This is something I read in Sunday’s NYT magazine; the story was about Moody’s bond- and security-rating service:
To get why (Moody’s stratospheric growth) is impressive, you have to think about all that determines whether a mortgage is safe. Who owns the property? What is his or her income? Bundle hundreds of mortgages into a single security and the questions multiply; no investor could begin to answer them. But suppose the security had a rating. If it were rated triple-A by a firm like Moody’s, then the investor could forget about the underlying mortgages. He wouldn’t need to know what properties were in the pool, only that the pool was triple-A — it was just as safe, in theory, as other triple-A securities.
Over the last decade, Moody’s and its two principal competitors, Standard & Poor’s and Fitch, played this game to perfection — putting what amounted to gold seals on mortgage securities that investors swept up with increasing élan. For the rating agencies, this business was extremely lucrative. Their profits surged, Moody’s in particular: it went public, saw its stock increase sixfold and its earnings grow by 900 percent.
By providing the mortgage industry with an entree to Wall Street, the agencies also transformed what had been among the sleepiest corners of finance. No longer did mortgage banks have to wait 10 or 20 or 30 years to get their money back from homeowners. Now they sold their loans into securitized pools and — their capital thus replenished — wrote new loans at a much quicker pace.
Mortgage volume surged; in 2006, it topped $2.5 trillion. Also, many more mortgages were issued to risky subprime borrowers. Almost all of those subprime loans ended up in securitized pools; indeed, the reason banks were willing to issue so many risky loans is that they could fob them off on Wall Street.
But who was evaluating these securities? Who was passing judgment on the quality of the mortgages, on the equity behind them and on myriad other investment considerations? Certainly not the investors. They relied on a credit rating.
You may have to read this a few times to absorb it. Go ahead. When you’re ready, come back and ask yourself how often you’ve heard someone of late say, “The mortgage mess is very simple — people didn’t pay their mortgages.” I think of this as the Stupid Simple Meme. A SSM reduces a complex issue to something that can be fit on a bumper sticker, and conveniently transfers 100 percent of the blame to the most powerless saps on the stage.
The bankers? They were just doing what comes nacherly — making money. How can we blame a business for making money? That’s what businesses do! And if they did it by churning fees, by ignoring the simplest due diligence in vetting loan applications, by marketing through outright lies? Details, details. The bad people are the ones who didn’t pay their mortgages.
The disaster in New Orleans? It was the fault of the people who chose to live below sea level, and the deaths were a natural result of people who simply refused to leave. (Are you listening, the Netherlands?) Granted, not everyone had Ashley Morris yelling in their ear for the last three years, but I’m still amazed at how many people shrug their shoulders at what happened there, who say it was simply inevitable, an act of God, something no levee could have held back.
(In case you think I’m only singling out right-wing Simple Stupids, the left has them, too: Remember “the cure for homelessness is housing”? Yeah, even 20 years ago it seemed a little pat.)
I have a new rule: Whenever anyone says, “It’s really very simple…” about a complicated problem, I stop listening.
Anyway, why bother? VRSA is going to get us all, and remember, folks: It came…from…Michigan! Mm-ha-ha-ha-ha-ha-ha.
(What is VRSA, you ask? Why, it’s MRSA, only with a V, for Very Very Very Scary.)
Actually, that story is worth reading, if only for yet another fascinating Detroit factoid:
Metro Detroit has a history of antibiotic resistance. Illegal drug users 20 to 30 years ago injected antibiotics with heroin in a misguided effort to avoid getting contaminated by dirty needles. As a result, many local bacteria developed resistance to penicillin and its relatives, such as methicillin.
Can you tell it’s Grumpy Monday around these parts? The weather has turned — and just as the redbuds were emerging, dammit — and we’re promised two-thirds of a week when we’ll be lucky to see 50 degrees, joy oh joy. We spent the last day of mild temperatures opening the cottage, which was both uneventful (no squirrels came down the chimney and decomposed under the pillow, like last year). Unfortunately, the shared dock has become a real problem. What was originally agreed upon as a sensible policy — two boats per cottage, back when a boat was an outboard with a 10-horse motor on the back — is now ridiculous. When did a recreating family of four come to need a ski boat, a pontoon and two Jet-Skis? A pox on all their houses; when gas goes to $5 a gallon maybe we can have a little water to actually swim in. I kept my head down, raked leaves and scrubbed things. There’s something about cleaning that empties the head and calms the spirit. Add a leaf fire, and things get just about perfect.
