Though Cowards Flinch

I’m grateful to the ever courteous Giles at Freethinking Economist (more headlines need to be like this) for pointing me towards this House Committee on Oversight and Government Reform hearing. 

The Instant Messaging conversation, put before th hearing, between two staff members at credit rating agency Standard & Poor’s, is revealing:

Employee 1: By the way, that deal is ridiculous.
Employee 2: I know, right. That model definitely does not capture half the risk.
Employee 1: We should not be rating it.
Employee 2: We rate every deal.It could be structured by cows and we would rate it.

Employee 1: But there’s a lot of risk associated with it – I personally don’t feel comfy signing it off as a committee member.

As Giles notes, you don’t have to be a conspiracy theorist to know that there’s something wrong here.  Something very wrong.

And yet, two and a half years on from this conversation, these very same credit rating agencies – the ones largely responsible for the massive asset bubble, the subsequent crash and the ensuing recession, hold pride of place in the Conservatives’ argument (see Q6) for the need to slash public services to get us out of the deficit caused by that very same crash and ensuing recession.

It’s almost as though there’s some kind of desire to sweep the problem of credit agencies’ conflicting incentives – they are paid by the issuers of the financial products – under the table.