Browsing the blog archivesfor the day Friday, April 2nd, 2010.


Congrats to The Reaction

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blogging

A belated congratulations to Michael Stickings and The Reaction, which passed its 5th anniversary a few days ago. Posted today: Twilight of the Godwins by Capt. Fogg.

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The Corrupt Financial Sector

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Financial Crisis

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.

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