Thursday, October 23, 2008

Now for the blame game

I see that the “Wall Street Blame Game” has really started in earnest. The rating agencies – Moody’s and Standard & Poor’s are in the firing line. These are the people who are supposed to have misled the world by rating the repackaged, sliced and diced, sub-prime mortgages and derivatives, as AAA investments, and so allegedly misleading all the world’s bankers and all the world’s financial houses into investing in these shonky deals. These agencies have been treated as if they were the oracles of all financial knowledge, which they are not, nor I believe have they ever claimed to be.

Ok, the rating agencies may have misunderstood the complexity of the issues involved, or they may have relied too heavily on badly designed computer modelling, or whatever, but the world’s bankers and financial houses have their experts too. They could have taken a drive round a suburb or two and looked at some of their ‘investments’, or just to think, “These are sub-prime (meaning poor risk) so how can they possibly be AAA?” It used to be called ‘powers of reason’ or simply ‘nous’. I mean, we are all members of the species “Homo Sapiens” – reasoning man - so why did they not use their reason; use their nous?

I know it is easy with 20/20 hindsight to criticize but, they, the world’s bankers and financial houses, must bear some of the responsibility for the financial turmoil. They are supposed to have their own prudential checks and balances; they are supposed to be cautious. They are, after all, using other people’s money!! So to blame the rating agencies, who merely issue guidelines which are there for others to accept or not, is a cheap shot. It was their choice to accept the veracity of the agencies guidance! To blame another party for something, which happens to turn out bad, but which they chose to accept – after, presumably, due diligence – is a bit rich.

Now we also read that the rating agencies may have been paid to promote particular products by some of the people who devised them. If this is true it is a really shocking indictment, and reflects very badly on the original mortgage providers, on their ethics, or lack thereof and their moral standards, and of course on the agencies which accepted such payments. It would then be a case of money at all costs and damn the consequences. Well I have news for them. The consequences have arrived and are here for all to see. What you sow, you also reap. They sowed the wind and now are reaping the whirlwind. It may be tough but that is the law of Cause and Effect – it always works that way. You do something and it will always have an effect, maybe not what was expected, but always an effect. Positive brings positive and negative will bring negative – that is just the way it works.

But don’t lay all the blame at the doors of the two rating agencies. Greed was the actual cause, and ignorance of what was being ‘packaged’ and therefore rated, and the banks and finance houses for accepting the junk that was sold as ‘good’, and us all for going along for the ‘free’ ride!!

No comments: