I don't have a ton of commentary to add to this, but it seems very relevant to recent threads we have had.

http://www.cnn.com/2008/US/03/28/fin...ght/index.html

A quote from the upcoming speech by Henry Paulson:

As usual, when govt creates problems the answer is more govt.

Thoughts?

How did the govt create the problem of securitesed toxic debt being over rated by totally independent ratings agencies?

So you lay the blame entirely with ratings agencies and not at all with the excess liquidity created by extended periods of 1% interest rates? Interesting theory.

HMMM comprehension for the loss.

Where do I say I lay the blame entirely with anyone? I just ask a question about how the government is responsible for the actions of independent ratings agencies.

OBV low interest rates contributed to this problem, yet so did the creation of bonds based on securitised mortgage debt and the then utterly false ratings of many of those Bonds, both of which had nothing to do with the Gov.

wat?

wat?!?

to be fair, the answer is likely somewhere in the middle of the two statements you "wat"ted.

a) the ratings agencies did not take into account liquidity and were advising clients on how to structure their securities to acquire a AAA rating.

b) the increased incentive to chase yields threw money at the finance industry driving an increase in demand, not only for riskier securities (see the carry trade), but also for highly rated securities with larger market yields. that last part was likely do in part to the excess liquidity sloshing around in large institutional managers' arsenals.

i think both contributed.

Barron

cnn also says they're talking about expanding the scope for self-regulation by exchanges, so that's cool.

Bill Gross on Bear Stearns and the Shadow Banking System

Well worth a read.

No it isn't. "Hi, I'm some guy from Wall St. Despite what you may have heard, bailing out Wall St. is actually not a bad idea. So how about some cash, eh? I'll talk about the Beatles and my garden so I don't seem soulless, deal?"

Some guy. I take it you've never heard of Gross. Never mind then.

It would be interesting to know what Gross's positions are at this point. He's considered to be a bond market guru by many and I believe Pimco has the largest bond funds in the world. I don't think there's going to be much argument with increased government regulation of investment banking activities after they've accepted Fed loans. IMO Fed accepting MBS as collateral for loans is helpful at this point. TOAFK is right about the bond rating agencies. Some more experienced traders than myself were telling me in 2004 that rating agencies are basically a joke. I stated that I believed the situation was different with rating MBS as opposed to corporates. Rating corporates depends on making economic predictions that are more prone to error I argued. Rating MBS depended on a stable real estate market with a long recorded history of homeowner behavior I argued and thus the rating agencies should do a better job of rating MBS. Whoops . Studying the failures in CDO issued bonds should prove enlightening.

One observation that is amusing is that banks and the international banking class are always arguing very strongly against government intervention in markets. That is until they need the intervention.

abso-freaking-lutely.

similarly, the US is constantly talking down to china/japan about currency intervention, however, it may be the one needing that assistance in the near future

i dont think the US would have the balls to ask outright and if another plaza accord happens, it would probably take a "reluctant participant" position or whatever.

Barron