Monday, April 26, 2010

694 Circle Jerks

69 Circle Jerks

Every circle has them. Circle Jerks are the guys who live in a closed environment and have no clue about or don't care about what's going on outside the circle. It doesn't matter whether they're making laws, making broadcasts, prosecuting crimes, patrolling a beat, defending the nation, treating illness, running trains or planes or buses, a closed system is a closed system and heaven help you if you try to penetrate it, especially if it's a penetration in behalf of other people.

Nowhere are these guys more numerous, more powerful and more closed than on Wall Street. So watch them circle the wagons and Moody's. What does Moody's do? It rates things. It's one of three major American outfits that give report cards to businesses and municipalities and financial instruments. Those ratings are important. The better the grade, the easier it is to get decent credit at decent rates.

Now that Moody's has been called on the carpet by a government's Financial Crisis Inquiry Commission, we might get a little insight into how stupid, incomprehensible, sometimes shady, often unstable securities got top notch ratings. In a school like this, you can't sleep your way to an "A," and even if you do your homework, participate in class and flash great legs at the professor, you still can get a "D" or an "F."

This Commission wants to know whether and possibly how Moody's gave great grades to shabby mortgage backed securities blamed for much of the financial meltdown of these past few years. They asked for the information long months ago and got ... nothing. So now, they have subpoenas. What do they want to know? How did those good grades come about, helping to throw the country into financial chaos. And is there a conflict, because the company both offered opinions -- ratings -- on the paper and may have helped -- consulted -- in the very instruments it rated?

So now you have to ask: IF that happened, did it happen for nefarious reasons or was it just the closed system and the Circle Jerks failing to pay attention to the probable ripple effects of what they were doing? There are stories floating around that the banks cooked the books to make the ratings organizations give them better reports than deserved. There are apparent lies floating around about how Goldman made money on all this after years of denying it.

They guy at the top of Moody's is a fellow named Ray McDaniel. He's been in the chair for about five years but has been longer with the company. Is he Boris Badinoff? Doesn't seem so. Is he presiding over a criminal empire? Doesn't seem so. Does the First Amendment apply to his analysts? Absolutely. Is there a conflict of interest lurking here? Who knows.

If we want to be benevolent, let's blame the company's problems on the Circle Jerks. Or not. As some underworld figure once said "the fish stinks from the head."

But whatever the outcome for Moody's, for McDaniel and for the few other rating organizations, it's the complex and incomprehensible financial instruments themselves that need to be done away with. It's just shuffling Other Peoples' Resources and producing paper profits.

I'm Wes Richards. My opinions are my own but you're welcome to them.®
©WJR 2010

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