by Calculated Risk on 7/02/2007 01:53:00 PM

Paul Krugman writes in the NY Times: Just Say AAA

(For excerpts, see Economist's View)

What do you get when you cross a Mafia don with a bond salesman? A dealer in collateralized debt obligations (C.D.O.’s) — someone who makes you an offer you don’t understand.

Krugman criticizes the rating agencies and regulators, and notes these failures have been all too common:

... you might have thought that S.& P. and Moody’s, which gave Thailand an investment-grade rating until five months after the start of the Asian financial crisis, and gave Enron an investment-grade rating until days before it went bankrupt, would by now have learned to be a bit suspicious. And you would think that the regulators, in particular the Federal Reserve, would have learned from the stock bubble and the wave of corporate malfeasance that went with it to keep a watchful eye on overheated markets.

But apparently not.