Kevin Hall of McClatchy Newspapers tells us what Moody’s Investors Service was up to before the meltdown:
Moody’s blue-ribbon board of directors stopped receiving key information from an internal committee that was supposed to keep the board informed of risks to the company, a McClatchy investigation has found.
Instead, the ad hoc risk-management committee suddenly disappeared, precisely at the time when the board and management should have been shifting to higher alert as the financial world began quaking.
As McClatchy reported last year, the credit-rating agency had been handing out Triple-A grades like candy for Wall Street mortgage securities that were backed by pools of home loans that turned out to be junk.
Moody’s, of course, is a financial research group that analyzes the financial soundness of commercial and government entities and hands out credit scores on borrowers. It’s not exactly a watchdog, but you could argue that it’s a means by which the glorious and infallible free market, praised be its name, regulates itself.
Well, so much for that.
Former Moody’s executives told Hall that the Moody’s board of directors were meeting six times a year, although what they actually did is questionable. The adjective “incurious” was attached to them a couple of times. For this industriousness, members were paid salaries of up to $115,000 a year, plus stock. Nice work if you can get it.
A committee charged with the job of warning the company of threats was disbanded in 2007 after a management shakeup, and the board either didn’t notice or didn’t care. The whole business stinks of crony capitalism.
Also,
… the legislation to overhaul financial regulation that’s now moving through Congress aims to empower ratings-agency boards by requiring a direct line of communication between the company officials who police for risks and the boards. It’s not clear whether that would have made any difference at Moody’s.
It wouldn’t have made any difference at Moody’s because the board members, apparently, did not take their responsibilities seriously. It appears people in the company were trying to get their attention and warn them something bad was about to go down, but the board remained oblivious. I’m sure the members all expect to golden parachute into a cushy retirement, no matter whether they succeed or fail, if they haven’t parachuted already.
I’m sure that if you give them enough time and latitude, libertarians will find some reason why Moody’s meltdown was the government’s fault, and that such things can never happens when markets are unregulated. But it seems to me that the financial sector is just plain corrupt, through and through.
What’s amazing is that the same sort of “incuriousness” was going on at the other rating agencies, S+P and Fitch. There is a basic conflict of interest in their business model: they’re paid by companies whose bonds they rate. Of course this is a disaster waiting to happen, and no wonder all three giants fell. It’s a textbook example of crony capitalism.
The childlike faith righties have in the intrinsic goodness of capitalism never lets them see fundamental flaws like this or the need for any oversight.
I used to wonder why government and corporate management operated in such a musical chairs fashion, with the same people sitting on multiple boards, the same people flowing from corporate management to high positions in government, the same people whirlpooling from CEO of one corporation to CEO of another. Seemed pretty darn inbred to me. And I also wondered how those “very important people,” who served as trustees on multiple boards, could do a good job when they had so many irons in the fire.
That was before the CEO of Halliburton became Vice President and the former CEO of Searle Pharmaceuticals became Secretary of Defense. Before we attacked Iraq, gave massive tax cuts to the rich and put it all on a credit card. Before government controls were removed from the financial industry and the house of cards collapsed.
Guess we know the answer to that now. The system works very well. But only for those special few who are allowed to participate in the game.
Yesterday,I was talking to a guy I know about current real estate crunch and the economy in general; he told me that it’s all Bill Clinton’s fault for lowering the bar regarding lending.
Shortly after that, he said our country is going to hell in a hand basket because of Hollywood and the gay community ( but he didn’t call it “the gay community”).
Rather than debate his position, I said he was “over-simplying the cause”.
He then said “what we really need is a revolution.”
I told him he might screw up his credit score if he got involved in revolution.
Enter the cricket chorus……….
He is 54,unemployed, recently dumped by his well heeled girlfriend( who made a fortune as a mortgage broker), and he has no health insurance ( because it costs over $500.00 per month, which is just rediculous!), he hates Obama, and thinks Glen Beck is right.
Along these lines, they done it to me yet again. And again. (on libertarian websites, that is…)
I can’t get over how stupid-blind those folks who proudly wear the “Rational Human†merit badge can be. You’d expect such a person to have snappy and logical answers for everything. I’ll throw a problem at them, theoretical or real life, with the hopes they can process it through some objectivity circuit in their brains and give me a plausible solution. But every single time I get back a rejection of the problem I’d presented. Does not compute… You are wrong to ask that… But look over there…
Maybe I’m just not getting it. Maybe “objectivist†or “libertarian†or “Austrian School†means “willfully retardedâ€?
I told him he might screw up his credit score if he got involved in revolution.
Oh, nice one!
Maybe “objectivist†or “libertarian†or “Austrian School†means “willfully retarded�
The “oversight” behavior at Moody’s is a classic example of how the free market NEVER “regulates itself.” Believing that is like believing in the Tooth Fairy or Hanukkah Harry. Before the subprime lending scandals, there were the accounting scandals of the early Noughts, the S&L scandals of the early Nineties, and the stock market manipulators of the Eighties. How many times does someone have to be hit over the head before he says, “Ow”? And how thick must such a skull be? Although he probably isn’t aware, erinyes’s Rightie acquaintance is blaming Bill Clinton for signing Gramm-Leach-Bliley, the bill that repealed Glass-Steagal. Legislation from the Republican-controlled Congress was the president’s fault? Send that guy back to Remedial American Government class!
Speaking of S&Ls, I worked at one from 1981 through most of 1994. This institution survived the Great Depression, the Second World War, the Nixon Recession, Carter Inflation, the Reagan Crazies and the Bush I Bumblings. About 8 years ago it remade itself into a bank, and now it’s about to go bust because of really, really stupid subprime investments and gross mismanagement. Every day there’s another scandalous newspaper story about this institution where some of my friends still work (for now). The Bush II years were about as corrosive on the financial sector as anything could be, and the industry’s biggest losers have no one to blame but themselves. They desperately wanted to repeal Glass-Steagal; they made those really stupid investments; they supported Bush and the awful Republican Congress. Now they’re working hard to torpedo any meaningful reform.
Regulation has to be forced on these idiots, but unfortunately I don’t see anyone in the Obama administration or the Dem-controlled Congress with the will to make that happen. I hope the Dems prove me wrong about that.
moonbat,
It’s a great racket, ain’t it?
I could recommend you for a $10 million dollar loan, and you could do the same for me.
The collateral? Our word. What possible motivation could we have to lie?
I forgot who said it, but if you owe the bank a few thousand, or hundred-thousand, the bank owns you. If you owe the bank hundreds of millions, you own the bank (was it Trump?).
Muldoon,
You pretty much sumed it up.It seems to stay in the family, Colin Powel and his son, Bush 41 and Bush 43. I thought it was a hoot in 2000 when Bush 43 ran as a “Washington outsider’.I’m still waiting for George P. Bush to start his political life, It appears he is getting his military obligation out of the way first.
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The system works very well. But only for those special few who are allowed to participate in the game.
Yep! Good summation.
muldoon – there’s a word for favoritism shown to relatives in work, politics – nepotism. Is there a ‘word’ for nepotistic behavior in the financial sector/government toward other than relatives? Anybody?
I heard an ‘analysis’ of the Street players/investors/bankers/brokers… the other day – the people who beat a path to those doors have one goal in life – the accumulation of money, and as much of it as possible, and as much as they can get away with getting. Knowing this, we should be regulating the hell out of the sector. (Of course, the conundrum is that accumulating as much money/capital as possible is the mother’s milk of capitalism – America’s God-on-Earth.)