Dissent Grows Over German Chancellor Angela Merkel
... More heroin is great if you're on drugs ... The Anglo-American view is going to end us in abject poverty ...
http://video.foxbusiness.com/v/1773844964001/dissent-grows-over-german-chancellor-angela-merkel/?playlist_id=87185

Originally Posted By Centurion40 (9 AUG 2012 1:37pm)

Right on!

Both are involved, i.e., casino capitalism leading to the creation of between $600 trillion to $1.2 quadrillion in unregulated derivatives, and chump change needed to bail out banksters, which isn't surprising as governments work for them.

Originally Posted By ralfy (11 AUG 2012 10:13am)

Both are involved, i.e., casino capitalism leading to the creation of between $600 trillion to $1.2 quadrillion in unregulated derivatives, and chump change needed to bail out banksters, which isn't surprising as governments work for them.

 

 

I have to ask, do you understand any of these terms to which you apply adjectives intended to incite emotions so other readers immediately buy into your paranoia?  Here's a site that may help you clear away those phantoms you see so you don't need those useless adjectives.

Welcome to CNBC Explains

... where we dissect the complicated economics of our world — everything from stocks and corporate balance sheets, to international trade and government policy.
http://www.cnbc.com/id/41585735/site/14081545/

Originally Posted By ActionJack (11 AUG 2012 11:49am)

Originally Posted By ralfy (11 AUG 2012 10:13am)

Both are involved, i.e., casino capitalism leading to the creation of between $600 trillion to $1.2 quadrillion in unregulated derivatives, and chump change needed to bail out banksters, which isn't surprising as governments work for them.

 

 

I have to ask, do you understand any of these terms to which you apply adjectives intended to incite emotions so other readers immediately buy into your paranoia?  Here's a site that may help you clear away those phantoms you see so you don't need those useless adjectives.

 

Welcome to CNBC Explains

... where we dissect the complicated economics of our world — everything from stocks and corporate balance sheets, to international trade and government policy.
http://www.cnbc.com/id/41585735/site/14081545/

 

 

which terms are you objecting to?  

Casino Capitalism?  -- this is a pretty common term for financial markets, prominent financiers have even written books with that in the title (it isn't like he used "vulture capitalism" ala Rick Perry)

unregulated derivatives?  -- they were unregulated

chump change? - a few hundred billion dollars is chump change compared with what ralfy aleges are quadrillions in derivatives.  Now, I'd object to the quadrillion being a meaningful figure, but either way, I think the chump change is defensible in his context.

The word choices appear easily defensible to me -- certainly more so than the pejorative phrase "useless adjectives" since they do, in ralfy's post, actually perform a useful function.

Originally Posted By medck (11 AUG 2012 4:55pm)

Originally Posted By ActionJack (11 AUG 2012 11:49am)

Originally Posted By ralfy (11 AUG 2012 10:13am)

Both are involved, i.e., casino capitalism leading to the creation of between $600 trillion to $1.2 quadrillion in unregulated derivatives, and chump change needed to bail out banksters, which isn't surprising as governments work for them.

 

 

I have to ask, do you understand any of these terms to which you apply adjectives intended to incite emotions so other readers immediately buy into your paranoia?  Here's a site that may help you clear away those phantoms you see so you don't need those useless adjectives.

 

Welcome to CNBC Explains

... where we dissect the complicated economics of our world — everything from stocks and corporate balance sheets, to international trade and government policy.
http://www.cnbc.com/id/41585735/site/14081545/

 

 

 

which terms are you objecting to?  

Casino Capitalism?  -- this is a pretty common term for financial markets, prominent financiers have even written books with that in the title (it isn't like he used "vulture capitalism" ala Rick Perry)

unregulated derivatives?  -- they were unregulated

chump change? - a few hundred billion dollars is chump change compared with what ralfy aleges are quadrillions in derivatives.  Now, I'd object to the quadrillion being a meaningful figure, but either way, I think the chump change is defensible in his context.

