Nothing To See Here Folks

by digby

Michael Hirsh:

Remember Arthur Andersen? The giant accounting firm ceased operation in 2002 after authorities learned that its auditors had shredded documents related to Enron's fraudulent schemes and were probably complicit in those practices. Even though the firm's felony conviction was later vacated by the Supreme Court, Arthur Andersen's name was so tarnished, and it faced so many outstanding lawsuits, that no one wanted to do business with it any longer. End of story. That's life in the capitalist system, folks.

One of the most distressing things about the current financial scandal is that there has been no similar reckoning against the firms that were supposed to be watching the system for the investment public. Why haven't the rating agencies that were complicit in the subprime-mortgage securities scandal suffered the fate of Arthur Andersen? Despite some moves in Congress to change their behavior, U.S. authorities are still treating the agencies with extreme gentleness.

Moody's and Standard & Poor's, the two giants of the industry, are still around despite causing the loss of hundreds of billions of dollars by badly rating subprime-mortgage-backed securities. Not only that, they are basically doing business the same way, taking fat fees from the investment banks whose securities they rate. In testimony before the House Committee on Oversight and Government Reform on Wednesday, a former Moody's managing director, Eric Kolchinsky, alleged that the firm was criminally deceiving investors by purportedly inflating ratings on securities even into the current year, long after the subprime scam had been exposed and the market crash had occurred.

Again, the only thing you can assume from this kind of thing is that the so-called regulators are total whores or they are so afraid that the US economy is still on the verge of catastrophe that they won't take the chance of upsetting even one apple in the apple cart. (Maybe we should call this Lehman Syndrome.)

Whatever it is, it's an abdication of their duties to allow these things to go on this long. It's one thing to try to stabilize an economy in crisis, it's quite another to put your fingers in your ears and sing lalalalala when these Masters of the Universe turn around and do exactly the same things that brought the economy to the brink in the first place. It's daft.

And then there's this.