So I haven't posted in weeks -- unless you count the posts in my head that I compose during the morning shower; there's a great one about bleakonomy cooking that I'm going to write down, really.
Tonight, though, I'm going to harken back to our title subject and share a great video by Jonathan Jarvis on the Crisis of Credit. Nothing funny here, I'm afraid (wish the narrator wasn't so adenoidal) but a nice, visually fabulous 10 minute summary of how the bleakonomy went spiraling down the mortgage toilet:
The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.
Kudos to my friend Sam Prus for sharing this video
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9 hours ago
Got one that can explain derivatives?
ReplyDeleteOne point that few make explicit is that a major cause of the Current Troubles is the credit rating agencies. They hold a regulatory stranglehold on rating financial instruments, and they failed big time. If we want better financial regulation, then the Feds need to take significant responsibility for insuring the accuracy of credit ratings for financial instruments. IMHO, that would do more to promote stability in the financial system than any other reform.
ReplyDeleteThe NYT has a nice article on the role of credit rating agencies, government regulation, the conflicts of interest between regulators, credit rating agencies, and financial institutions. Why more attention is not being paid to the role of ratings and government oversight is something I can't understand.
Anyway, here is the standing on one foot explanation of what happened... the agencies became the de facto watchdog over the mortgage industry. In a practical sense, it was Moody’s and Standard & Poor’s that set the credit standards that determined which loans Wall Street could repackage and, ultimately, which borrowers would qualify. Effectively, they did the job that was expected of banks and government regulators. And today, they are a central culprit in the mortgage bust, in which the total loss has been projected at $250 billion and possibly much more. In the wake of the housing collapse, Congress is exploring why the industry failed and whether it should be revamped (hearings in the Senate Banking Committee were expected to begin April 22). Two key questions are whether the credit agencies — which benefit from a unique series of government charters — enjoy too much official protection and whether their judgment was tainted.
You also may be interested in how the President and "Helluva Job, Timmy" Geithner's Bankrupting Tomorrow's Children Act of 2009 might play out. The tell? If banks selling assets are able to bid with government support on other bank's toxic assets. Man does that bring back memories….
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