 

The word choices appear easily defensible to me -- certainly more so than the pejorative phrase "useless adjectives" since they do, in ralfy's post, actually perform a useful function.

 

What's indefensible is Ralfy's intended implication.  Let's take the derivatives.  A lender lends a million dollars @ ten percent but he's somewhat concerned about the borrower's ability to repay so he gets an insurance or CDS from AIG and pays two percent.  Maybe he later decides to sell that CDS to a third party for 3 percent.  Some would say the third party has no skin in the game and stands to win big on these side bets a la 'casino capitalism'.  Looked at another way, that third party is assuming risk that the lender doesn't want to assume who now gets another stream of income to boot.  AIG, the originator of the CDS is the one that must accurately assess the risk.

Now my position is that there are government regulation for some entities (pension funds) which mandate that they buy securities which must meet specific standards (AAA rating) which are derived from the credit rating agencies.  Who has determined the competency of the rating agency these mandates require?  Is that competency in anyway guaranteed?  On Wall St., the opinion is that those that work at the rating agencies are those that can't make it on Wall St. (their observation, not mine).  Would not AIG and the big banks have been more aware of what some of these instruments actually contained without those mandates having instead to rely on their own devices?  My point is that Ralfy's terms are void of useful substance and lend themselves more to those of the 'occupy movement'.  I am of course assuming you're not a member; apologies if you are.

I don't think Rafly's statement in any way implies the elaborate phantom you have just created.  I am sure he could make any host of arguments you'd probably disagree with, but what he presented strikes me as entirely unobjectionable -- as I said, I wouldn't necessarily agree with it, but that is a different story.

In any event, I find it odd that you would use the opinions of the people who screwed up the financial system of the rating agency employees as in any way credible.  I don't think the ratings people are particularly credible, but then I doubt individual market-makers have much credibility either.  Strikes me as a typical "my profession is superior to yours" pettiness.

Originally Posted By medck (12 AUG 2012 7:41am)

I don't think Rafly's statement in any way implies the elaborate phantom you have just created.  I am sure he could make any host of arguments you'd probably disagree with, but what he presented strikes me as entirely unobjectionable -- as I said, I wouldn't necessarily agree with it, but that is a different story.

 

In any event, I find it odd that you would use the opinions of the people who screwed up the financial system of the rating agency employees as in any way credible.  I don't think the ratings people are particularly credible, but then I doubt individual market-makers have much credibility either.  Strikes me as a typical "my profession is superior to yours" pettiness.

An objective view of those Wall Street sentiments about the ratings agencies might lead one to understand why those rating agencies failed so miserably; it might also suggest why Wall Street disdain led to the 'gaming' (some might say taking advantage) of that mandated reliance on those rating agencies.  A less objective view might have missed that point.

As to the reasonableness versus the actual intention of Ralfy's post.  Why would anybody buy stock from Facebook?  That company will not pay dividends for decades if ever.  What is it people are looking to receive by buying shares in Facebook?  What these people hope is that someone else in the secondary market will find that Facebook stock more valuable than the original purchase price so they can sell at a profit. 

Is that gambling?  Does that hedge against inflation or effort to save for a retirement show an indication of casino capitalism?  If not, then where is the casino element on Wall Street?  Everybody is looking to improve their financial position by wagering on what they think will happen in the future.  The farmer doesn’t know what crop yield he’ll have in 6 months so he sells a futures contract (derivative) to protect his financial position.  He needs a buyer; should he care whether that buyer has any actual business interest in the agricultural industry?

If it is all just gambling, casino capitalism, then complaining about it is like sitting at a poker table whining there’s gambling going on.  It is purely hyperbolic and diminishes any chance of useful discussion.

Let’s take “unregulated derivatives”.  What regulation are you looking for and how would it have prevented our current situation?  Bernie Maddoff was regulated; how did that turn out?  There’s a reason no alternative or solution is offered by this poster; why it is never offered by this poster.  I think he doesn’t understand these mechanisms he condemns.  Instead he only offers an appeal to emotions through words intended to condemn free markets in a free society; ultimately it’s just a condemnation of free societies. 

My point is that Ralfy is just a bottle thrower.  His posts suggest he really doesn’t know how the things he’s complaining about work let alone why, from his perspective, they fail.  What’s your purpose?

Let me be more specific about ‘gaming’ the rating agencies.  When the big Wall Street investment banks packaged mortgage bonds into CDOs, the credit rating agencies didn’t examine the individual mortgages.  Instead they rated the offered instruments 80 percent AAA and 20 percent BBB.  What the banks then did was lop off the 20 percent tranches in the CDOs and repackaged them into new CDOs.  They took these repackaged CDOs to the rating agencies who again rated the offerings 80 percent AAA and 20 percent BBB.  This is how CDOs rated AAA and sold to entities required by law to purchase only AAA securities ended up with securities composed entirely of BBB rated debt; subprime loans destined to fail.  I think this suggests that the Wall Street disdain was rooted in more than competitive profession inspired “pettiness”.

The point here is that government mandates created this problem.  When nobody is required to buy your service they won’t buy your b___s___.  The credit rating agencies had little incentive to do the necessary work to provide good ratings because too many large institutional investors had (government mandate) to use their service.

So you actually don't really disagree with anything he wrote.  I think you can make a strong case that capitalism in the industrial/business sense is distinct from casino capitalism of the financial sense.  That strikes me as very fair and not hypocritical at all.  And I don't actually see any defense of ratings agencies in his account either -- they are quite complicit in the whole mess.  That's in part why only partisan hacks care that S&P downgraded the US credit rating.

This isn't about whether derivatives should exist or not, but in their proper regulation.  Prior to the repeal of Glass-Steagal we have about 65 years of banning banks from getting engaged in the commercial equity/securities business because that provided a link between financial crises and bank failures affecting depositors.  Now, regulations need to be updated to keep up with chaning technologies, etc, but that doesn't mean we don't need regulations.  It just means we need good regulations and fewer bad regulations. 

You asked for one regulation.  A simple one like disclosing to your counter-parties that you have a short position in derivatives you well them is one regulation that would have helped AIG in its dealings with Goldman Sachs.  That would be a regulation to cover  disclosure and support basic fiduciary responsibilities.

For your free market absolutist position to hold, there is not a single regulation that is superior to the functioning of the free market.  Even the registration of a corporation is a form of regulatory activity, so I'm not even sure where, outside the imagination, such a world would exist.

Originally Posted By ActionJack (12 AUG 2012 10:30am)

Let me be more specific about ‘gaming’ the rating agencies.  When the big Wall Street investment banks packaged mortgage bonds into CDOs, the credit rating agencies didn’t examine the individual mortgages.  Instead they rated the offered instruments 80 percent AAA and 20 percent BBB.  What the banks then did was lop off the 20 percent tranches in the CDOs and repackaged them into new CDOs.  They took these repackaged CDOs to the rating agencies who again rated the offerings 80 percent AAA and 20 percent BBB.  This is how CDOs rated AAA and sold to entities required by law to purchase only AAA securities ended up with securities composed entirely of BBB rated debt; subprime loans destined to fail.  I think this suggests that the Wall Street disdain was rooted in more than competitive profession inspired “pettiness”.

 

The point here is that government mandates created this problem.  When nobody is required to buy your service they won’t buy your b___s___.  The credit rating agencies had little incentive to do the necessary work to provide good ratings because too many large institutional investors had (government mandate) to use their service.

This sounds like the failure of a private entity (ratings agencies), not the government.  Unless you're advocating the government rate these instruments, which they didn't and don't.  The fact that Wall Street and the credit agencies misbehaved is not the government's fault.  Unless thos ewizards on Wall Street are so incompetent that they really believed the fraudulant AAA CDOs they bought were really AAA, then the clever (in a fraudulant way) ones are the guys who did the ratings, not the morons who bought them.