Bloggage? Oh, a little:
A few weeks ago I wondered what would happen to a newspaper if you took away paper, ink, trucks, Teamsters and the like. Answer: The Capital Times of Madison, Wis., which becomes an online-only paper very soon. Future: Very very murky. (This was the plan for my alma mater, derailed when Knight Ridder derailed itself. Never happened, but I will still watch this transformation with interest and, i fear, dread.)
The photo with this story kind of startled me, because as soon as I looked at it, before I even registered who was in it, I said, “Oh, huh. Indiana.” It has to do with the color and height of the cloud ceiling, something about that color of brown, I dunno. For a second I even thought it was Fort Wayne, and if pressed, I’d have said it was on Pontiac Street, beside the old Rialto theater. No, it was Anderson, but still: Indiana. Weird.
Not much, I know, but hey — it’s Monday. Give me some time to get rolling.
John said on April 28, 2008 at 10:50 am
Add a leaf fire
I’m jealous, I haven’t been able to burn leaves in 40 years!
alex said on April 28, 2008 at 11:24 am
This securities-ratings mess is not unlike what happened with stocks in the ’90s. With the deregulation of the financial services industry, suddenly the stock brokerages were owned by the banks. And instead of rating stocks objectively as they were supposed to do, they took their marching orders from the banks and gave the highest ratings to the stocks of upstart companies that had no assets and weren’t making any money. This was the scam that made Elliot Spitzer a hero and ultimately got him elected governor of New York.
So which Saturn did Bossy bring to the D? Has she done her stint in the Skye yet? That car’s the twin to my Solstice, and very painful on the butt muscles with prolonged driving as I learned this weekend going to Indy. Really, two hours sitting will make your ass more sore than four on a StairMaster.
WhiteBeard said on April 28, 2008 at 11:57 am
I loved my week in a Solstice and my afternoon in a Skye, it reminded me of a British sports car. Of course, I have built-in extra rear cushioning so that helps considerably.
As for banks and rating companies and “investing” on Wall Street generally; in any other world it would be called gambling with other people’s money and the dealer or house always takes its cut “commissions” first. Then if a Bear Stearns gets in trouble there is a government bailout of billions and billions of taxpaper money.
But no one really helps the poor guy who is threatened with foreclosure and the foreclosure arrangers are meanwhile making a mint. Don’t get me started, please, I anger easily when I hear of fat cats getting fatter.
Terry WAlter said on April 28, 2008 at 12:51 pm
The whole financial industry/big company scene is quite disgusting. The globalists on Wall Street & in the board rooms & Washington don’t give a rats azz about the average schmuck. They’re all scratching each others’ back and lining each others pockets.Like the executive pay scam, where they always vote yes for the pay/option packages for their buddies, so that the favor is returned when the directors board is voting for their raise. Then you hear the defensive whining that they HAVE to pay $10 million a year to get/keep good people. Meanwhile, Joe Blow gets 0-3% & is told to be thankful for that (whatsamatter with your attitude?). Bush thinks his tax cuts are a cure-all. While they help, when you have millions of jobs leaving the country,they don’t quite get the job done. Laura (let them eat cake) Bush thought pissed off Republicans were a figment of somebodys’ imagination.After the last election, think maybe she got the hint? Hard to say, after all, George is telling us it’s just a slowdown,not a recession. Those of us in Indiana & Michigan would beg (literally) to differ.
Peter said on April 28, 2008 at 1:20 pm
Nancy, I agree with your sentiment on simple statements.
The Katrina ones really got to me. When I argued about it, I was told that I’m hypocritical, since I criticize development in open lands and flood plains, and what is New Orleans if not a flood plain. I always answered that there’s a big difference between living for decades in a flood plain that is SUPPOSED to be protected by the feds, versus building for the first time in an area that you KNOW is going to cause problems. Really, what were concerned people in New Orleans supposed to do? Fix up a chunk of levee on their own? Sell and move? Good luck with that.
Andrea said on April 28, 2008 at 3:18 pm
Off topic, but related to Nancy’s comment a couple of Fridays ago about “MILF” in the newspaper. I found this in an article about the Facebook pages of young teachers in today’s WaPo:
“But the page features multiple “bumper stickers,” including one that uses a crude acronym for attractive mothers…”
Hattie said on April 28, 2008 at 10:31 pm
Not the Capital Times. I had a nostalgia attack, thinking about the good old days in Madison in the 60’s . Man this Calfornia girl got cold out there. But it toughened me up going through all that in those times.
brian stouder said on April 28, 2008 at 10:56 pm
That Obama picture DID look like Pontiac street in Fort Wayne.
