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Friday, March 20, 2009

WORSE Than AIG. Seriously.

world globe in handImage by jeco via Flickr

See that crushed up globe. That's the world. See the hand crushing the globe - that's the hand of the credit ratings agencies.

Ok, yes, I was and am outraged about the whole bonus matter at AIG. Can you believe anything can be worse than that? OH YES! We need a new word in the dictionary to describe the credit ratings agencies because "outrage" will not do. Have you read this madness? Ratings Agencies, To Blame For Some Of The Crisis, Could Now Benefit. The article references today's Wall Street Journal Article: Raters See Windfall in Bailout Program

See this outrage:

"The new rescue effort, run by the Federal Reserve, kicked off Thursday with bond deals totaling more than $7 billion. Each bond issue will need to be blessed by at least two of the three big rating firms: Moody's Investors Service, Standard & Poor's Ratings Services and Fitch Ratings."

WHAT? "Blessed"? Who are they to "bless"?

Please revisit my post explaining in detail why they have no "blessing" credibility: Rating The Rating Agencies

Consider: The ratings agencies told AIG all the garbage they were buying was the greatest thing since sliced bread. The ratings agencies branded all the garbage as priceless so the whole world would buy them. Everybody bought all the garbage and now we are in a mess. When AIG was scrambling for funds to meet the contract requirements of the Credit Default Swaps and the whole financial sector was in a free fall, what did the ratings agencies do? They threatened to downgrade. Well, if you are a country or company looking for funds, and the ratings agencies say they are about to downgrade you, no one will give you one cent. Did I say that the ratings agencies were the very reason why AIG bought the garbage in the first place?

Consider: AIG has a financial products problem that is SO huge that it impacts the entire global financial system. It is "too big to fail". On the other hand, the ratings agencies can rate EVERYBODY - so all products, all countries. The rating agencies have had FAR MORE POWER to destroy the ENTIRE global financial system and the ENTIRE global economy. The ratings agencies make AIG and its dramas look like kindergarten stuff. Ratings agencies can literally cause world war. They are "playing" with a lot of people's lives with rating sovereign debt, in particular. When countries are downgraded, they have difficulty accessing funds. When they need to make decisions so people can live - literally - they have to live under the written threats of further downgrades. The decisions that let people live are usually the complete opposite of what the credit agencies threatens the countries that they better not do or else. Seriously, these ratings agencies think they run countries - and quite frankly they are allowed to. Even the IMF has better bedside manners. The ratings agencies care ZERO about development. At least the IMF will talk about poverty. Can you imagine? The ratings agencies make the IMF look generous. An entire economy and society can hinge on a few utterances from these rating agencies. And if they were right, I would say - it's part of the system. But they're wrong. That's the shocking part. And they are unsupervised with no transparency. Utter madness.

Consider: The rating agencies caused this mess AND admitted that they were wrong, but they are STILL allowed to rate even through they are STILL wrong. They are driving the nails into the coffins of the entire global financial system and companies and countries. If they make a mess of the global economy, and everyone's prospects dim, how do these ratings agencies be allowed to downgrade them? These ratings agencies have to take responsibility. Whatever they say, people still listen to them. So if you are a sound company, and a ratings agency gets it "wrong", too bad for you and your employees. Many companies would be here now, many jobs would be here today if these ratings agencies were suspended after Lehman collapsed. Congress needs to do that analysis - what companies suffered and jobs were destroyed because ratings agencies were allowed to keep chattering after Lehman collapsed. Try this analogy: If the financial sector was bleeding, the ratings agencies opened the wounds wide and made new ones - and the ratings agencies were the ones that inflicted the wounds in the first place! And if you are the Government, the ratings agencies can shut down your relief effort. Don't believe me? From the WSJ article:

"One of the biggest concerns surrounding TALF is the seemingly arbitrary nature of ratings decisions. Many of the ratings firms, for example, changed their view of one part of the auto-financing sector, deciding that loans made to auto dealers were far riskier than they previously thought.

Their downgrades meant that bonds backed by loans to those dealers would be unlikely to get triple-A ratings, effectively shutting them out of the TALF."

NOW, hear this one, the US government's $7B bond rescue effort REQUIRES rating by these agencies. What is the US Government ON? So they are going to listen to these people who caused the mess, said they are wrong and still make a mess? And I hope you are sitting down because they are actually going to PAY them for this service - with taxpayers funds - YOUR MONEY. No, I ask again - have we collectively lost our minds?

Want to know how much money?

"Rating services typically charge $40,000 to $120,000 for every $100 million in so-called structured-finance securities they rate. For the initial $200 billion portion of TALF, that translates to $80 million to $240 million. If the program is extended to $1 trillion as the government plans, those fees could skyrocket to anywhere between $400 million and $1.2 billion."

You know what. I've been very supportive thus far, and tried to be very understanding. But I think that something is gone really wrong here. Forget too big to fail. Let the whole entire thing collapse and let some other monetary system take its place, and some other financial sector system take its place. Because what is happening now is not only completely illogical and completely counter to any form of recovery, frankly it is extraordinarily insulting to any normal person's intelligence.

Americans, citizens of the global economy, are we really going to take this?

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1 comment:

J. Marczyk said...

I couldn't agree more.

What is incredible is that rating agencies (some have been sued by Ohio, Connecticut, etc.) continue to thrive with impunity! Who is behind this? This state of affairs must benefit someone. so who are those people?

Ratings should be democratized (see our recent article: http://www.ontonix.com/index.php?page=31&vedidoc=y&IDDOC=496 ). We need a totally different approach to ratings and the three agencies must simply go! Game over! But before they go, they should give the money back!

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Reasoning The Reasons by Deika Morrison is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.