The government is now in the mortgage business and the insurance business. I am sure others will expound on the AIG debacle and all of its implications in due course. I just wanted to point out the something that should make me laugh so hard it brings a tear to me eye… instead it just brings the tear.
Just before each financial giant goes down, there is a final blow. One last lynchpin pulled that leads to the immediate cessation of breath for a company: the ratings agencies lower the company’s credit rating. Standard & Poor’s, Moody’s, etc. take a look at the mortgage based assets the company is carrying, look at the write downs still to come and make an assessment on the credit worthiness of that company. Once their rating drops they cannot borrow money at a cost that allows them to remain solvent and “a-begging they will go.”
Now that is the job of the ratings agencies and I do not begrudge them their responsibility. Here’s the funny part though. The failing, mortgage-based assets that are crushing these financial companies (and now an insurance company) were originally purchased, to a large degree, based on the credit worthiness assigned them by… wait for it… wait for it… these self-same ratings agencies! Imagine the hubris of being so, so wrong in their primary mission of evaluating the creditworthiness of an investment vehicle, then lowering their evaluation of the creditworthiness of those companies that purchased the very investment vehicles they failed to correctly evaluate! Talk about having your bread buttered on both sides. I know there is a great joke in there somewhere. I am just too terrified to find it.
Welcome to the other side of the looking glass.
David Shafer says:
Don’t know whether to laugh or cry on that one!
September 17, 2008 — 9:38 am
Tom Vanderwell says:
How about both at the same time?
It’s a sign that the fundamentals of our financial system aren’t sound right now…..
Tom
September 17, 2008 — 9:54 am
Michael Cook says:
For even more irony guess who pays for the ratings??? Yep, all these wonderful banks that issued this paper, paid to have it rated and now their golden goose is crapping all over their golden eggs.
When is someone going to talk about changing the ratings system. To have rating agencies paid by the companies that they rate is like having the seller pay the buyer’s agent fee as a percent of the selling price…oops, perhaps I should have picked another example.
September 17, 2008 — 10:28 am
Sean Purcell says:
David – I’m leaning toward crying (I’m tired of pounding my fist).
Tom – The fundamentals of our system are sound, it’s the fundamentals of some of the players I question. 🙂
Michael – You’re killin’ me!
September 17, 2008 — 11:58 am
Dave Phillips says:
Sean, what’s the big deal? Can’t the feds just keep printing money until everyone is taken care of? Are the printing presses at the Treasury maxed out? Can we add a third shift and print more, or maybe print more $100 bills and less smaller denominations?
The real question is…why have I still not seen someone do the perp walk with all this mess?
September 17, 2008 — 2:15 pm
Sean Purcell says:
Dave,
Great to hear from you. I can not think of a single reason why we shouldn’t just print more money. I say print money as fast as possible. Then, if we are finally done with this real estate nonsense, I heard the Dutch got a great thing going with Tulips…
September 17, 2008 — 3:00 pm
jaybird says:
Don’t know if photos are allowed to be posted here but here’s funny political cartoon just in case
If not allowed no worries.
September 18, 2008 — 6:03 am
Greg Swann says:
> here’s funny political cartoon just in case
No esta aqui. An img tag will work here.
September 18, 2008 — 6:20 am
jaybird says:
I did an tag. Do you mean those are not allowed or did I do it wrong?
j
September 18, 2008 — 6:41 am
Greg Swann says:
Nothing there. Send me a link or an image and I’ll fix it.
September 18, 2008 — 8:52 am
Dan says:
So who rates the rating agencies?
September 18, 2008 — 9:14 pm
Sean Purcell says:
Dan,
I’d love to say that’s an interesting question… but I don’t see anyone caring thus far.
September 18, 2008 — 11:31 pm