Originally Posted By medck (12 AUG 2012 11:17am)

Originally Posted By ActionJack (12 AUG 2012 10:30am)

Let me be more specific about ‘gaming’ the rating agencies.  When the big Wall Street investment banks packaged mortgage bonds into CDOs, the credit rating agencies didn’t examine the individual mortgages.  Instead they rated the offered instruments 80 percent AAA and 20 percent BBB.  What the banks then did was lop off the 20 percent tranches in the CDOs and repackaged them into new CDOs.  They took these repackaged CDOs to the rating agencies who again rated the offerings 80 percent AAA and 20 percent BBB.  This is how CDOs rated AAA and sold to entities required by law to purchase only AAA securities ended up with securities composed entirely of BBB rated debt; subprime loans destined to fail.  I think this suggests that the Wall Street disdain was rooted in more than competitive profession inspired “pettiness”.

 

The point here is that government mandates created this problem.  When nobody is required to buy your service they won’t buy your b___s___.  The credit rating agencies had little incentive to do the necessary work to provide good ratings because too many large institutional investors had (government mandate) to use their service.

 

This sounds like the failure of a private entity (ratings agencies), not the government.  Unless you're advocating the government rate these instruments, which they didn't and don't.  The fact that Wall Street and the credit agencies misbehaved is not the government's fault.  Unless thos ewizards on Wall Street are so incompetent that they really believed the fraudulant AAA CDOs they bought were really AAA, then the clever (in a fraudulant way) ones are the guys who did the ratings, not the morons who bought them.

The claim that 'I just spread water mopping the lobby and you fell is not my fault' does not wash.  Without the government requirement the rating agencies would not be used so unquestioningly!  Let me explain further.

To illustrate this point: because of the incentives offered by derivatives like credit default swaps, some very smart and enterprising people (no government mandate here) actually delved into the fine details of the mortgages behind the MBS, CDOs, and CDS instruments.  They did the job that the government declined to do, and the rating agencies, implicitly tasked, failed to do.  They spent 16 hour days for months and years discovering which were the most likely instruments to fail and “bet” big on their collapse and won.  Some of the big banks on Wall Street came a bit late to the party but also made similar hedges.

One in the news lately was Goldman Sachs.  They were first holders of some of these doomed instruments and later they sold CDS (credit default swaps) on those same doomed instruments.  When they realized what few other competitors realized they called in their CDS instruments; then they bought more from their competitors while still selling their clients the MBS and CDOs the credit default swaps were betting against.  This later led to charges of fraud from Congress but the Justice Department rightly refuses to take them to court.  Goldman Sachs was selling the same type of CDOs and MBS that their competitors were selling; there were ready customers willing to buy if not from Goldman then somebody else.  I don’t think these buyers can claim that Goldman had a fiduciary responsibility to them and thus there’s no fraud involved; just a bet on the market swinging entirely in the opposite direction that most others on ‘the street’ believed it would swing.

Who’s at fault here?  This is not the first bond market crash.  There was one in the 1980s, again in the 1990s.  The FED swings interest rates and the bond market dances to that tune.  What’s seen is the debris left from the carnage when the crash occurs.  What’s not seen is all those who benefitted.  Not just the rich on Wall Street, but those FED actions which instigated the crashes also fueled home buying.  My brother was a benefactor.  He bought his home in 2000 before he got married and hit a six figure salary.  Later, he refinanced (again thanks to interest rate swings) and paid off his credit cards.  Today his house may be under-water but he’s married, both he and his wife are employed and they live well in that house.  He’s currently vacationing in the Caribbean.

When the FED plays its music there are a lot of winners, but when the music stops, somebody doesn’t have a chair to sit in and gets burned.  That’s not a Wall St. or capitalism problem nor casino gambling.  That’s the effects of the government’s fingers on the market’s scales; not a failure of markets.

