Moody's

Alan Grayson's e-mail on Moody's warning that it might reduce the US's AAA rating, suggested that Moody's was either threatening a downgrade because it wants to get the Bush tax cuts for the rich extended, or, alternatively, that “Moody's is living in what Aristophanes called "Cloud Cuckoo Land."” He says this because Moody's is upset about the possibility that the US may go over the so-called more »

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There's been a great deal of complaining today about Standard & Poor's downgrade of the US government's creditworthiness, but the time for talking about credit rating agencies is long past. There are four steps that can be taken now to end the rating corporations' reign of error.

These "agencies" aren't government entities, but they derive great power from authority conferred by the government. Yet banks and other institutions are allowed to hire the "agency" that rates them.

Picture a situation where the IRS has been "privatized," and taxpayers are allowed to hire the accountants that will review their payments for accuracy. (I know - I shouldn't give them ideas.) Everybody would hire the accountant that says they're due a huge refund, and pretty soon the entire system would collapse. That's not too different from the way the rating game works.

The moment for change was in 2008, when we learned of their key role the global financial crisis. But it's not too late to act now. Here's some background and a clear plan for ending the rating racket once and for all.

Bad Sheriffs

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(Author's Note: In December I posted a piece on Moody's threat to downgrade the US's Rating in International Bond markets. I argued that Moody's action was foolish. more »

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People are debating the need for a "systemic fix"to address the foreclosure crisis. What we really need is a systemic redesign, from the ground up. Fortunately, the design was laid down centuries ago - by 800 years of law, and by the idea that free people are entitled to limit the unwarranted power of others over their persons and property. These principles are a good foundation for structuring future negotiation, legislation, or regulation.

The President wooed corporate executives this week with a Wall Street Journal editorial called "Toward a 21st Century Regulatory System." What we really need is a 21st century banking system, built on ancient principles and not fly-by-night profiteering.

You could encode those principles in a document and call it the Borrower's Bill of Rights. You could even call it the Mortgage Magna Carta, since some of the basic principles involved date back that far. more »

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Yesterday, as reported in Money News, Moody's made me laugh, with the following pronouncements:

” . . . it could move a step closer to cutting the U.S. Aaa rating if President Barack Obama's tax and unemployment benefit package becomes law. . . . more »

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What happened to Moody's is what happens to every "agent" who thinks he can serve two masters. The sad thing is that it keeps happening, even though we've seen this movie before.

Credit rating agencies are supposed to monitor debt that's issued by financial institutions and governments. It's their job to protect investors from purchasing financial instruments that are misleadingly packaged or are riskier than the buyer can afford. These "agencies" hold extraordinary power - to destroy companies, to make people fabulously rich, even to influence governments.

The problem is they're not "agencies" at all. They're for-profit companies who have their palms outstretched to the big banks for revenue even as they're "policing" the soundness of their portfolios. more »

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There's been a lot of talk recently about the enormous power that's been given to the Deficit Commission, which is co-chaired by Alan "Social Security recipients are milking it" Simpson and dominated by people who have advocated cuts to Social Security and more »

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Today's Financial Crisis Inquiry Commission hearing on credit rating agencies promises to shed quite a bit of light on one of the most profitable and corrupt businesses in Corporate America. more »

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President Obama's Department of Justice announced last week that there would be no indictments in the collapse of AIG, an event which led to a worldwide economic collapse and cost the American taxpayer trillions. As someone who once worked for AIG I was shocked, but apparently that's how this mystery ends: Hundreds of millions of victims, smoking guns in every room, and not a perp to be found anywhere.

Yves Smith is disappointed that PriceWaterhouseCoopers, the auditors who signed off on AIG's financial claims despite mounds of disturbing evidence, escaped serious legal scrutiny. She observes that our "Potemkin" financial reform (her word) won't remove the barriers that prosecutors face in pursuing secondary parties like auditors (although I believe the Supreme Court ruling she cited only addressed civil suits.) Not only is the auditor protected, but that allows the fraudster himself to use the defense that he kept his auditor informed - kind of like Bush and Cheney using John Yoo's legal opinion to inoculate themselves from criminal prosecution.

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