Monday, April 26, 2010
Rules & Common Sense Must Prevail
Almost from the beginning of MONEYTHOUGHTS, I have written about the role that the credit rating agencies played in the financial crisis. I have taken the reader, step by step, through the process. But, I am not a PhD. in economics nor am I a professional writer or journalist with a column in a newspaper or magazine. Today, one of my brothers, I have two, sent me an email with a link to Paul Krugman's article about financial regulation and the credit rating agencies and the lack of needed reform to prevent the conflicts of interest that the credit rating agencies have with the investment bankers that underwrite the mortgage-backed bonds. So, because a person with a Nobel Prize in Economics and a teaching position at Princeton University is more creditable (I wish I could have thought of another word) than me, I will give you all an opportunity to read what he has to say about this subject - the credit rating agencies and financial regulation. So, below please find the link to Paul Krugman's article.
Those that know and understand how a bundle of mortgages becomes a mortgage-backed bond and then sold to pension funds and other institutional clients around the world, also know that without a change in the way the system works as far as the credit rating agencies and the investment bankers are concerned, that we are indeed heading back down that same road that brought us to the point of the bond market meltdown in 2007-08. Getting the politicians in Washington, D.C. to understand this is a whole different kettle of fish. Lobbyists do not get those big bucks for sitting on their hands. They work hard to tell their side of the story. The only problem is their story brought this country to the point of a financial crisis that the Federal Government needed to rescue. If you do not want the Federal Government coming to the rescue, rules and common sense must prevail.