The Fed didn't package up CDS; they didn't sell them off to their counterparties without disclosing they had an interest in shorting it.  I'm not really sure what your logic here is -- first there is the usual govt is bad rhetoric but then we're supposed to be envious your brother gets a vacation in the Carribean because he was lucky with the way interest rates went.  Your Fed analysis is pretty much a "he didn't do it himself" argument.

Originally Posted By medck (12 AUG 2012 4:16pm)

The Fed didn't package up CDS; they didn't sell them off to their counterparties without disclosing they had an interest in shorting it.  I'm not really sure what your logic here is -- first there is the usual govt is bad rhetoric but then we're supposed to be envious your brother gets a vacation in the Carribean because he was lucky with the way interest rates went.  Your Fed analysis is pretty much a "he didn't do it himself" argument.

Woa!  You don't see the logic?  Here’s the beginning of the legal argument: ‘But for the government requirement to buy only securities that obtain AAA ratings from these certain designated credit rating agencies …’  These credit rating agencies weren’t actually rating securities but instead just labeling securities; and note that they weren’t government-mandated to rate anything either.  Instead, it was the institutional investors who were government-mandated to buy the rating agencies’ b---s---!  Of course it’s the government’s fault!  If you’re forced to buy from the company store it can’t be your fault you got ripped off.  Quite frankly, it's not even the company store's fault; it's the fault of the guy holding the shotgun forcing commerce between two non-consenting parties!

On a secondary note, your first six words indicate to me that you aren't really following this discussion.  You might want to also use the CNBC resource I've offered to get a handle.  That may be the problem here.

As far as my offering my brother's good fortune or perhaps luck as an example of the winners we never hear about, your singular reaction of envy is noted.  All I can say is 'eat your heart out'.  I guess you really are one of the 'occupy crowd' demanding equal outcomes; sorry to hear that but it explains much.  You are but the foil I use to illustrate my point and, if I do say, you play it well.  Thanks!

"Government is not reason; it is not eloquent; it is force.  Like fire, it is a dangerous servant and a fearful master."  George Washington

there are plenty of 'real' AAA assets -- like US Govt bonds.  Now, just because a rating agency misbehaves and calls something AAA and that technically statisfies the regulation isn't the fault of the regulator, it is the fault of the people who made the rating.  And there should be some due diligence on the buyers as well.  I'm not sure how people buying these CDOs is an argument against regulation, it is more an argument that the regulations were not prudent enough.  

Originally Posted By ActionJack (13 AUG 2012 8:25am)

Originally Posted By medck (12 AUG 2012 4:16pm)

 first there is the usual govt is bad rhetoric but then we're supposed to be envious your brother gets a vacation in the Carribean because he was lucky with the way interest rates went.  Your Fed analysis is pretty much a "he didn't do it himself" argument.

 

As far as my offering my brother's good fortune or perhaps luck as an example of the winners we never hear about, your singular reaction of envy is noted.  All I can say is 'eat your heart out'.  I guess you really are one of the 'occupy crowd' demanding equal outcomes; sorry to hear that but it explains much.  You are but the foil I use to illustrate my point and, if I do say, you play it well.  Thanks!

I'm not sure what the relevance of you mentioning your brother's vacation is other than to aggrandize his wealth/luck; I'm indifferent to it.  But it seems you place a great deal of value on such consumption.  That perhaps is something for you to take up with your brother, but it certainly is on display here.

Originally Posted By medck (13 AUG 2012 2:57pm)

there are plenty of 'real' AAA assets -- like US Govt bonds.  Now, just because a rating agency misbehaves and calls something AAA and that technically statisfies the regulation isn't the fault of the regulator, it is the fault of the people who made the rating.  And there should be some due diligence on the buyers as well.  I'm not sure how people buying these CDOs is an argument against regulation, it is more an argument that the regulations were not prudent enough.  

