In what I think is a pretty fair post on reforming the credit rating companies at Baseline Scenario I found what looks to me to be a very prudent but nearly completely opaque piece of advice:
These two competing goals, improve credit ratings and eliminate credit ratings, can be viewed from a larger perspective, a Minsky mindset. If stability breeds instability, then trust breeds disappointment; the greater the trust, the bigger the disappointment. The rating agencies were over-trusted until 2007.
But looking forward, as a bi-polar sufferer might do, isn’t the best strategy to try to manage this fundamental aspect of our identity by taking off the peaks and troughs of our swings in trust? In trading terms, if trust is the underlying commodity, we should manage our mood by selling an OTM call to fund a long OTM put and avoid capitulation here at the bottom of the trough in our trust.
I’ve emphasized the statement above. Let me try to decrypt it a bit. “OTM” is trader slang for “out of the money”. An option is out of the money when, for a contract to buy (a call), the strike price is above the market price and, for a contract to sell (a put), the strike price is below the market price. What I think the author is saying is that we should manage trust rather than assuming its presence or absence. It’s an interesting observation and I wish he’d developed it a bit more.
“Heavens to Murgatroyd!”
Isn’t this the basic point I’ve made here and at OTB for quite awhile?? This naive reliance, and in my opinion, unwarranted outrage over what were obviously unreliable ratings just grinds on me.
Do people take the “you’ll have a bigger unit if you take these pills” ads seriously? How about “call us, we’ll eliminate your credit problems with no repercussions.” Or, oh, I don’t know: “vote for me, and only the folks with incomes over $250K will pay more than a dime in new taxes.”
Just say’n.