Black Box Report

For anybody who still believes the economic mess we find ourselves in was a perfect storm or some unforeseeable crisis, I suggest you read the recently released report from the long dormant Securities and Exchange Commission. The agency that has been ridiculed for fiddling while Wall Street and our economy burned concluded in their investigation that the rating firms - beyond a shadow of a doubt - where more than just part of the problem, they all but lit the match.

A little background. Rating agencies have been considered the unimpeachable objective voice of Wall Street. They’re supposed to review the financial health of everything large and small so the investor, public or private, can invest with confidence. I said supposedly because as e-mail trails from the big three rating firms conclude, these guys knew the Titanic of the mortgage mess was heading for an iceberg, but instead of shouting “iceberg ahead!” they said “full speed ahead!”

Beyond the pure greed there was also the fact these guys couldn't keep up with the workload. Instead of doing their homework and the due diligence investors expected, they took shortcuts.

But there was more. Analysts, we all believed, rated products simply on their financial health. Instead at Moody’s, Standard and Poor’s and Fitch, analysts openly worried that a fair but tough rating might cost the firm business.

The bottom line here is that the roosters were guarding the henhouse, and all investors were none the wiser. When I say all investors, I mean you. It wasn't just the fact cats that thought they were investing in triple-A rated products when in reality they were buying garbage drowning in sub-prime debt. It was anybody with a 401k or state pension plans that didn't know it was “buyer beware.”

The investigations and lawsuits will soon begin, but the hard truth is there was a ponzi scheme being run in New York; not on a street corner but in the corner office of the ivory tower of Wall Street.