PIMCO Chief of Role of Credit Ratings Agencies

We've tossed around the role of credit ratings agencies in the financial crisis on the blog before, but nowhere near as well as PIMCO Chief Bill Gross does in this post.

HT--The Browser

Hell Hath Frozen Over--In Which I Agree With Paul Krugman

I wrote last week about the role of the credit ratings agencies in the fiscal crisis from which we are only now furtively beginning to recover. I cited them as a prime candidate for the kind of government regulation I am in favor of--the kind that makes markets more free--not less.

No fan of free markets, Mr. Krugman has a column out this morning in which he aims his bile at the credit ratings agencies and details their decline from honest broker to co-conspirator.

Even a blind squirrel finds an acorn now and then.

Fareed Zakaria On Goldman

Fareed Zakaria is a smart guy, a little too CNNish in a "global community" kind of way, but smart nonetheless.

He does a good job in this piece laying out the broad strokes of the government's case against Goldman Sachs.

At the end of the day, Goldman will walk because while what they did strikes many of us as wrong or unfair, it will not be found to be illegal. There continues to be a difference between unfair and illegal, and that is a good thing.

The Role Of The Credit Raters In The Meltdown

Very interesting story here about the role of corporate culture at the credit rating agencies, one that drove analysts to continue to provide higher investment ratings on vehicles and products then their analysis would support--because of the fear of lost profits from those whose products were being rated.

We had a very well-informed caller on the show Wednesday night speak at length of the role of the credit rating agencies in the melt-down, and this article seems to back some of that up.

When I think of financial industry reform, I always talk about reforms that make the market "more free". In this case, the fact that these ratings agencies were very likely rating these vehicles improperly to support their own bottom lines--favored one side of a market transaction over the other. This is not a free market. Here is where government could have a salutary role in regulating the activities of the ratings agencies.

Porn Caused the Melt-down

At last, we have it. We now know what caused the financial crisis. No, it wasn't a lack of regulatory authority. No, it wasn't a lack of regulators. No, it wasn't a lack of rules with which to regulate.

Turns out SEC folks were too busy surfin' porn.

Nice.

Biting The Hand That Feeds Him

Barack Obama is heading to New York today (to the famous Cooper Union College--where Obama's totemic spirit president Abe Lincoln gave the speech that catapulted him into the 1860 Presidential race) to give a speech on reform in the financial industry today. I look forward to the speech for several reasons, not the least of which is to see yet another example of the folly of campaign finance reform in play.

News this week was that Goldman Sachs senior execs ponied up for nearly $1M in contributions to then candidate Obama's presidential campaign. Has this money bought them ANY relent from the abuse of the President? Has it bought them a vote on the SEC which would have waylaid the suit brought this week against them for fraud? Nope.

I have a sweet sense of schadenfreude as I watch Wall Street get hoisted on its own petard at the hands of the Obama Administration. You guys--you fatcats for whom pocketbook issues long ago ceased to be a reality--you guys for whom things like taxes and budgets are things of the past--you guys, who have the liberty and luxury to care about great, weighty social issues because your own everyday problems are attended to by your money or one of your household staff--you who freely gave of your own money to this neo-socialist "reformer"--oh yes, he'll reform now. He'll reform you and the rest of us into the long, slow decline that is just over the horizon.

Wall Street needs reform--and Conservatives need to shape up and realize that. What Liberals don't realize though is the shape that reform should take--and that is, any reform MUST make the markets MORE free. Our financial system nearly collapsed under the weight of the dual evils of a legitimate regulatory structure that was not implemented, and the collective "thumbs on the scale" of government, policymakers, and big banks--any reform that does not address the advantage gained by these latter players in what is supposed to be a "free market" does not comprise reform worth having.

Paul Volcker On Financial Reform

Paul Volcker is an adult. He and Ronald Reagan tamed inflation and put the economy in a position to grow steadily (with a couple of small recessions) from 1983-2007.

He's got some thoughts on regulating the financial industry, and on their face, they don't necessarily bother me. These thoughts represent the core of the Obama bank reform proposal.

Vindictive tax schemes against banks and bankers just isn't the right way to go. That said, there may be some common sense restraints and regulations that could be implemented to deal with some of the systemic risk on Wall Street.

I think we should give Paul Volcker a good listen--much more of a good listen than we should give his boss.

UPDATE: Someone else thinks Volcker's ideas aren't too bad.

AIG

Global financial melt-d0wn contributor and poster-child for "too big to fail" AIG had a big day yesterday. More importantly though, look where AIG is compared to the March market low--up around 400%. Wonder what's going on there?