Leaving aside Indiana’s suddenly consequential, tightly contested, rapidly approaching and high-stakes primary election, I watched Rev Wright’s entire speech (live on CNN) before the NAACP from the proprietress’s city of Detroit, and thought it was pretty funny.
The guy has a George Carlin-like enunciation, when he immitates the way white people speak, and he can definitely make people laugh when he wants to.
I think the real effect of the rantings and ravings (and the occasionally thought-provoking reflections) of the attention-craving Wright is – he gives wavering Obama supporters a chance to fall away.
Just as the proprietress of this place says she’s tempted to view Michigan’s sudden descent into political insignificance and farce, and Indiana’s concurrent ascendancy to the pinnacle of national political relevance – as a pox specifically aimed at her; so, too, might some of us hoosiers be tempted to view this unfolding election as a direct challenge to us; wherein we actually have to approach our voting booths and really, truly cast a consequential vote.
I, for one, have voted for plenty of ‘D’s in November elections over the years, but I’ve never had to declare as a ‘D’ in May before. Truth be told, if Obama had KO’d Hillary before now, then I might have stayed on cruise control next week, and waited ’till November to give Barack my vote.
But, no, not this year; it won’t be that easy. Indiana’s essentially foregone November balloting has been superceded by this exquisitely intense primary election – and we hoosiers, stumbling and squinting under the klieg lights (much as we did when we got pulled into Daylight Savings Time!) have been knocked right out of Cruise Control!
I say we catch a gear and see what this baby can do!
grapeshot said on April 28, 2008 at 11:22 pm
As an ex-Michigander and now Cheesehead, I read your blog every day with great interest.
I followed that link you posted about the Capital Times and read the article. I know that The Capital Times was a great newspaper, but from the thoroughness of the linked article, I’d have to say that the Isthmus (which is where the link took me) doesn’t seem like a shabby news organization, either.
Unfortunately, neither The Capital Times nor Isthmus speak all that clearly to the rest of us outside of Madison. Nonetheless, like you, I’ll be watching this with interest and some trepidation.
Jolene said on April 28, 2008 at 11:37 pm
Have fun w/ your newfound place in the electoral limelight, Brian. I’ve sometimes teased an Ohio friend about whether candidates come by and offer to rake her leaves in November. Keep us posted about fascinating candidate sightings and other such events. Our primary in VA seemed to be over before it began. There wasn’t really a huge amount of campaigning here.
On the last Friday’s PBS NewsHour, David Brooks said that he didn’t think these campaigns were having any effect–that demographics were determining everything. That is, Hillary has her voters, Barack has his, and the outcome is determined by how many people in particular categories there are in a given state. Not sure he’s absolutely right, but it’s certainly a plausible argument.
Re Wright: Parts of the NAACP speech were, indeed, entertaining, but I could only watch in horror during the Q&A session after this morning’s speech at the National Press Club. The guy has taken a hard hit to his gigantic ego. Now he’s hitting back, and he doesn’t seem to care too much who he hurts.
I can never tell how much difference these things make. On cable TV, everything is HUGE. It’s nice to hear from amiable people like you, who seem to take the “static” in stride.
Danny said on April 29, 2008 at 12:34 am
… It’s nice to hear from amiable people like you, who seem to take the “static” in stride.
…And then there is me. Snicker.
My wife said she might vote for Obama tonight. After joking about where she might be sleeping, I told her I might vote for him too. We’ll see come November. Lots of action left before then.
basset said on April 29, 2008 at 12:51 am
Here in Nashville we have two dailies – the Tennessean, which was an outstanding paper before Gannett got hold of it, and the City Paper, an eight-year-old weekday tabloid startup aimed inside the city limits.
The City Paper went pretty close to all-online this week – paper editions on Monday (business) and Friday (weekend events), electronic-only the rest of the time. some decent online video too, I was surprised… nashvillecitypaper.com.
The Tennessean… well, it doesn’t have any police or government beat reporters as far as I can tell, but the “moms blog” and “shopping diva” are right out there where you can see ’em.
