Bond Raters and other issues

In a previous blog I raged about the three bond raters, S&P, Moodys, and Fitch. Since then I've found that a few states have instituted law suits against the outfits. As I read the accounts the judge, Kaplan, I think, quibbled about the status of the raters in the debacle. He indicated that because they weren't the originators of the mortgages they weren't culpable. That,to me,is ridiculous. I conceive of their job as investigators assessing the value of the product. If they bothered to even look into the matter, it would have been clearly evident that there was great risk involved and they should have rated the securitized mortgage bonds as very low grade, junk, instead they prostituted themselves by "selling" the AAA rating. That is pure malfeasance.

That type of shenanigan multiplied a zillion times throughout the financial market is what brought down the house of cards. Now our economy is shattered and almost dead in the water. Spending vast sums, of taxpayer money, to recapitalize the banks and humongous insurance companies was supposed to "prime" the pump and get the economy jump started. Unfortunately the damage had been done and there was no magic formula to change it. Add to that the collapse of the auto industry, add to that the dire straights of most of the state treasuries and you've got one helluva mess.

The resulting unemployment brings the consumer spending to a halt. This in turn leads to greater unemployment as businesses fire employees. The lack of business activity causes a tremendous loss of tax revenue further intensifying the state and federal deficits. Is that the death spiral referred to? Stimulus spending has been an attempt to slow or reverse the free fall and to some extent has prevented a full scale depression. States have been aided, teacher cuts have been averted, as well as firemen and police. Some infrastructure work has been initiated, both to remedy needed repairs and give some employment. For the unemployed the unemployment benefits have been extended to unprecedented periods. All this has been of great value but at tremendous cost. Rather than appreciate the great value however the naysayers have harped on the cost and projected the great bogeyman of horrific debt.

The resulting fear and frustration has caused a backlash that, though understandable,is not at all constructive. At a time when unity and cooperation is most needed we are engaged in the most destructive kinds of behavior. Principally the Republicans have seized on the crisis to tear down Obama and the Democrats instead of rising to the occasion to solve the problems. Considering it was on their watch that the epidemic was incubated and blossomed it is ingenuous of them to act the way they do.

All of the above is plenty of tragedy. It is becoming more and more apparent that we have a very serious problem caused by business interests both big and small that are exerting tremendous pressure on legislators and judges to weaken laws that protect the public from rapacious business practices. This is occurring in several states and has been demonstrated at the Supreme Court level by recent decisions. There is no doubt about it, our democracy is in danger of becoming unraveled. The Tea Partyers have railed against taxes and the size of government but unless we get a handle on this trend in the courts there won't be any thing to tax or government to rail against