The government is now in the mortgage business and the insurance business. I am sure others will expound on the AIG debacle and all of its implications in due course. I just wanted to point out the something that should make me laugh so hard it brings a tear to me eye… instead it just brings the tear.
Just before each financial giant goes down, there is a final blow. One last lynchpin pulled that leads to the immediate cessation of breath for a company: the ratings agencies lower the company’s credit rating. Standard & Poor’s, Moody’s, etc. take a look at the mortgage based assets the company is carrying, look at the write downs still to come and make an assessment on the credit worthiness of that company. Once their rating drops they cannot borrow money at a cost that allows them to remain solvent and “a-begging they will go.”
Now that is the job of the ratings agencies and I do not begrudge them their responsibility. Here’s the funny part though. The failing, mortgage-based assets that are crushing these financial companies (and now an insurance company) were originally purchased, to a large degree, based on the credit worthiness assigned them by… wait for it… wait for it… these self-same ratings agencies! Imagine the hubris of being so, so wrong in their primary mission of evaluating the creditworthiness of an investment vehicle, then lowering their evaluation of the creditworthiness of those companies that purchased the very investment vehicles they failed to correctly evaluate! Talk about having your bread buttered on both sides. I know there is a great joke in there somewhere. I am just too terrified to find it.
Welcome to the other side of the looking glass.
(This post was first published here.)
Filed under: POLITICAL & ECONOMIC FOLLY , AIG, Economy, government, ratings agency
