Thursday, October 23, 2008

Smoke or mirrors?

There are many facets of my job as a media consultant that I love, and one of them is the opportunity to learn something about topics I know very little about (a college roommate who follows this blog suggests that's a very long list of topics...harrumph!).  From parenting to medicine to bass fishing, it's been a fun ride so far.

One of my current clients, the Global Association of Risk Professionals, is at the epicenter of the Catastrophe, and it's been a real education working with them.  The cover story in the latest issue of GARP Risk Review reminds us of yet another joker that propped up the house of cards---the rating agencies, like Standard & Poor's, which rated and validated firms' purchases of risky assets.  These firms awarded ratings of A and higher to risky, subprime mortgage backed securities, which opened the door to the thousands of buy-side financial groups (banks, pension funds, university endowment managers, etc.) who are limited by law to buying only 'investment grade' securities.  There is strong evidence to suggest illegal collusion between these rating agencies and the sellers of mortgage-backed securities, and attorneys general such as Cuomo here in NY are looking into this.

As my friend Jeff B reminded me in a call the other day, there are plenty of parking tickets to be issued all around in this mess.  So, pointing the finger of blame at one political party, one government agency, Congress, or the corner pharmacist simply won't do.  But let me indulge myself excoriating one more villain: Chris Cox, head of the SEC.  His op-ed piece in last Saturday's NY Times was a symptom of the larger problem---the failure of anyone to step up and take responsibility for what has come to pass.  His commission's decision to rely on 'voluntary compliance' as a regulatory technique was among several key factors that abetted the smoke & mirrors, but you wouldn't get the slightest hint of this from his column.  When are we going to dismiss him?

OK, on to solutions.  For some insight about what to do next, I recommend tuning into The Economist's debate forum on the topic:

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