Government’s Next Scapegoat

The SEC is bringing fraud charges against leading credit-rating companies for not being thorough enough in their research to determine ratings on mortgage-backed securities involved in the financial crisis. Criticized as “key enablers” in the financial meltdown by government officials, the rating agencies represent simply the next phase in the state’s plan to deflect attention away from its own misguided policies that were the true “key enablers” of the 2008 crisis. These include but are certainly not limited to artificially low interest rates instituted by the Federal Reserve that provided an unsustainable amount of liquidity in credit markets, “affordable loan” quotas put on banks and Government Sponsored Entities (GSEs) that mandated certain amounts of essentially subprime mortgages regardless of the amount of risk that would be imposed on the lender, and the preferred credit line that GSEs retained with the FED that encouraged their reckless behavior.

If the government won’t look inward on itself to understand and solve the problems it created, it ought to at least realize that these policies distort the same market information on which credit rating companies rely to make assessments. As such, the blame for inaccurate credit ratings ought to fall squarely on the shoulders of the one blowing smoke through the eyes of the raters. However, given government’s track record of using the private sector as a scapegoat for the problems that its interventionism produces, this does not seem likely.