Friday, July 23, 2010

Kilroy Keelhauls Economy with Sweetheart Deal

As Congresswoman Mary Jo Kilroy updates her resume for her post-November job hunt she can add a new achievement: causing economic chaos by bringing a $1.4 trillion market to a grinding, painful halt. As the result of a Kilroy-authored provision of the Dodd-Frank financial overhaul law, the world's three largest bond rating agencies said their credit ratings could no longer be used in documentation for new bond sales. Because many types of bonds are required by law to include credit ratings in their official documentation, the bond market was completely shut down with no asset-backed bonds put on sale this week. 

I'm not sure how many jobs the collapse of a $1.4 trillion market destroys or fails to save, but I'm sure it's a lot. And beyond the killed jobs, the ramifications for consumer credit will be devastating: Ford Motor Co. has already been forced to scuttle a debt deal to finance auto loans.

[For a good discussion of Kilroy's blunder, watch the video here with Ford Motor Company CEO Alan Mulally. It gets relevant around 4:21.]

Think about it: Nobody can get a loan to buy a car because Congresswoman Kilroy just killed the bond market. If nobody can get financing then there aren't going to be many cars rolling off the lot. If nobody is buying cars, there's no need to make cars (or car parts). If there's no need to make cars or car parts, there's no need for workers to be employed at Honda Marysville (Congratulations to them on cranking out their 10 millionth vehicle earlier this week!). Worthington Industries would likely have to make cutbacks too as the demand for automobile steel tanks. So where does that leave us? Car dealers, car manufacturers, steel workers, the drivers who deliver the cars, the workers who make the car parts, and all the support personnel at all the previously mentioned entities left without work. Of course, you can't turn on the TV without seeing a commercial for a car dealership so there are going to be some cutbacks at the TV stations too from the loss of advertising revenues... but I'm sure, by now, you see the pattern: it's all connected. It's not so much a financial overhaul as an economic keelhaul. No bond sales = no consumer financing = no consumption = no jobs. 

And why'd Kilroy do it? To make the financial system more accountable? To right horrific wrongs?

Nope. She did it to excite the erogenous zones of one of her key constituencies: the trial lawyers! This is an election year, and she needs cash.

The Kilroy provision (or Kiljobs provision, if you prefer) renders ratings agencies "expert", and thus, exposes them to a new liability similar to that held by auditors. A major difference, of course, is that auditors are liable for their examination of what is and bond raters are now liable for predictions of what may be. In effect, bond raters now face a level of liability greater than anyone else in all of business: in order to avoid being sued into oblivion bond raters must predict the future accurately every time at bat.

Congresswoman Kilroy knows full well that no one bats a thousand. Just look at her own political party and the "Summer of Recovery".

The impossibility of bond raters getting it right 100% of the time is exactly why Kilroy authored the provision making them legally liable for not having the foresight of Nostradamus: it's food on the table and Benzes in the driveway for her trial lawyer donors.

When they thrive, she thrives.

But we don't:

According to the Wall Street Journal, the Kilroy provision "has done the exact opposite of the bill’s intended efforts at creating more transparency and openness. It is forcing more deals underground, where there will be less access to capital and less opportunity for public scrutiny." Where only people who have the cash and the connections can have access and reap the benefits.

Congresswoman Kilroy has sold us up the river again, pretending to pass Wall Street reform legislation while rewarding her donor base. Let's hold her liable in November.