In my book nothing has changed as far as the credit rating agencies are concerned. The new rules amount to a bunch of nothing. That the investment bankers will not be able to "shop" a rating is a bunch of crap. There were loop holes in the new ideas before they even hit the ground. The future of structured finance is alive and well as far as Wall Street is concerned, but as for the investors and institutional fixed-income portfolio managers, I have this advise: Don't buy a pig in a poke!!!
I know my ideas are unrealistic when it comes to how Wall Street should be run and regulated, but then again, I have the luxury of not having to deal with all those lobbyists that invade Washington to press the case for the "poor folks" of Wall Street, the big investment bankers that brought you the bond market meltdown down and the financial crisis of 2007-08.
The second housing bubble will not happen immediately. In fact, it just might take a few years to get really blown up again. But, with the watered down nonsense that has been placed on the credit rating agencies as new regulations, it is coming, perhaps not right away, but it will appear again.
The triple-A rating should be in the hands of the Federal Reserve Bank because the triple-A rating on an investment security means something to the Fed, and to the stability of a commercial bank's portfolio of assets. Let the private rating agencies do the research, but let the Fed pass on whether the quality meets the test for a triple-A rating. That way the ability of the investment banker to "buy" the rating is cut off. As the system works now, the abuses are just a matter of a little time away. Triple-A rated paper for structured debt obligations means nothing as far as I am concerned . They don't hold water. They remain a joke. Buyer beware!!!
Stay tuned.
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4 comments:
I made a stab at reading the Fact Sheet on the Open Meeting on September 17, so that I might have a better understanding of what you've told us. Then, I took the trouble to do a layman's review of the July, 2008 Summary Report of the Office of Compliance for their examination of "select" credit rating agencies.
What amazes me is the way the SEC has framed the issues. You don't have to be a rocket scientist (nor do you have to understand the intricacies of the financial products), to see the SNOW JOB!
The July, 2008 Report makes specific references to "problems" they uncovered, but at no point did they use anything approaching strong or specific language on HOW to elimate the gaping holes they identified! The Conclusion basically said, "We're leaving it up to the agencies to police themselves and take corrective action." And, "Each credit rating agency was cooperative...." (Geez! Since when do you give the criminals an "at-a-boy" for doing the right thing? I guess you do it because they a) own you, or b) you want them to not to have you fired for telling the truth!)
Bottom Line: Reading these reports and outlines says to me that the SEC is complicit in these doings. (You've probably already said that.)
Does anyone -- does any agency -- come to the table with "clean hands?" You indicate that the Fed should control the ratings, and I don't know enough to debate that suggestion. But, as I think about it, I have to wonder about the Fed's complicity in this whole mess. A person can't help thinking that all the apples are rotten and we ought to burn the whole barrell! :o)
Meanwhile, Moneythoughts, you do offer us some shred of hope that, by some miracle, someone or some thing might emerge on the horizon and lead us out of this ever-widening catastrophe.
Thanks for that ray of hope!
Summer
I really don't care about the ratings under the triple-A. The credit rating agencies can do what they want with that part of it. But, the triple-A is special because the Fed makes it special. Just as the Food & Drug Administration (FDA) requires drug companies to submit there test results of the drug they are trying to get approved, I would like the Fed to give its stamp of approval to the triple-A credit that is brought to them by the credit rating agency asking for it to be given a rating of triple-A. If they buy off the Fed, then we know that the Fed was bought in the process and we know who to fire.
The changes the SEC required of the credit rating agencies is a joke, and a bad joke at that for the investing public.
By the way, everyone should read Krugman today in the New York Times on why banker's executive compensation should be policed. Good article to read.
I like what Dodd is proposing (not); all four current banks of regulation should be regulated under one central bank or organization. If I'm not wrong, I thought that was what his committee was suppose to be, the buck stops here committee. Let's just appoint another committee to watch the committee that is watching the rest of the committees that are.....and on and on. Maybe he could name a czar to do that watching.
Butch, now that you are retired, perhaps you could become a writer for SNL. The committee that has a sub-committee is an old game but taken to the extreme becomes great comedy!
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