Tuesday, December 23, 2008

Bloomberg News questions value of ratings agencies

If a poll was taken today asking Americans:

Is the Federal Reserve part of the government or is it private?

I suspect most people would say it's part of the government.

Yet I recently mentioned that Bloomberg News had to FOI* The Fed, demanding Bernanke reveal the people / banks who had recently received $2 trillion of his monopoly money** that he loves to print... to which Bernanke claimed some sort of "trade secret" embargo on revealing information. This guy is unbelievable.

And now Bloomberg News continues their hot pursuit of America's arrogant central planners central bankers - Bush's Bernanke and Obama's Geithner:

Dec. 18 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke is basing hundreds of billions in emergency lending on credit ratings from companies that gave AAA grades to toxic securities.

The Fed has purchased $308.5 billion in commercial paper and lent $631.8 billion under eight credit programs, most of which require appraisals of short-term debt and loan collateral by “major nationally recognized statistical ratings organizations.” That, in effect, means Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.

It is foolhardy to rely on the three New York-based companies, said Keith Allman, chief executive officer of Enstruct Corp., which trains investors in financial modeling and asset valuation. The major raters issued top marks to $3.2 trillion in subprime mortgage-backed securities at the root of the financial crisis.

“They’re outsourcing the credit assessment to a group of people whose recent performance has been unbelievably bad,” said Allman, the New York-based author of three books on structured finance and a former vice president in Citigroup Inc.’s securitized markets unit.

So people-in-the-know are describing the actions of Bernanke / Geithner as foolhardy. Personally, I think it may be more appropriate to drop the last two syllables and describe them, not their actions.

And since the ratings agencies have now been largely discredited, let's not forget that the Council majority pushed through their fund balance policy earlier this year. And it was based largely on the fallacy that the ratings agencies were important.

Since the ratings agencies were a major participant in this mess, I'll be surprised if they're not hauled in front of Congress in 2009 to explain why they were such failures.

Tim White

* Freedom of Information
** US Dollar

1 comment:

Improvedliving said...

I would keep: Ireland, SWP and Zabaleta (plus a fit again Petrov).