Tuesday, April 21, 2009

You Can't Have It Both Ways

I usually don't watch the network news, but I caught some of last night's NBC broadcast with Brian Williams. They did a brief story on Bank of America's much improved profit numbers, with a CNBC financial reporter advising that we shouldn't get too excited. Williams asked about the credit market and whether loans were increasing and more money was being made available. And it just sort of struck me that after months and months of anger directed at the financial sector, people are still looking at that very sector to help solve the economic crisis.

And maybe this is just my simple mind, but it seems to me that you can't have it both ways. If bad loans were what precipitated this crisis, then it makes sense that the market response would be to tighten the credit market. Yet the tone in the media and in Washington, since the first TARP back in October, has been to try and loosen up the credit market. Isn't this contradictory? Again, maybe I'm just stupid, but as this economic crisis continues, I feel like I'm seeing nothing but contradictory solutions and explanations.


Anonymous rose said...

Contradictory? Try this.

The ratings agencies (Moody's & AM Best) lowered their credit ratings on many (all?) municipal bonds, which essentially means its going to cost states and municipalities more to raise money, because they are higher risk.

Barney Frank -the man, the myth, the legend- disagrees with the ratings cut. Apparently in Frank's mind Californian bonds are as fundamentally sound as Fannie and Freddie were in mid-2008 and that the ratings agencies and all of their thousands of experts have it wrong. Frank's solution is federal insurance for municipal bonds!!

Who cares if states borrow more money than they can pay back. We'll just spread the risk around so it all goes away.

There is consensus that some of the blame for the financial crisis falls on the (already heavily regulated and protected) ratings agencies for awarding AAA ratings to risky assets. And Barney Frank is putting pressure on them to do the same thing all over again.

10:05 AM  

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