Saturday, October 25, 2008

oh how we have forgotten

In the past few days, i really get upset for periods of time thinking about how short a memory the media has. It seems that during the bailout blame-game, not many people stop to think about who is the originating culprit of this mess.

I mean sure, wall street messed up. They bought the securities, the seemingly objective rating firms gave the rubber stamp to these securities and then AIG insured them, based on the ratings firms stamp of approval.

So, the blame partly goes on the ratings firms such as Standard & Poors, and Moody's and so forth. They were supposed to be the watchdogs. However, like an article i recently read put it, the watchdogs stopped watching. This led to the quick unraveling of wall street's cohesion, both within individual firms, and across the board.

But, the question begs: who did they buy these securities from? From Countrywide. Haven't heard much about them lately? Because they went belly-up almost first! So, countrywide was pamphletting California with mortgages structured not in the best interest of either the lender nor the borrower. They made their money on the transaction fees! So, their profits came not from the integrity of the deal, but from the transaction of the deal.

For instance, VISA makes money everytime you use your Visa card. So, of course they're going to advocate the use of your credit card, whether you have good credit or not! The same with Countrywide's strategy to make its dough on the transaction, and then get the mortgage, like a hot potato, out of its hands as quickly as possible.

So, the primary blame lies with Countrywide. Secondarily, the blame lies with the ratings bodies such as Standard & Poor's and Moody's who gave their rubber stamp of approval to those shoddy investments.

imagine if the crash-test rating system was flawed and they started giving five-stars to anyone for attempting safety, not for actually creating safe vehicles. Pretty soon the country wouldn't trust them right? There would be a call to overhaul the system. The problem i see is that not many people are asking for oversight for the ratings bureaus, the bureaus that attempt to assure the trust, honesty and integrity of the financial realm. That's who we have to monitor.

Monitor the monitors, then society will start to build trust again.
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