Nine Thousand Hedge Funds

Now would be an excellent time for all the credit rating agencies to overhaul their procedures to be more compatible with the new business models developed during the last ten years of parabolic credit creation - if they don't, they just might spoil the party.

Look what happened today - rumors swirled on Wall Street that a couple hedge funds were overexposed to GM and Ford debt, which was downgraded to junk last week by the Standard and Poors credit rating agency. U.S. stocks fell and then people started talking about the price of oil again, and how it's supposed to go back down below $50 a barrel and stay there, but it just won't, and then stocks fell some more - it ended up being a bad day.

We can't control the price of oil, and we can't control the hedge funds, but you would think that we should be able to control the credit rating agencies.

Can't they do some kind of hedonic indexing or calculate some kind of an adjustment that they can apply to credit ratings, so that all companies stay above junk status - permanently? Then, when a company has a problem, it can just borrow more money, and keep borrowing more money, whenever it's necessary ... forever.

That has obviously been the plan at GM for the last three years - why does it have to stop now?


Downgrading to junk causes investors to view companies differently - it's as if they turn into lepers. Hey GM! Hey Ford! You can't stay here anymore - you must leave! There are some caves just outside of town - you have to go there now. All the people there, they're just like you - and don't come back.

Well, maybe leprosy isn't the best analogy, and I really don't know if all lepers live in caves - that was from one of those old Charlton Heston Bible movies. The point is, lots of people can't carry GM and Ford debt anymore because it is now junk, and it's going to cost much more for them to borrow more money to sustain their businesses.

Someone needs to do something about this before it's too late - it is time to reform the credit rating agencies.