By Dave Anderson:
The basic story of market competition is that the market should create strong incentives to not get things massively wrong because being massively wrong means losing money. That is the basic argument advanced to privatize everything and to minimize regulation. There should be no free and easy opportunities to profit because someone else should have already seen that opportunity and taken it; that is the bastardized efficient markets hypothesis that has been the guiding thought behind the past generation of political-economic thought in this country.
Well, McClatchey's is looking at Moody's bond rating service and the free market is fucked.
As the housing market collapsed in late 2007, Moody�s Investors
Service, whose investment ratings were widely trusted, responded by
purging analysts and executives who warned of trouble and promoting
those who helped Wall Street plunge the country into its worst
financial crisis since the Great Depression.
So the people who got it right and argued that the company was in line to lose billions of dollars in good will value as well as future revenue from a massive credit crunch got fired. The jackasses who ran the structured finance/ bond voodoo sections that said that alt-A ARMS with pick-a-pay options in the Inland Empire of California made to people who had no capacity to ever re-pay their debts without Weimer-esque hyper inflation could be restructured into AAA securities were promoted. Wonderful failure right there.
And the sad thing is that the bond rating agencies are no better today than they were two years ago. There is no need by either stricter regulations of the sanctioned big three, changing the market structure on who pays for a rating, or opening up the market place to full competition. I know that I have been tracking the Pittsburgh Rivers Casino revenue and bond issues more closely than the ratings agencies and that my concerns about viability are coming out sooner and in better detail than S&P. And that is just because I am a hobbyist and a gadfly on local policy and politics. I am not getting paid to tell people whether or not $700 million dollars is at risk.
Incompetence is rewarded, and we are amazed when we are blind-sided. Not good at all.
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