Filed under: Bond Regulation, Multi-Obligor Bonds, The Rating Agencies
Here is the “skin–in-the-game” clause for originators and ratings agencies. This helps to prevent the next crisis.
We still need clarification and common sense review of the real value of existing multi-bligor securities. The existing bonds that have been downgraded will probably never be upgraded. These assets will be a drag on bank capital for years (until they mature). We need to address the existing problem. We can’t let static rules set bank capital levels. Accounting should reflect economic activity, not drive it.
Let’s ask the NAIC how to fix this problem. They have it figured out (see below).
FDIC May Tie Underwriter, Rater Pay to Asset-Backed Performance – Bloomberg.com, November 19, 2009
Watch this two-and-a-half-minute interview with Blackrock’s Larry Fink.
He discusses how single obligor ratings are OK, and that multiple obligor measurements need to be fixed.
He also points out that the NAIC is seeking its own solution to the multiple obligor problem.
Thanks for the backup, Larry!
Viewpoints: Fink on Real Estate Sector – WSJ.com, November 11, 2009
Going forward, we have two choices. We can look at the problems that surfaced with regard to how multi-obligor bonds were rated and take steps to correct those problems.
Or we can dwell on the past, point fingers and otherwise self-destruct. Assigning blame is never a constructive enterprise and the last thing we need is more distraction from the staggering task at hand. And truth be told, we probably all have some degree of culpability.
By not assigning blame we are not allowing anyone to “get away” with something. Rather, by sharing blame we can quickly start to move in a constructive direction to ensure that problems such as those that occurred with multi-obligor bonds can never happen again.