Monday, August 3, 2009
Our Economy Is Not Going Anywhere Until The CRAs are fixed
There is a debate going on in Washington, D.C. as to whether the economy is coming back, coming back fast enough, or isn't really coming back at all. Politics employs just a handful of people, nevertheless, they have the attention of the media whether they know what they are talking about or not.
The domestic economy of the United States is coming back, but it is going to take some time. The problems associated with our financial markets, money & banking and the general state of the economy did not happen over night and can not be expected to be fixed in a few days, a few weeks or even a few months. The problems, if they are truly going to be worked on, will take a few years. In the mean time, I am not holding my breath because I know the politicians will not do the right thing unless pressed to do the right thing.
As I have written before, credit in the 21st century is, in my opinion, the most important form of money. Without credit, our style of economy does not grow. The few people, relatively speaking, that control credit and the formation of credit, come from the bottom of the ethical spectrum. Not surprisingly, as the problems with the capital markets, commercial and investment banking did not happen because of the weather.
The Federal Government, the politicians and all the king's horses and all the king's men have a hard time doing the right thing. Where is Spike Lee when we need him? Doing the right thing is so hard. There are always "reasons" for not doing the right thing. This time it is the credit rating agencies. The credit rating agencies are a failure, and without clearing that wreck from the economic highway, little if any movement will take place in our structured debt markets. In order to get the debt issuance side of the capital markets moving again, the wreck of the credit rating agencies needs to be cleared from the road.
The triple-A rating is the bright "green light" for so many bond portfolio managers and now that "green light" can not be trusted. Just when you pull out into the capital market's intersection, you get hit by a driverless semi broadside and your bond portfolio is trashed. To get the credit markets moving again, we need to correct the problems that existed in the first place. The conflict of interest between the credit rating agencies and the investment bankers has not been dealt with by the new regulations. Until someone has the guts to fix the problem, our domestic economy is not going anywhere.
That is my opinion, so we will see.