The repository of one hard-boiled egg from the south suburbs of Milwaukee, Wisconsin (and the occassional guest-blogger). The ramblings within may or may not offend, shock and awe you, but they are what I (or my guest-bloggers) think.
I was going to lead off tomorrow’s Scramble/Open Thread Thursday with this, but it’s just too good to keep you waiting until tomorrow.
Mary Katharine Ham gives the “Real Men of Genius” treatment to a gubmint drone who gave up his cushy government job rather than honor the request of North Carolina Governor Mike Easley (D) to fly the American and North Carolina flags at half-staff to honor the late Sen. Jesse Helms (R).
(H/T – Don Surber via Lawhawk)
Former Congressman Gary Condit’s (D-CA) lawsuit against author Dominic Dunne alleging slander over the death of government intern and paramour Chandra Levy was dismissed yesterday. While Reuters properly identified Condit’s party and McClatchy didn’t identify at all, the original crAP dispatch dispatch from Erica Werner slandered the Republican Party in the sixth paragraph (thanks to Google for keeping the original dispatch handy; I do have a screenshot ready just in case this goes into the memory hole):
Condit, a former Republican congressman from California’s Central Valley, has denied any involvement in or knowledge of Levy’s May 2001 disappearance at age 24, or her death….
I do have to note that the current dispatch has the correct party affiliation.
Considering the Condit/Levy affair was the biggest news item on September 10, 2001, I rather doubt that it was an honest mistake. No wonder why The News Organization That Cannot Be Quoted™ doesn’t want to be quoted.
It’s nice to have a reason for the song. Mary Katharine Ham provided one with anotherwise-unnoteworthy story on a dog-on-dog attack in DC.
[youtube]http://www.youtube.com/watch?v=WpkVnBQy5kU[/youtube]
In yet another incident showing Barack Obama’s inability to hold a position, he now announces Iran to be a “Great threat,” after it test fired nine missiles. In an interview this morning on Good Morning America, Barack said:
“Iran is a great threat. We have to make sure we are working with our allies to apply tightened pressure on Iran,
What? A great threat? Is this the same Barack Obama who just six weeks ago ridiculed John McCain for saying Iran was a great threat by saying:
I mean think about it. Iran, Cuba, Venezula, their countries are tiny compared to the Soviet Union. They don’t pose a serious threat to the US.
Maybe Barack considers a “great” threat to be less of a threat than a “serious” threat? If so, it would show Obama out of touch with the majority of America for most of America learned from “A Few Good Men” that when it comes to individual or national security/danger, there is only one kind, and it’s always grave.
The Milwaukee Journal Sentinel acted as a megaphone for a conglomerate of groups moaning that the poor economy and high oil prices are squeezing seasoned citizens. They run through the usual bogeymen of health care, mortgages, rent, food, and transportation, but miss the fat 15,000-pound elephant in the room – TAXES. Gee, I wonder why.
In another strike of the blinding obvious, the SEC has finally determinedthat the large credit rating agencies responsible for assigning credit ratings for the bundled subprime loans, had conflicts of interest in determining those ratings.
Pause
One, two, three, four, five, six, seven, eight, nine, ten.
Deep breath.
Back in March I gave you information about what the typical subprime loan and “bond” (actually bundled loans) looked like. It wasn’t a pretty description! I stated at the time:
On the one hand I’m mad. Over 75% of the subprime loans reviewed in this study received the highest bond rating of AAA. How stupid is that when you look at the make up of the borrowers. With real interest rates nearly 5% above the norm, it was clear that there was significant risk in this package. I hate the government involved in business but someone needs to step in and change the way that bond rating agencies do their rating.
Beyond the “irrational exuberance” of ever increasing real estate prices, a big piece of shame for the subprime debacle needs to go to the rating agencies.
The rating that the agency gives the various debt instruments has a large impact on the market’s appetite for that debt. Under “normal” market circumstances, if the agency were to give a rating that was lower than expected, the market would expect higher risk and respond by demanding a higher interest rate thereby increasing the overall costs for the issuer. The impact would be that mortgage providers would have charged higher interest rates to the borrowers and that would have allowed fewer of the mortgages and less of the debt to come on the market. If the rating came back with an unexpectedly low rating (which it should have in at least some of these loans), it could have prevented the issuer from finding a buyer at all and that would have cut short future issuance of subprime loans.
The reason why “normal” market forces didn’t work properly is due to the conflict of interest that the SEC “found” but has really existed for years. Rating agencies get compensated for providing their rating on a particular debt or bond issuance. The payment comes from the entity trying to sell or place the bond. If the rating agency gives a poor rating causing either higher interest costs or an inability to sell debt, they get no future business. If they make the debt easy to sell in the market, the rating agencies could expect to see additional business from the folks trying to sell the debt.
2005, 2006 and early 2007 were very heady days for the stock prices of the large agencies. Note any patterns?
So the agencies were getting paid by their customers, so what? Isn’t that how the market works? The answer is yes except when the incentive is so great that it skews your ability to provide an allegedly unbiased answer.
You may remember the name of a little accounting firm called Arthur Andersen. They used to do the audit for another company you may remember, Enron. At the time it was not unusual for large accounting firms to perform financial audits at a loss. They did this because they also typically had a relationship with the client to perform various consulting services. The consulting services were always higher margin and were what many accounting firms made much of their revenue from…in the day. After Enron’s collapse the SEC figured out that if you made a whole lot of money off of consulting services and virtually no money off of an audit, your client had the ability to hold the consulting services over your head to ensure an acceptable opinion on thier audit….even if they were doing things that weren’t exactly kosher…at least that’s what I’ve heard.
When an entity that holds itself out as independent, like CPA firm or a rating agency, has financial entanglement, it has the potential to destroy that entities independence. My opinion is that the rating agencies were completely focused on generating revenues and never thought that providing an “encouraging rating” would ever matter to anyone. They were wrong and we’re all being impacted by their unintended consequences.
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