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Wall Street’s Great Enabler Dodges a Bullet

Posted by Larry Doyle on June 23, 2009 7:46 AM |

Did Barack Obama and team give a sly and subtle wink to Wall Street that ‘the game goes on’ and the ‘fix is still in?’ I believe they did.

Many analysts, myself included, view Obama’s proposed regulatory reforms as a combination of ‘reshuffling the deck chairs’ and ‘cosmetic surgery.’ In the process of those maneuvers, the rating agencies – Wall Street’s Great Enabler – went largely untouched.

The rating agencies business model presents massive conflicts of interest for all involved. The greatest conflict centers on the fact that the rating agencies’ stream of revenue remains beholden to the Wall Street banks. Without addressing that issue, any dialogue on this topic holds no water.

The Wall Street Journal does yeoman work in highlighting the continuation of the Wall Street charade in this area in writing, A Triple AAA Punt:

If world-class lobbying could win a Stanley Cup, the credit-ratings caucus would be skating a victory lap this week. The Obama plan for financial re-regulation leaves unscathed this favored class of businesses whose fingerprints are all over the credit meltdown.

How is it possible in the midst of such a massive financial meltdown that Obama, Geithner, and team could leave this critically important piece of the regulatory puzzle untouched? Actually, it is quite simple.

As with any heist, the perpetrators need a ‘bag man,’ who will take a payoff while providing cover to the operation. This scenario with the rating agencies is a prime example of How Wall Street Bought Washington.

Obama is flexing his muscles for the public, but without changes within the rating agencies the signal to Wall Street from Washington is that it is ‘business as usual.’ The WSJ offers as much:

The Obama plan does make plenty of vague suggestions, similar to those proposed by the rating agencies themselves, to improve oversight of the ratings process and better manage conflicts of interest. The Obama Treasury has even adopted the favorite public relations strategy of the ratings agency lobby: Blame the victim. “Market discipline broke down as investors relied excessively on credit rating agencies,” says this week’s Treasury reform white paper. After regulators spent decades explicitly demanding that banks and mutual funds hold securities rated by the big rating agencies, regulators now have the nerve to blame investors for paying attention to the ratings.

Sense on Cents believes strongly we need transparency and integrity in the regulatory process. What Obama has delivered in this key area are ‘vague suggestions.’

Am I surprised? No. Once again, the American public at large and investors specifically are subjected to ‘business as usual.’

LD






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