Comments on: Blaming Moody’s

By: Greg0658

Greg0658 — Mon, 08 Dec 2008 15:11:50 +0000

me “for every agency” edit “for some agencies”

I was just conjuring an image of the Green White House vs. the Yellow White House and the yellow dollar and the green dollar economies.
:-) beneficial for the world I’m an artist and not a policy maker

By: Greg0658

Greg0658 — Mon, 08 Dec 2008 14:54:05 +0000

timpe Says: “So, here it is; let the government rate bonds etc, let the market price them.”

I was thinking yesterday we need 2 government offices for every agency. The Green team and the Yellow team. America loves game therory. Both get the same wage scale. The team that produces better gets more vacation time and a players cup. Hense that years loser team picks up the pace for ego and vacation sake or if deemed inadequate enough would get fired.

By: danm

danm — Mon, 08 Dec 2008 13:32:18 +0000

Moody’s would argue that it’s hard to keep good analysts under the old business model: compensation is too low.

Maybe the key is not looking at CEO compensation vs. that of the lowest paid employees. The answer might simply be making sure there is convergence between the remuneration of our top paid executives and those who regulate them.

By: timpe

timpe — Mon, 08 Dec 2008 13:09:01 +0000

Well, I am no wild eyed liberal but a bleeding heart capitalistic pig. And I recognize, like most market players, that the government plays an absolutely vital role in keeping the wheels of a free market economy going. In fact, there can’t even be a free market pricing mechanism for stocks or anything else without rules, regulations, transparency, standards etc. I know this first hand from living in a third world country where if I were to look at the books of a company I would be absolutely sure that all of it was a complete lie. If I look at the books of an American company, I can get SOME reasonable idea of where it stands.

The question is never whether we should regulate or not, or even how much regulation. The important question is how to regulate, what kinds of. We don’t need more, we need correct. And that which we already have needs to be enforced. Unfortunately, those enforcers in power now just don’t believe in their jobs (Cox and the naked selling rule which is already on the books). That is all part of a long term ideology that came to power many years ago. But, really, all ideology is suspect and should be treated with great gobs of pragmatism. Give me common sense any day.

And so, the idea that we can have publicly traded companies whose reasond’etre is to make money and that they be the evaluators of a bond is almost a non starter in my mind. Those who rate bonds or anything cannot have skin in the game – and how is a money making entity ever going to be skin free? It’s just not possible in principle. So why fight it?

Which leaves the possibility of an association (all bonds pay a fee in the transaction costs that goes to the association) or government agency doing the job. I would much rather trust some bean pushers in the sec (career people, not political appointees) to evaluate a bond, or say that it cannot be evaluated and rated, than anyone who might benefit from rating that bond. Is it perfect? No, of course not. Can there be political pressure? Sure. But there are ways of insulating the political pressure; the further you get from political appointees the less the pressure.

So, here it is; let the government rate bonds etc, let the market price them. It’s a mostly elegant solution that beats the hell out of tons of regulations telling private companies what and how to rate.

By: sparrowsfall

sparrowsfall — Mon, 08 Dec 2008 07:12:43 +0000

Barry, I’m still trying to figure out: what regulation would be smartest for ratings agencies?

I’d like to say, “can’t take money from issuers,” but I’m not at all certain there’s a feasible alternative business model, especially one that would well serve the public good. And, how do you keep it from applying to anyone who comments (publicly?) on securities? (Or should it?)

A cigarette-pack type warning on each paid rating would be good, but rather limp wristed.

Wild-eyed liberal that I am, I still think making them a public agency would be a bad idea, rife with conflicts and unintended consequences.

Ideas?

By: philipat

philipat — Mon, 08 Dec 2008 00:33:33 +0000

Quick or slow, these SOB’s must be convicted. The SEC (Remember the SEC? Did Cox ever show up at the Office?) must change the rules and in fact should already have done so to make rating (In terms of the transaction between the Ratings Agency and Company being rated) a no fee game. We really can’t allow this to be forgotten over time, and there will certainly be nothing to rate over the next several years. Let’s do our bit to ensure this doesn’t get forgotten about in the process of fixing everything else.

By: TheGuru

TheGuru — Mon, 08 Dec 2008 00:17:42 +0000

Read Michael Lewis’s article in Conde Nast Portfolio magazine — these ratings chumps NEVER even factored in depreciation of home prices. Totally disregarded a very probable event. They should be fed their gonads.

http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom

By: Mannwich

Mannwich — Mon, 08 Dec 2008 00:14:58 +0000

@dead hobo: I hear you. Don’t disagree. I think we’re on the same page here………think I misunderstood your original post. Mea culpa.

Again, remain mostly long and hope we have a quick recovery but I think this will be a longer and nastier than we think. That’s all. I’m flexible to change my outlook as the facts change though.

By: constantnormal

constantnormal — Sun, 07 Dec 2008 23:29:53 +0000

Interesting, the level of vociferous fervor here … while the mainstream American is largely completely oblivious to this, and a lot more concerned with the jobs or homes they are losing … how will we get them sufficiently connected to what is broken so as to motivate our corrupt legislators in the next round of primaries?

Maybe things will be so bad by then, with U3 well past 10% and U6 on its way to 20%, and another few million homeowners having been wiped out, that getting the attention of John Q Public will not be a problem …

By: jessica

jessica — Sun, 07 Dec 2008 22:50:19 +0000

Barry,
I agree with you. Please vent here with us. And yes, in the book, it would be shrill. And vulgar. Because something about a book would make it more literal (advocacy of sexual torture as state policy) whereas something about a blog let’s it be what it really is, an expression of emotion.
I suspect that few of those most responsible will be punished in any way. I think you know that and that is part of your frustration.
Beyond that, maybe this type of thing is inherent in a finance-centered economy (as opposed to a manufacturing-centered one for example). You quoted Confucius. (Is that quote real?) A Buddhist teacher told me that the reason we won the cold war is that their system was based on jealousy and ours on greed. And greed is a better foundation. Slightly.
I hope that the recognition spreads not only that finance needs to be regulated for the safety of all of us, but also that large financial players will invariably attempt to game the system.
More broadly, one cause of all this is the split that happened in the 60s. Many of those who would have pushed for higher ethics or cared about the possible impact on society at large rejected this whole field altogether. (That definitely applies to me.) Right now, I think genuinely responsible bankers could work for the good of society in just the way that a Peace corps volunteer or environmentalist tries to.
Yet more broadly, the economy needs to shift to a knowledge-centered economy, socially we are not ready, so the economy has stagnated for decades. This stagnation is so thorough and so universal that we do not even see it. One of the symptoms is a lack of adequate outlets for investment. So money flows to games. Which eventually turn ugly.
Another symptom is that many of the most talented lack adequate outlets for their creative capacities. So they flow to developing more and more elaborate financial games.
What a waste for all of us.