9:26 am - Mon, Sep 22, 2008

Comment on the Crisis

You’ve hit the nail on the head on the most important aspect of the crisis: common holders should not be granted a windfall on the back of the American taxpayer. However, two of your commenters, Jim and Jordan, touch on the complexity involved in a reverse auction for mortgages and credit. We’re not talking about vanilla treasuries here so the devil is wholly in the details (geography, LTV, etc.) of the underlying loans. Which leads to my next point.

Just as we must enforce free market value for the reverse auction, I believe we need to enforce more competition within the ratings agency arena. Namely, we need more transparency on offerings before they are rated, alternatives to the big three agencies, and frankly, more data and analytics providers to support investors actually doing their own independent research (perish the thought - why did Einhorn have LEH right 12 months before S&P, Moodys, Fitch, and every sell-side analyst? Duh.). We need to break up the ratings group think that has lulled investors into a false sense of security. This will happen through transparency, distribution, and competition. The worst thing that could happen is if the US Government takes over the ratings agencies.

Oh, and Roger, congratulations for moving over to using Disqus for commenting. A very smart move.