Where credit ain’t due: The rating agencies

For once, I agree wholeheartedly with a Wall Street Journal editorial.  (OK, I could do without the mixed sports metaphor in the title (“A Triple-A Punt.” How bush league).  The piece raps the Obama Administration’s new financial reform plan for giving the credit rating agencies a free pass.  Some key excerpts:

‘The government-anointed judges of risk at Standard & Poor’s, Moody’s and Fitch inflicted upon investors the AAA-rated subprime mortgage-backed security. They also inflicted upon the world’s nest eggs the even more opaque AAA-rated collateralized debt obligation (CDO). Without the ratings agency seal of approval — required by SEC, Federal Reserve and state regulation for many institutional investors — it would have been nearly impossible to market the structured financial products at the heart of the crisis. Yet Team Obama suggests only that regulators reduce the agencies’ favored role “wherever possible.”. . .

Geithner’s tax problem, Goolsbee’s solution?

I’d been expecting Treasury Secretary-designate Tim Geithner to come up for some grilling in his confirmation hearing, over his role in the TARP bailout and in the orgy of deregulation of the late 1990s.  (Neither of those things is necessarily disqualifying in my eyes, as long as he can show that he’s learned from his and other people’s mistakes.)  But as with past nominees, from John Tower to Zoe Baird and Kimba Wood, it’s the small stuff of dubious relevance that tends to blow up — and distract Congress, the media, and the public from issues of actual substance.   The main distraction this time: Geithner failed to pay $43,000 in federal taxes.

On the surface, this looks pretty bad:  the guy who would be the head of the agency that oversees the IRS, failing to pay his Social Security and Medicare taxes for four years in a row (2001-2004).  But not so fast.   Most of us have those taxes withheld directly from our paychecks and don’t think about them otherwise.   Geithner, by contrast, was working for the International Monetary Fund (IMF), where employees don’t pay federal income tax.  Several of my grad school friends went to work for the IMF, and I distinctly remember them saying, it’s great, we don’t pay taxes.  The incoming administration’s talking points on the matter (take them with a grain of salt if you want) note that this confusion is very common among IMF employees.