Capital, Not Toasters, Dr. Krugman

It wasn’t Dr. Krugman’s hate-mail treatment of securitization that made my brain go tilt.

(I say this even though we concur with Barry Ritholz’s reasoning in his blog article, “Paul Krugman is Wrong About Securitization.” )

What really got to me was the reference to toaster giveaways. Toasters! Sylvain paid $5 for ours — used — twenty years ago, and it works just fine, thank you very much. A new toaster would not motivate any of my friends or family members to open a bank account. Nor anyone in my daily life: postman, hairdresser, restaurant manager, butcher, bus driver. I do not think any of the octogenarians who called us last year to ask if their pension plans were in imminent danger of going bust would take solace in a toaster, either.

(What a sad commentary on the general state of trust in American institutions that is — that people looking for truthful answers would turn to strangers quoted in a newspaper!)

Dangerous Myths about SROs – Part I

In my first blog about the FER paper I asked the rhetorical question, How can we talk about elevating the standards of analysis and raising the accountability of SROs when we do not enable our MBAs to understand and follow the paradigm shifts etc. A guest commenter asked if I were implying that the FER were not qualified to comment (since the theory of securitization is not taught in any of the universities with which they are affiliated). Another guest commenter asked me to clarify whether I agreed or disagreed with the FER recommendations.

Rethinking Our Inheritance

Recently the Financial Economists Roundtable (FER) posted a summary of their thinking in July 2008 on Reforming the Role of Statistical Rating Organizations [SROs] in the Securitization Process.[1] The FER is a group of senior financial economists who advance the study of finance and frame current policy debates.[2] I read their statement in the Dec. 2 issue of RGE Monitor. Like the SEC reform proposal released about the same time, the FER statement inspired no comments of passion or controversy. That is a shame, because unlike the SEC proposal, the FER statement comes close to the heart of the matter and deserves a thoughtful response, or at the very least some controversy. So, from the practitioner’s view, let me play devil’s advocate. FER’s key conclusions are that they—

Wizards of Odds: The Rise and Fall of Rating Agencies

Ratings, an information business, have been linked to the growth of the largest capital market in the world since the 1920s. By 1995, the reach and power of rating agencies was such that Thomas Friedman commented in the New York Times, “you could almost say that we live again in a two-superpower world. There is […]