Wednesday, July 25, 2007

Stopping the Subprime Crisis

Joshua Rosner, a financial analyst writes in the NYT, 25 July, "But it is not too late for regulators and legislators to take steps to restore investor confidence and to ensure the future of these [CDO] markets. ... The willingness of Fitch, Moody's and S&P to rate as investment grade many assets that are apparently not has made structured securities ratings their fastest-growing line of business. Are we to believe that these securities are as safe as those of our most honored corporations?"

Rosner has no answer as to how to reduce the likelihood of the rating agencies poorly rating securities again. Increasing investor confidence is just continuing a con game. Rosner does not suggest repealing the 1995 Litigation Reform Act and letting these agencies get sued for malpractice. What has the SEC done to improve CPA audits for the last 31 years? Nothing. Similarly, the SEC will do nothing effective to clean up the "National" rating agencies.

1 comment:

Anonymous said...

Yup, hindsight being 20/20, everyone can agree that the ratings agencies either deliberately or stupidly screwed the pooch on that one!

The bratwurst is only as good as each individual ingredient used in its creation and the ratings agencies are coming to grips now with that reality.