Friday, June 20, 2008

A letter in Washington Post: An Aspect of the Bubble

An Aspect of the Bubble

The June 17 installment in the front-page series "The Bubble," though comprehensive, missed one vital piece of the subprime mortgage puzzle. The accompanying glossary defined a "credit rater" as "a company that Wall Street and investors rely upon" to provide analysis but did not tell us that a credit rater's credibility is foremost based on the rater's having been appointed by bank regulators. This arrangement sent the market the loud, clear and false message that risks could be precisely measured and that these entities were capable of carrying out this mission.

Nothing whetted the appetite for securities collateralized with plainly lousy mortgages as much as the combination of high returns and prime credit ratings. Using a regulatory system for banks that is based on following the credit rating agencies will, given that it is human to err, lead us into even greater danger.





My letters in the Washington Post on bank regulations:
September 6, 2007: Factors in the Financial Storm
June 20, 2008: An Aspect of the Bubble
December 27, 2009: Another 'worst': Faulty bank regulation
January 6, 2012: Handcuffed by a triple-A rating
May 1, 2013: An American approach to banking
December 23, 2014: Let the market rule on risky trades
November 11, 2015: Reverse-mortgaging the future
August 9, 2016: Banks, regulators and risk
April 16, 2017: When banks play it too safe
July 11, 2018: There is another tariff war that is being dangerously ignored.
December 30, 2018: Affordable homes or investment assets?
April 19, 2020: The capacity to borrow is a valuable sovereign asset.
November 28, 2022: Before the debt ceiling is lifted
August 22, 2023: The economic revolution