Monday, July 25, 2011

Its time to learn from our mistakes ...... or is it?!!!

It seems to me that the credit rating agencies are try to "learn" from their past mistakes and spice up their tarnished public image …. But that they are barking up the wrong tree. Do you recall the notices from the rating agencies warning investors not to invest in the Fannies and Freddies of this world? No, neither do I. And these entities were assigned triple A status being backed by the full faith of Uncle Sam. How about the repeated warnings about Mortgage Backed Securities? Or the bonds of Lehman or AIG? Or sovereign debt of bankrupt countries?

So now lets learn from our mistakes. And repeatedly warn that the US faces a downgrade due to its debt ceiling fiasco. However, in attempting to being extra vigilant and super duper cautious, they clarified their warning of a downgrade by saying that their concerns would be lessened if the US reached some deal on the debt ceiling, or better yet, eliminated its self imposed debt limit altogether.

The US should have had a downgrade on their sheer quantities of debt a long time ago, and they should be lowered again if the ceiling is raised. The ceiling is there for a reason. To remove it altogether, is adding to the problem, rather than solving it. It is like adding wood rather than water to a burning hut. It should not lessen Moody's concerns, it should add to them.

The last 15 years have seen a bloated economy take on increasing amount of debt, live far beyond their means, all due to interest rates way below market level. Banks have been expanding the money supply based on accounting gimmicks, worsening the problem. We don't need the credit agencies coming to tell us that they would have lower concerns if the debt ceiling would be eliminated altogether. I cant see how that would solve any problem.

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