Wednesday, April 29, 2009

"Ratings agencies just abjectly failed" - SEC Commissioner

Bloomberg News' David Evans and Caroline Salas write:

“Ratings agencies just abjectly failed in serving the interests of investors,” SEC Commissioner Kathleen Casey says.

Cheshire's rainy day fund policy was adopted in January 2008 and largely based on the advice provided by the ratings agencies. I disagreed with it. But when challenged, Cheshire's Advocates of Big Government denied this truth. Too bad their words betray them.

While the ABG were obfuscating over their only measurable rationale for the Town's huge slush fund rainy day fund, they forgot that the 8% number for a minimum rainy day fund came from the now-thoroughly discredited ratings agencies.

But long ago, regulars here knew the ABG for what they were. And more recently, a few more of us started seeing the ABG and their beloved ratings agencies for what they were - not an answer, but a problem.

The Bloomberg piece continues:

"In the run-up to the current financial crisis, credit companies evolved from evaluators of debt into consultants."

But hey, Cheshire's ABG weren't the only ones drinking the Kool-Aid. They had company. For instance:

Ron Grassi... has set up a war room in his Tahoe City, California, home to single-handedly take on Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. He’s sued the three credit rating firms for negligence, fraud and deceit.

Grassi says the companies’ faulty debt analyses have been at the core of the global financial meltdown and the firms should be held accountable. Exhibit One is his own investment. He and his wife, Sally, held $40,000 in Lehman Brothers Holdings Inc. bonds because all three credit raters gave them at least an A rating -- meaning they were a safe investment -- right until Sept. 15, the day Lehman filed for bankruptcy.

The story goes on to paint a picture of how America's Political Class (everyone from Wall Street to Washington) knew the system was rigged, yet failed to address it... and continue failing to address it!

Don't get me wrong. I certainly didn't see the magnitude of this problem in January 2008. But I knew there was a problem when a salesman recommends action that likely gives that salesman more money. And the ratings agencies perpetuated the whole scheme because they were making huge profits.

As far as I'm concerned, when the current Council majority adopted their tax hike policy fund balance policy they "abjectly failed in serving the interests of" taxpayers.

Fortunately though for the taxpayers, the 5-vote Rubber Stamp is dead. But there's still a few no-questions-asked Rubber Stamp votes sitting behind the dais. A watchful eye is needed to ensure they don't continue wreaking havoc on taxpayers.

Tim White

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