The Securities and Exchange Commission of La Mancha

Stone Street Advisors's picture

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apberusdisvet's picture

Maybe the SEC would do its job if the porn they watched featured Janet Napolitano Elena Kagan and Ben Bernanke.

janus's picture

SSA,

I cannot adequately express my joy.  Reading your work, and especially that of Mr. Rowe, reassures ole janus; let's him sleep soundly knowing that all the elements are in place for a smooth and successful revolution...minimal blood, but, all the same, THERE WILL BE BLOOD!

jm's picture

Ratings are a luxury for the lazy, a way to corral the herd.  When lean years come, the lazy get killed.  Thus ratings agencies serve no real purpose over the long haul.  Ratings agencies increasingly ape CDS quote anyhow.

There is a reason for this.  Risk assessment and pricing on complex and structured products are best determined by a market, not some pontificating experts.  But some conditions must hold for a market to process information well.  There needs to be some level of public information available to all buyers and sellers.  The formation of opinion on prices by buyers and sellers needs to be pretty independent of one another--momos and herds screw it up totally.  And offered price at the initial condition needs to be within the basin of the attractor.  This last is a technical assumption.

Call it the wisdom of crowds trumping the "experts".

cosmictrainwreck's picture

Totally agree with your stance, but now mulling WHY anything dramatic or fundamental never happens....? Fear of change? Even little bitty, let alone huge. Too many nests would be destroyed? It's depressing to me that "systems" (seemingly any system) has no trouble building any manner of complex, redundant and tail-chasing stations, but cannot muster the umph to dis-mantle even the smallest parts....

Ever visited an abandoned steel mill or refinery? Mind-boggling, over-whelming. Physical representation of afore-mentioned sytem phenomenon (imo). I guess we need a crash.

Sun Tsu's picture

One Crash made to order coming up!

williambanzai7's picture

Why don't we start with the fact that rating analysts are Wall Street banker wannabes who couldn't make the cut.

Mere intellectual chum when the predator sharks are circling in the water. If persuasive argument and financial engineering does not work, money will.

dearth vader's picture

More than three years ago, Mish already argued that credit rating was structurally flawed, since the SEC put the whole circus upside down by making the rating of new debt a responsibility of the issuer. How can a rating be objective, if the one who pays for it is the issuer? Formerly, a buyer of debt asked for a rating, and paid for it.

In this way, if the rating proved to be inadequate afterwards, the rater could be held responsible for the damage done. So, a rater would think twice before being too optimistic about a product. 

Seems to me, the SEC ought to be abolished, and ratings should be made when asked for by potential buyers of debt, and paid for by those same parties.

Stone Street Advisors's picture

There are far more people who are qualified to work on Wall Street than there are jobs to be had so that's at best a moot argument.

 

The only point that matters is that the entire system is irreprably broken and the only way to reform it is to destroy it and start from scratch with the ideas expressed by Rowe at their core.

williambanzai7's picture

I agree, we should scrap it. Like the accountants, they have proven over and over that they are not only useless, but superfluous as well.

janus's picture

WildBill,

what you say is another one of those 'too true to be good' kind of things.  to simplify things and avoid the entanglements of titles, i'll say that my father was a sort of forensic accountant -- still is, in a sense -- and he will readily tell you, screw lawyers, you can start with the accountants before you even start passing judgement...just assume, by virtue of their occupation, that they are guilty of some manner of grand malfeasance.  they should be sent back to the gypsy camps and be forced to dance for silver dimes.