Rating Confusion

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Of course we all know the law of unintended consequences, but some of us don’t know that Robert Burns — Scotland’s eternal poet laureate — said it better: “The best-laid schemes o’ Mice an’ Men / Gang aft agley.”

Example: the new Obama regulatory package that went into effect in late June makes rating agencies like Fitch, Moody’s, and Standard & Poor’s liable for bond ratings. In other words, they too can be called to the courtroom upon default or interest nonpayment of the bonds. God knows they’re not angels; they are often paid by the bond issuer, which appears to beg for bias. And clearly they and their bloated ratings are partial perps of the housing bubble. But now they’re scared witless by this new regulation. Consequently, says The Wall Street Journal, they refused to rate Ford’s planned asset-backed bond issue. Ford naturally withdrew the issue.

Can you imagine the interest that would need to be paid on unrated bonds — packages of auto loans, in this case?

And do you think that revived the Obama stimulus? Rather, it was an undertaker to the fiscal corpse. Bye, bye new jobs for salesmen, automotive assemblers, mechanics, and parts manufacturers.

Believe it or not, the SEC noticed the chaos with the Ford bonds and other issues. They are considering a temporary solution, by which bonds could be issued without ratings. No explanation was offered as to why this wouldn’t affect interest rates. But don’t worry; the SEC is charging to the rescue.

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