The Bond Rating Fiasco Is Back

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The Wall Street Journal reports that bond rating firms are once again in brutal competition, which allows bond issuers to promote only the highest rating their funky new products receive:

Fierce competition among ratings firms in a fast-growing corner of the bond market is allowing issuers to cherry pick the most favorable ratings. The result is that securities deemed safe by the ratings firms have increasingly smaller cushions against losses.

The security in question is a cross between two of Wall Street’s hottest markets—commercial mortgage bonds, which are backed by mortgage payments on apartment buildings, malls and the like—and collateralized loan obligations, which are pools of bonds backed by payments on corporate borrowings.

I won’t pretend that the ratings fiasco of the aughts was a huge driver of the 2008 financial collapse. Still, it played a role. By routinely slapping AAA ratings on opaque and complicated securities, rating agencies helped make them more popular than they otherwise would have been. When the collapse came, this meant the world was flooded with trillions of dollars worth of CDOs that had iffy counterparties and lots of hidden risk, essentially causing the entire market to freeze up because no one knew for sure which issues were solid and which ones weren’t. This made an already bad situation even worse.

And now it’s happening again. Of course it is. Because Wall Street is incapable of keeping lessons in its tiny collective head for more than about five or six good years. Then the Minsky cycle seizes them yet again.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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