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.

Stay tuned.


Butch said...

CRA's are truely important and the need to correct the lack of importance to these agencies is of the highest concern. Oh wait a minute. Did I hear some in the government saying the worse may be over? Are the mathheads on TV considering this to be the beginning of a recovery.

Everyone is talking like it is. The hype has started. They tried it shortly after Obama got in, trying to give postitive news instead of the negative but truthful side of the news.

I just read an article in the Washington Post about Money Markets and commercial bank savings accounts. It is about which ones are safe and what the SEC thinks should be done as far as Money Markets go. Paul Volcker and the G-30 think there should be something done, but.....

The last two small paragraphs say it all about catastrophes, after a period of time it becomes "over" and a dead issue. Unfortunately I believe that the CRA's will become an issue of the past. I believe Goldman Sachs will become an article also ran. The only way they won't is if you and those like you with experience keep up the talk. People like you and Matt Taibbi, yes I put you in a category with him, are the voice and the instructors of things that people not associated with the world of finance.

Keep up the good work and thank you.


moneythoughts said...

The Obama administration may not know this, but they need structured financing to bring the economy back. Structured financing is not coming back until the CRAs are fixed. Really fixed, not Washington bull shit fixed!!! Without credit and the debt managers to buy the bonds, there will be no recovery. At some point, the Obama administration has to figure out that without an economic recovery by 2011, there isn't going to be a second term for President Obama. Who wants to explain it to the Obama administration that the CRAs is the key to President Obama's re-election.

The clock is ticking.