NOW, It's The Rating Agencies Fault?

A NY Times editorial today puts the blame on the rating agencies. While this is true, it's a bit late and it ignores the most fundamental aspect of the crash, e.g., the naivety related to thinking that the single family market would continue to rise and make everything all right.

Crash White's comment on my last post - hey, I'm a snake, what did you expect - hits the nail squarely on the head as it relates to the bankers who sold the deals.Their folly was in keeping the equity slices of their deals. They should have listened to the buy side - my assumption is, that the "smart" people at the insurance companies and money managers were full, so the Street went ahead and kept the equity slices. That's the single biggest mistake. The next one, and the one that happened first, is Gresham's Law, paraphrased as, "bad money drives out the good". In order for this to happen, the Street boots commissions thereby motivating salespeople to entice new investors into a market about which they haven't a clue. But hey, it's AAA. Can you say Iceland?

When the deals got downgraded, the Street lost its ability to finance at haircuts that were commiserate with their net capital. This really started the liquidity crisis that triggered the shutdown of lending and the knee jerk response by the banks and eventually, the Fed.

These deals NEVER should have been rated AAA in the first place. The Street had to have known that. The rating agencies had to have known that. That they all bought into the charade is a monument to ignorance.

Remember folks, never give a sucker an even break.