Skip to main content

Government's role in ratings agencies' failures overlooked

John Carney on, "The Missing Culprit at the Credit Ratings Hearings":

"While there can be little doubt that the ratings process was not what it should have been, it is hard to understand why the ratings of a venerable company like
Moody’s went so awry without focusing on the role of government regulation. Even more importantly, it’s impossible to understand why the poor performance of ratings agencies led to a financial crisis of such scale and extremity without delving into the role of government.

For decades, the has government all but guaranteed that the ratings process was reserved for a narrow oligopoly of just a few companies—primarily Moody’s and Standard & Poor’s, with Fitch a distant third. The main mechanism for this guarantee is a rule put in place by the SEC in 1975 that declared that brokerages and money market funds have to hold securities rated by a small clique of companies the SEC annointed as Nationally Recognized Statistical Rating Organizations.

Without serious competition, the ratings agencies had little incentive to improve their own performance. Even today, nearly every credit agreement created by a major U.S. financial institution requires a rating from Moody’s or S&P..."

Yep.

Tom Woods makes the very same point about the ratings agencies in his book, Meltdown. How can anyone have expected these firms to hand out timely and accurate assessments of credit risk in (once politically favored) mortgage-backed securities when their own politically protected existence, and profits, hung in the balance?

Popular posts from this blog

Lessons from Hedge Fund Market Wizards: Scott Ramsey

Today we continue our series, "Lessons from Hedge Fund Market Wizards" , with a look at Jack Schwager's interview with Scott Ramsey of Denali Asset Management.  Ramsey, a futures trader and CTA who works on the island of St. Croix, spoke to Schwager about his first foray into the markets, his evolution as a trader, and the process he stands by to protect and grow his clients' money. 1) . Ramsey started trading in college. He was roped into the OTC metals market via a broker's ad in the Wall St. Journal. The broker charged customers a flat fee to buy and sell as much as they wanted in a particular market for six month. At the time, Scott was a novice and didn't know about futures, so he traded metals in this fashion through the inflationary run-up of the late 1970s. 2) . Scott had to rethink his trading strategy after he bought silver at $50 an oz., only to watch it collapse to $26 following a long string of limit-down days. He sold as soon as the market...

Finance Trends 2019 Mid-Year Markets Review

Email subscribers of the Finance Trends Newsletter receive the first look at new articles and market updates, such as the following piece, sent out to our email list on Sunday (6/14).   Hello and welcome, everyone! If you received our last email notice over the July 4th holiday, you'll know that this weekend's newsletter will serve as a mid-year market update and a follow-up to issue #29, " How to Reinvest in a Rising Market ".   Ladies and gentlemen, without further ado, let's start the show...  Finance Trends Newsletter: Our Mid-Year Market Review When we last spoke, back in February, the U.S. stock market was rallying off its December-January lows. As the S&P 500 and Nasdaq reclaimed their 200 day moving averages in February and March, it became increasingly apparent that a lot of retail investors (and perhaps some institutional investors) were left under-invested while watching this recovery move from the sidelines.  The U.S. stock ...

How to "Pull the Trigger" on Your Trading Ideas

In our last post, I quoted hedge fund manager, Jim Leitner on the importance of following up on your investment ideas.  Today I'd like to follow up and share some thoughts on how you can learn to consistently "pull the trigger" on your best trading setups and investing ideas. In order to help you do that, we'll take from the best and offer up key insights from interviews with top traders and trading psychologists like Alan Farley, Brett Steenbarger, and Doug Hirschhorn .  Now before we get to their key insights on overcoming trading anxiety and pulling the trigger on your trading ideas, let's remember what Jim Leitner said in his interview: "Learn to love to listen to people and when you hear something interesting, follow up on it. Don't just think, "Well that's an interesting idea" only to find out a year later that the company you could've bought shares in is now up 500-fold. You never want to say woulda, coulda, shoulda...