Dexter said on April 29, 2008 at 3:09 am
THREE O’CLOCK and ALL’s WELL!
As a night owl, I thought I would assure you of that.
Obama ‘s current albatross is Preacher Wright, as David Axelrod cringes as Wright gets more and more publicity.
Also, keeping his promise to introduce race-discussion to TV , Don Imus had the wonderful Dick Gregory on his show Monday. Even as Imus signed on with WABC and began praising Limbaugh and Hannity and Hume, he has indeed given us some insightful African American commentators on his show.
alex said on April 29, 2008 at 7:44 am
Not sure what all the fuss is about. Wright doesn’t bother me in the least, and I’m sure that anyone who claims to be bothered wasn’t planning on voting for Obama anyway.
Totally off topic, I have mallards nesting up against my house! A few weeks ago I saw the male standing on my driveway as if he owned it. Subsequently I saw the female multiple times waddling around in my flowerbeds. I figured they must have a nest down by the water somewhere, probably not even in my yard. Then last night I discovered they’re living in a bed of pachysandra and juniper right outside my TV room. This should make for some great pix/video when they start teaching their babies to swim.
John said on April 29, 2008 at 7:45 am
Jolene, I can’t remember which section of the state you live in, but I hope all is well at your home. Those storms were a shocker to see on the tube.
Dorothy said on April 29, 2008 at 8:47 am
John my copy editor daughter is in Norfolk, and I worried about her for awhile, but I talked to her at 9:15 PM and she was fine. Their website is still moving very slowly this morning. I could not even get it to load last night.
John c said on April 29, 2008 at 8:55 am
I happen to be a non-business type who is friends with lots of business types, including folks who have risen to very high levels. Nothing frosts me more than when I wonder how some new fangled high-finance trend works, and that it sure as heck seems like a lousy idea, and they give me that patronizing look and say: “You just don’t understand.”
What I have learned is that there are plenty of fancy schmancy business things that make perfectly good sense and smart people can explain them to me. Then there are the ones that don’t make sense and are probably scams thought up by the smartest of the smart, who pawn them off on the not quite smartest of the smarts, who can’t explain them to people like me and are too embarrassed to say they don’t really understand them themselves and all they know is the stock price keeps going up. These are the folks who thought Enron was the greatest thing since sliced bread, and laughed when I wondered how the bleep AOL could be worth more than General Motors, let alone Time Inc. Bottom line, I used to thing they were right and I was wrong. Not anymore. If no one can explain it to me, it’s a crock.
John said on April 29, 2008 at 8:58 am
Dorothy, I forgot all about your lovely daughter. I am glad she is okay.
Jolene said on April 29, 2008 at 9:11 am
Thanks for your thoughts, John. I’m in Alexandria, a long way from where the tornadoes hit. You’re right about the pictures, though. They’re really shocking.
Jolene said on April 29, 2008 at 9:18 am
Good position on explaining complexity, John c. I’ve spent a lot of my life editing academic prose and, over and over, I’ve found that, when people can’t explain what they’re talking about clearly, it’s usually because they don’t know.
nancy said on April 29, 2008 at 11:18 am
Actually, Jolene, that rule of editing applies to all sorts of text. If you can’t explain it, you don’t understand it. And if you don’t understand it, you’ll never make others do it. I’m a big fan of the “tell me in one sentence” rule. “But that’s oversimplifying!” writers sometimes say. OK. Then oversimplify it into one sentence, but if you can’t boil it down to that nugget, then you don’t have a nugget. It’s that (over)simple.
And John’s right — if the people dealing this crap don’t get it, it’s not safe.
Nancy said on April 29, 2008 at 8:53 pm
Actually there is a simple answer to what is called the “subprime problem” (although it is much more complex than that). The answer is greed. Greed so overwhelming that everyone rushed into the act. The ratings agencies discovered that if they gave good ratings to tranches, that they could make more money. (Ratings agencies give ratings only when they are paid to give a rating). Banks and mortgage companies discovered that by shoveling the bad loans onto someone else, they could make more money. Mortgage brokers found that the more loans they arranged, the more money they got. In some cases companies even advertised “we don’t get paid until we say ‘yes’.” And home buyers saw that prices were rising so fast they were about to be cut out of the market, or they were told that they could leverage their house into a fortune.
It’s like the story of the little boy who held back the waters by holding his finger in the dike. The moment he could no longer hold on, the waters burst through.