Comments on: More Great Moments in Regulation

By: GregS

GregS — Fri, 06 Aug 2010 13:59:24 +0000

Phil, the entire $1.4 trillion market for a type of financial instrument gets shut down as an accidental, unintended consequence of new government regulations, and you don’t see a problem with that? Even if one thinks the rating agencies should have legal liability for their ratings, the fact that this new regulation shut down an entire market, by accident, shows an astonishing level of incompetence and ineptitude by those authoring these new rules. And the implications for the future are frightening because these same authors, in their hubris, think themselves uniquely, brilliantly qualified to run *everything* in American life.

By: Val

Val — Mon, 02 Aug 2010 05:03:05 +0000

Phil, all of these things serve to raise the cost of capital… If fact, so many things have been done by the present administration that are and/or will have that effect, that it is difficult to predict the extent. However, it will be there, and the result will be more drag on the economy, especially the dynamic parts. It would be much easier and far more effective to change the pay scheme in the current rater/ratee fiasco.

By: Phil

Phil — Sat, 31 Jul 2010 18:17:16 +0000

How is this a problem? Shouldn’t firms be legally liable for faulty ratings? Shouldn’t Ford be held responsible for the damages associated with the Ford Pinto even if they were unintentional? I just do not the problem here.

By: Ted Rado

Ted Rado — Sat, 31 Jul 2010 15:59:37 +0000

At least the Feds are consistent. They screw up EVERYTHING!!

By: Russ R.

Russ R. — Fri, 30 Jul 2010 05:52:54 +0000

This is not likely to be the end of the world (or even the end of the structured credit markets), but it will have the effect of shutting out smaller issuers, to the advantage of larger corporate borrowers.

Despite the increased exposure to legal liability, the ratings agencies will eventually go back to rating new debt offerings… that’s their core business. They’ll just end up increasing their fees to cover their higher risk.

The higher fees, as a fixed cost of a bond issue, will have little impact on giant borrowers (like Ford, which would raise billions at a time), but will have a punitive impact on smaller companies (who will have to turn to bank loans, which are more expensive and typically come with restrictive covenants attached).

Despite the higher fees, large borrowers might actually benefit from lower interest costs, since there would be fewer competing issues, potentially driving rates lower.

By: Allen

Allen — Fri, 30 Jul 2010 03:54:43 +0000

Makes one wonder what’s caused the so-called “freezing” of the credit markets, eh?

By: rox_publius

rox_publius — Fri, 30 Jul 2010 03:24:46 +0000

can you fix the link?

By: Mesa Econoguy

Mesa Econoguy — Thu, 29 Jul 2010 23:15:18 +0000

morganovich: yep

This one kinda has an opt-out though – just don’t play. Bye bye ABS.

By: morganovich

morganovich — Thu, 29 Jul 2010 17:28:15 +0000

i’ve been thinking about this a little more. isn’t this a de facto nationalization of mortgage securitization?

i realize that freddy and fannie are currently buying 90% of mortgages anyway, but given their now explicit government guarantee, won;t they be the only one in the mortgage space able to securitize loans? who else will be able to get a rating?

with 90% share, clearly the market can’t get much worse, but with these rules, how can it get any better?

did we just see the sneaky nationalization of a market?

By: Every Man A King

Every Man A King — Thu, 29 Jul 2010 15:01:43 +0000

Considering how the ratings agencies aided and abetted the financial crisis, does anyone feel sorry for them?