalties are severe enough, say hanging if convicted, that this should act as a deterrent.

People that play with our economy, and have the opportunity to make the big bucks, should also know that if they break their responsibilities they will pay a price. Too many Wall Streeters, in my opinion, have committed fraud and are not being prosecuted. This kind of behavior is only encouraged if no penalty is required.

Stay tuned.