The Ongoing Credit Agency End Game
The regulatory reforms of the Credit Agencies are coming soon. All I can say is its long overdue.
AP excerpt via Yahoo:
“Federal regulators on Thursday proposed new rules designed to stem conflicts of interest and provide more transparency for Wall Street’s credit rating industry, which was widely faulted for its role in the subprime mortgage debacle and the financial crisis.
The five members of the Securities and Exchange Commission voted at a public meeting to propose rules that could reshape an industry dominated by three firms: Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. Their practices would be opened wider to public view and subject to some restraints.
Regulators say they also hope to spur more competition in the rating industry, with new entrants challenging the dominant firms.
The proposed rules, which were opened to public comment, could eventually be adopted by the agency, possibly with revisions.”
You can see all of my prior Rating Agency criticisms here . . .
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Previously:
The Abysmal Track Records of Moody’s, Fitch and S&P (November 21st, 2007)
http://www.ritholtz.com/blog/2007/11/the-abysmal-track-records-of-moodys-fitch-and-sp/
David Einhorn on Credit Agencies (November 21st, 2007)
http://www.ritholtz.com/blog/2007/11/david-einhorn-on-credit-agencies/
Sources:
Missing the Mark On Ratings-Agency Reform
Steven Pearlstein
Washington Post, September 18, 2009
http://www.washingtonpost.com/wp-dyn/content/article/2009/09/17/AR2009091704608.html
California probes credit rating agencies
Peter Henderson
Reuters, Sep 17, 2009 11:14pm EDT
http://www.reuters.com/article/pressReleasesMolt/idUSTRE58G7A720090918
US gets tough on ratings agencies
http://news.bbc.co.uk/2/hi/business/8262209.stm
Jerry Brown joins the credit rating firm pile-on
Tom Petruno
Money & Company, September 17, 2009 | 12:36 pm
http://latimesblogs.latimes.com/money_co/2009/09/is-there-an-easier-target-today-than-the-credit-rating-firms-that-helped-bring-us-the-subprime-mortgage-catastrophe–under.html
SEC proposes new rules for credit rating agencies
MARCY GORDON
AP, September 18, 2009
http://www.google.com/hostednews/ap/article/ALeqM5gQ-pDQ9vFb766JMBtICQjnsBrNigD9APA9E81
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September 18th, 2009 at 11:05 am
Really why do new laws matter when they did nothing with the old ones? Do you really think the government will, “do it right this time”………..based on what track record?
Trust is Toast, lol………..
September 18th, 2009 at 11:40 am
Absolutely correct.
We should have a moratorium on all new legislation. We don’t need any more laws; they don’t enforce the ones we currently have. Plus every time, they open Pandora’s Box, there are new supposedly unforeseen outcomes (which I am beginning to believe less and less).
If they would only reinstate Glass-Stegal immediately, that would help to restore the lost confidence of the retail investors who now know exactly what’s going on in DC and on Wall Street and they ain’t playing.
A condensed version of investor sentiment right now might be something like “Go fuck yourself!!”. You know… that is actually quite accurate when you think about it.
September 18th, 2009 at 11:56 am
I was on my way in to work this morning and heard a short interview with Orin Hatch on his response to the new Senate plan for HCR. What struck me was his statement “If you think that Washington can effectively run the health care system then I have a bridge to sell you”
It occurred to me that this Senator was in affect saying “we suck, we can’t do our job, you cannot trust your government to be efficient”. What enraged me, was that this Senator, an elected representative of this very system seemed so cavalier about the remark.
When we have our own elected representatives telling us that our government is inept, how can anyone be optimistic about our future and the ability of our elected officials to make the right choices in our favor or affect any real change.
Credit Agency ratings aside, we are in the midst of the most severe economic downturn since The Depression, we have a Democrat in the White House and super majorities in both houses of Congress, yet no real changes have been made to our broken system.
PS – Happy Friday :-)
September 18th, 2009 at 12:21 pm
WADR, how on god’s green earth can a government run efficiently?