I refer you to the concept of 'moral hazard'.  Perhaps that helps.  FDR understood the concept and was quite concerned with its implications.  Do you?

Oh medck!  I was following along until I found you were

one of the "occupy" crowd and merely a "foil" for a rapier-like argument.

AHHH  what am I to do now?  I know so little of economic "magic"

and what I do know I have learnt here.  I am as consufed as ever.

I read the other day that reading arguments you agree with actually

causes the release of enorphins which give pleasurable feelings.

So, unsuprisingly, does typing them.  On the other hand reading

counter proposals or those that do not match preconcieved notions

create equal feelings of anxiety, ill ease and anger.

So some may write to put forward a postion or provide information

while others are involved with what could be described as "Intellectual Monkey Spanking".

Originally Posted By medck (13 AUG 2012 3:01pm)

Originally Posted By ActionJack (13 AUG 2012 8:25am)

Originally Posted By medck (12 AUG 2012 4:16pm)

 first there is the usual govt is bad rhetoric but then we're supposed to be envious your brother gets a vacation in the Carribean because he was lucky with the way interest rates went.  Your Fed analysis is pretty much a "he didn't do it himself" argument.

 

As far as my offering my brother's good fortune or perhaps luck as an example of the winners we never hear about, your singular reaction of envy is noted.  All I can say is 'eat your heart out'.  I guess you really are one of the 'occupy crowd' demanding equal outcomes; sorry to hear that but it explains much.  You are but the foil I use to illustrate my point and, if I do say, you play it well.  Thanks!

 

I'm not sure what the relevance of you mentioning your brother's vacation is other than to aggrandize his wealth/luck; I'm indifferent to it.  But it seems you place a great deal of value on such consumption.  That perhaps is something for you to take up with your brother, but it certainly is on display here.

Let me explain it to you! We've seen a parade of examples of how the so-called 'casino capitalism' has harmed everyday Americans, but the truth is, like all gold rushes, there are also many winners. To illustrate that point, rather than offer an abstract example, I provided an anecdote with which I am personally familiar. A fair minded person would focus on the point rather than succumb to baser instincts, and try to create unnecessary controversy. I recognize your reaction was more visceral than scholarly given the emanating wind which raised skirts and exposed 'petticoats of envy'. Denials at this point are useless; the stripes have been shown. Let it go.  I can't see you offering anything at this point that can advance, let alone elevate, this conversation.

Originally Posted By danlongman (13 AUG 2012 4:12pm)

Oh medck!  I was following along until I found you were

one of the "occupy" crowd and merely a "foil" for a rapier-like argument.

AHHH  what am I to do now?  I know so little of economic "magic"

and what I do know I have learnt here.  I am as consufed as ever.

I read the other day that reading arguments you agree with actually

causes the release of enorphins which give pleasurable feelings.

So, unsuprisingly, does typing them.  On the other hand reading

counter proposals or those that do not match preconcieved notions

create equal feelings of anxiety, ill ease and anger.

So some may write to put forward a postion or provide information

while others are involved with what could be described as "Intellectual Monkey Spanking".

Tossed you off the other board did they?  You really expect to fare better here?  Wow!

Originally Posted By ActionJack (13 AUG 2012 4:03pm)

Originally Posted By medck (13 AUG 2012 2:57pm)

there are plenty of 'real' AAA assets -- like US Govt bonds.  Now, just because a rating agency misbehaves and calls something AAA and that technically statisfies the regulation isn't the fault of the regulator, it is the fault of the people who made the rating.  And there should be some due diligence on the buyers as well.  I'm not sure how people buying these CDOs is an argument against regulation, it is more an argument that the regulations were not prudent enough.  

I refer you to the concept of 'moral hazard'.  Perhaps that helps.  FDR understood the concept and was quite concerned with its implications.  Do you?

 

I don't think that phrase means what you think it means, at least not so far as AAA assets and regulation are concerned.

