The Trillion Dollar Question

This week, I got back on track and started beating my drum about the credit rating agencies, as I have done for many many months. The big three credit rating agencies had a huge impact on our recent financial crisis, the bond market meltdown and yet, these three companies must have a lot of political friends because they remain untouched by this whole affair. Who is protecting these fuckers? That is the trillion dollar question!!!

Others have written about the problems with the CRAs, the conflict of interest they have in the way they are paid by the investment bankers seeking the triple-A ratings, and yet these three companies keep dodging every bullet. Why?

In review, the Fed requires that banks hold triple-A credits in their portfolios. This is a requirement set down by the Fed. I have argued that, if the Fed thinks that owning triple-A credits is so important to the stability and safety of a commercial bank's portfolio, then why not have the Fed take over the issuance of the triple-A rating process? If this rating must mean something, then does it not follow that the Fed would be the best source for establishing what constitutes a triple-A rating? How many times can we afford to have the three major credit rating agencies be at the apex of a financial crisis?

I have suggested, in an earlier post, that there has to be some limit, a number in dollars, as to how many triple-A mortgage-backed bonds can be securitized over a given amount of time in the United States before the value, or meaning, of the triple-A rating comes to mean nothing. I will let the economists and mathematicians figure out what that number should be, but this I know, it can not be infinite.

Yes, there are other problems that need to be worked on to prevent another financial crisis, but the problem of the credit rating agencies is really at the molecular level of our financial problem. And, in my opinion, until this piece of the puzzle is dealt with in a forth right and honest manner, we are headed back to the same kind of financial crisis we just came from.

Stay tuned.