Wisdom from Michael Thomas in Forbes.com today:
As I pondered, the thought came to me that if there are particular culprits who are conspicuously and flamingly behind Wall Street’s unholy predicament, and who bear continuing responsibility for its day-to-day worsening, they are the rating agencies. Which leads to the logical conclusion that perhaps the best thing Paulson, Bernanke, Geithner, et al., might do in the present crisis would be to shut down Moody’s and Standard & Poor’s.
Going back three years, at a minimum, any reader of my idol James Grant would have been struck by the undisguised scorn he heaped on the two agencies’ ratings of various structured debt instruments–ratings that were based on “models” that premised that in a ziggurat of crap, the highest layer deserved an AAA rating because it would be the last to stink up the joint.
Ignored was what seemed to me self-evident: Crap is crap wherever and however you stack it. And yet, having gulled both the innocent and greedy into massive purchases of this “AAA” (sic) garbage, they still rule. From day to day, markets convulse in anticipation of, or reaction to, the agencies’ changes in the ratings of AIG and others.