With all the cross currents, divisive interests, multi-racial-cultural-language-social-financial diversity in this country there is only one solution and NO ONE seems to want take oit seriously:
BREAK UP THE UNITED STATES into manageable pieces.
We need to look more like Europe.
I agree with Orrin Hatch. What I don’t agree with is paying these bastards what they get paid for showing up.
The wage should reflect what these people are worth, and minimum wage would be top rate.
Cut their compensation to the bone as the first step.
September 18th, 2009 at 12:32 pm
All the changes and regulation you want would also bring down leverage from a ratio of 20-30X
to 10-15X. In other words: a systemic collapse.
Not going to happen overnight.
September 18th, 2009 at 12:34 pm
ahhhhhhhh Thor, a cathartic moment…………..that is our leaders, they set the tone and evnvironment………….fwiw, i’ve found medicare is 3 times as easy to deal with versus any other insurance company in my life time……
September 18th, 2009 at 12:35 pm
and considering the mess they created they are back at it again
http://www.spiegel.de/international/business/0,1518,649430,00.html
why in the world can we not get it through our heads that given enough rope, the financial wizards will kill us …again and again?
they have done it before. they will do it again.
their track record is spotless as far as messing every thing given have a chance
September 18th, 2009 at 12:45 pm
I think nothing really serious happens to them.
Too many things, from fund managers being able to buy without doing due diligence, to availability of Fed funds facilities, depend on the ratings.
September 18th, 2009 at 12:54 pm
They will all get promoted and have nice year-end bonuses. The rest of us can eat cake.
I really think if the Street doesn’t clean itself up, there will be social unrest eventually.
September 18th, 2009 at 12:54 pm
Thor that’s been the Republican platform for years… they sell people on “The Government doesn’t work”, then get elected and prove themselves right, making lots of dollas from lobbying along the way. The Democrats apparently liked the way that looked, only they take a “We just don’t have the power” angle instead.
Both should cause their respective orators to attract a large amount of tar and feathers. We the People are so far from being able to truly hold our leaders accountable.
September 18th, 2009 at 12:59 pm
“why in the world can we not get it through our heads that given enough rope, the financial wizards will kill us …again and again?”
It’s amazing. People keep on walking in off the street and handing over their hard-earned chickens to Mr Fox.
September 18th, 2009 at 1:03 pm
Nothing new to see here.
Putin says U.S Debt out of control.
http://finance.yahoo.com/news/Russias-Putin-says-US-debt-apf-3505475808.html?x=0&sec=topStories&pos=6&asset=&ccode=
September 18th, 2009 at 1:11 pm
fwiw, just had an interesting conversation with my brother, we are texans, in 82 we started all the S and L crap, well here we stand in 09 and mostly we did not have a real estate boom or toxic banks, now why could that be………..well the good old boys all ended up in jail and broke, every texan knows the story…..funny how laws work, you enforce em for the right reasons and people remember
i mentioned a day or two ago g20 is gonna have alot of tongue lashing, imho, they didn’t disagree with what we did, it is how we handled it, the other countried fired there bankers, we paid ours more money, for some reason they think that is insane…….persky ferriners
September 18th, 2009 at 1:15 pm
It occurred to me that this Senator was in affect saying “we suck, we can’t do our job, you cannot trust your government to be efficient
—————-
Wait a minute there. He’s a Republican. Republicans are out to prove that big government does not work. That’s in their mission statement.
September 18th, 2009 at 1:18 pm
Thor;
Hatch like all the other GOP Senators, and the Blue dog “democrats”, and Fox news, are all just shilling for Wall Street. If government cannot be trusted with power, then big money is completely free to do whatever it wants. And just in case there is not enough pinheads who bye into this anti-we-the-people BS, then they have made sure that political campaigns are finainced by private donations (and who would want to bite the hand that feeds you). If one strategy fails then the other will back them up. In the mean time the sheeple off course is all concerned about taxes and gobinment spending, while the cost of being robbed blind by Wall Street is approaching a quarter of our GDP.
September 18th, 2009 at 1:19 pm
danm – yes I know. That’s the first thing I thought of, it still pissed me off though.