Originally Posted By danlongman (13 AUG 2012 4:12pm)

Oh medck!  I was following along until I found you were

one of the "occupy" crowd and merely a "foil" for a rapier-like argument.

AHHH  what am I to do now?  I know so little of economic "magic"

and what I do know I have learnt here.  I am as consufed as ever.

I read the other day that reading arguments you agree with actually

causes the release of enorphins which give pleasurable feelings.

So, unsuprisingly, does typing them.  On the other hand reading

counter proposals or those that do not match preconcieved notions

create equal feelings of anxiety, ill ease and anger.

So some may write to put forward a postion or provide information

while others are involved with what could be described as "Intellectual Monkey Spanking".

My endocrines are soaring.

Originally Posted By medck (13 AUG 2012 5:29pm)

Originally Posted By ActionJack (13 AUG 2012 4:03pm)

Originally Posted By medck (13 AUG 2012 2:57pm)

there are plenty of 'real' AAA assets -- like US Govt bonds.  Now, just because a rating agency misbehaves and calls something AAA and that technically statisfies the regulation isn't the fault of the regulator, it is the fault of the people who made the rating.  And there should be some due diligence on the buyers as well.  I'm not sure how people buying these CDOs is an argument against regulation, it is more an argument that the regulations were not prudent enough.  

I refer you to the concept of 'moral hazard'.  Perhaps that helps.  FDR understood the concept and was quite concerned with its implications.  Do you?

 

 

I don't think that phrase means what you think it means, at least not so far as AAA assets and regulation are concerned.

Of course it does.  There is a reliance on the rating agencies enforced by government regulation.  This leads to a 'belief' in the soundness of their judgment even though no regulations govern nor even monitor the quality of their work.  The SEC causes the same phenomenon which is why Bernie Madoff was able to run his scheme for thirty years.  Other examples were GSEs like Fannie Mae who were independent of federal governing but yet their government status was implied and therefore their soundness.  This is the very definition of moral hazard.

Originally Posted By ActionJack (13 AUG 2012 5:41pm)

Originally Posted By medck (13 AUG 2012 5:29pm)

Originally Posted By ActionJack (13 AUG 2012 4:03pm)

Originally Posted By medck (13 AUG 2012 2:57pm)

there are plenty of 'real' AAA assets -- like US Govt bonds.  Now, just because a rating agency misbehaves and calls something AAA and that technically statisfies the regulation isn't the fault of the regulator, it is the fault of the people who made the rating.  And there should be some due diligence on the buyers as well.  I'm not sure how people buying these CDOs is an argument against regulation, it is more an argument that the regulations were not prudent enough.  

I refer you to the concept of 'moral hazard'.  Perhaps that helps.  FDR understood the concept and was quite concerned with its implications.  Do you?

 

 

I don't think that phrase means what you think it means, at least not so far as AAA assets and regulation are concerned.

Of course it does.  There is a reliance on the rating agencies enforced by government regulation.  This leads to a 'belief' in the soundness of their judgment even though no regulations govern nor even monitor the quality of their work.  The SEC causes the same phenomenon which is why Bernie Madoff was able to run his scheme for thirty years.  Another example were GSEs like Fannie Mae who were independent of federal governing but yet their government status was implied and therefore their soundness.  The very definition of moral hazard.

 

That's not moral hazard.  Moral hazard is knowing you'll be bailed out if things go badly.  Consequently people will take riskier actions than they would if the burden of failure were to fall solely on them.  I hope you see the difference between AAA / Bernie Madoff and Fannie Mae.  Only FM (which is not what we're talking about) is a potential example of moral hazard, and even it was only implied not a strict obligation.  The other two clearly are not -- especially as there was no bailout of the BM investors or a generalized bailout of AAA assets.  A Triple-A rating is not a govt guarantee, it is a risk rating.

What you're describing is reliance on/appeal to authority.  Sort of like thinking because someone is rich they must know what they're talking about because, you know, they're rich.