Treasury Says Credit Ratings are None of Their Business
Now I find this absolutely laughable. So the government finds it prudent to get involved in everything from FASB regs to healthcare but all of the sudden changes its tune when it comes to ratings agencies?
If there were a Hall of Fame for "Asshats of the Financial Crisis", ratings agencies would be up there on the list as first to be inducted. So can anyone explain the Treasury's reasoning? Anyone?
Treasury warns on credit ratings regulation (via Reuters):
The Obama administration is resisting calls to get involved with ensuring that credit ratings are reliable and said on Wednesday this would force investors to rely even more on the ratings.
Although credit rating agencies have been accused of assigning top ratings to complex securities that later crumbled in value, the government should not be in the business of regulating their methodologies or ratings performance, a top Treasury official told Congress.
"To do so would put the government in the position of validating private sector actors and would likely exacerbate over-reliance on ratings," the Treasury's assistant secretary for financial institutions Michael Barr said.
The industry is dominated by Moody's, Standard & Poor's and Fitch Ratings, which are all paid by the banks or issuers whose products they rate. Critics call this so-called issuer paid model a conflict of interest. Barr warned against prescribing a specific business model.
The Senate Banking Committee is holding a hearing on Wednesday to examine the administration's plan to reform the credit rating industry.
So what's the lesson here, kids? Well firstly that the Treasury has absolutely no idea what it is doing of course but secondly that in this game of regulatory catch me if you can, logic does not apply. Ironic, seeing as how the ratings agencies sort of use that as their business model when it comes to shoveling out the client-funded garbage.
Oooh, maybe this is just a Wall Street Mafia tactic applied to our own sovereign rating? Here, we'll leave you alone if you promise not to downgrade us when we fully implode the dollar kthnx!