September 18th, 2009 at 1:23 pm
Good piece
Cuomo Rewards the Rating Agencies
Joshua Rosner
Jun 9, 2008
http://www.rgemonitor.com/financemarkets-monitor/252748/cuomo_rewards_the_rating_agencies
September 18th, 2009 at 1:26 pm
flipspiceland;
“Cut their compensation to the bone as the first step”
There is a brilliant idea; why don’t we just charge them for it instead. That is how private busiess makes sure to get the most competent people, right? Its not like the temptation to be for sale gets any bigger if you cannot feed your family, is it? If that is your solution then why not simply put those seats out for bid, and let the higherst paying Wall Street company directly fill the spots in our legislative branch.
September 18th, 2009 at 1:57 pm
The government’s leaden hand moves all of this. First, pensions and ira’s and foundations–all government-sanctioned entities playing with other people’s money–are issued directives giving the quality of assets in which they can invest OPM. Then the government sanctions the ratings agencies to provide quality ratings on these assets. Then the government floods the markets with money seeking above-market returns. Then the ratings agencies, sanctioned as quality overseers by the government, gets with the sellers of investments, and alchemically creates investments that bear above-market returns but carry the safest ratings. They are so clever. Positive and causative risk and return correlation seems to have been broken.
Then it all falls apart, because it turns out they weren’t so clever after all. So now, the government decides to engineer some new nonsense regulation to prevent the same thing from happening again, even as it was the system the government devised that is to blame. In other words, the government pretends to reform itself. But it doesn’t really, and anyway, while it is tweaking regulations, it is still printing money with no where to go to find a proper risk-adjusted return. And it all starts over again. That’s about where we are now.
September 18th, 2009 at 2:04 pm
DeDude
Agreed. It’s like law enforcement. Paying them very little only leads to more corruption. Those with power who are under-compensated will always be more corrupt. The challenge is in finding the right balance, of course. And having very low compensation will only attract those with other means (like being paid by industry) to run, while shutting out the true “citizen representative.”
It’s like the dilemma of the rich person going into politics. On the one hand you don’t want people to be able to just buy their way into office, but then again if you get the “right” person who has all the wealth they need, they will be much more able to be independent and tell the moneyed interests to “stick it.” It’s never black and white though.
September 18th, 2009 at 2:13 pm
Duh? Did they just find out about that?
Home prices won’t reclaim peak this decade: Moody’s
http://www.marketwatch.com/story/home-prices-wont-regain-peak-this-decade-moodys-2009-09-18
September 18th, 2009 at 2:15 pm
manhattanguy
It’s slowly sinking in, maybe; the depth and breadth of this fiasco and the consequences.
September 18th, 2009 at 3:35 pm
SHANA TOVAH
Have a very Happy and Peaceful New Year
According to the Jewish calendar, the year is 5769. According to the Chinese calendar, the year is 4706. This means that the Jews went without Chinese food for 1,063 years. This period was known as the Dark Ages.
September 18th, 2009 at 3:46 pm
Onlooker;
It has always been striking to me that at the same time as we all complain about the quality of the political leadership and government, nobody seems to consider the incentives used to attract those leaders.
I personally would not want to go through the humiliating process of Senate confirmation to get a top government job. Yet people are complaining about Geithner and Summers as if anybody else would actually take the job. Voters are also complaining that people after some time in a high level government job (paying a fraction of their market value in the private sector) goes out and get a highpaying lobbying job. Well why the heck do voters think these individuals are sacrificing themselves at less than half the compensation they could get other places.
The political offices are even less attractive, because almost half the time is spend trying to get rich people to give you money so you can afford to run an effective campaign. On top of that you have to live with a constant personal smear campaign from opponents. Why the heck would good competent people subject themselves to that, just to get a job that is compensated at about 10% of what comparable responsibilities and work would give them in the private sector.
September 18th, 2009 at 3:54 pm
re; Political Office
Why would somebody spend two million dollars to obtain a job that pays less than $200,000 a year? And said job is only for two years (House of Reps)
This leaves about $160K to ‘make up’ for in less than two years.
Gotta get busy on the peoples business, doncha know.