The problem here seems to be not that ratings were wrong — which would require a simple repricing of risk, but that the ratings were the only thing investors were relying on to determine the value of the assets.

Ratings agencies developed to assess the default risk of assets that were already trading on markets. It seems as if in current (or should that be former) financial markets, they are more or less setting the parameters of what can trade on the market.

Maybe rating agencies should not be allowed to rate new types of assets (yes, this needs definition) until they have been trading on markets for 5 or 10 years.

I would argue that there has been a continuous recession since Bush’s first enormous $2.xBillion tax cut. And since then, consumers have been propping the economy up with buying things on credit.

Yesterday, I was reading The Big Picture, and he was discussing unemployment rates. Officially the govt says it’s 4.5% (and he dismisses that saying otherwise there would a labor shortage), but unofficially he estimates it to be 8% if figured the same way as Europe. IMO, I would hazard a guess that it might be closer to 14% since under-employment (less than 40 hours / week) isn’t counted (even the BLS says the average workweek is 33-34 hrs /wk.

Which brings me to my point. I agree with the Cold Water Yankees (Roubini) and the Reformers (Kaufman). I like what Schiff has to say here, US a paper tiger.

I also think we’re in unchartered territory and the US doesn’t have the smarts, the wherewithall, or the will to do anything about it, as FDR did back in the 1930s. And with that, I think the US, as we know it, is over. Beyond that, I can’t imagine what it could do to save itself, especially in this day of corporate media and poll-driven pols. Needless to say, I think there will be a lot of people who die broke out of this mess.

Thanks for your comment. Af first I wrote a long explanation, but now I see you mean I put in the wrong first names for Wolf and de Grauwe. How embarrassing.

Regulars readers have probably noticed that proofreading is not one of my strengths, and that skill (to the extent I have it) deteriorates even more when I post after midnight, which I often do.

Thanks for the catch. I’ve corrected the post.

Carping aside, great post and great blog generally. Thanks for the thought you put into your posts. Charlotte, London