The Subprime Mortgage Role Will be Played by the Pig

The other day, a friend of mine who does not read the business section of the paper asked me to explain what has happened in the credit markets recently. It's not an easy question to answer without using terms like mortgage-backed securities or collateralized debt obligations.

It certainly would have been easier to answer if I had seen Congressman Gary Ackerman's testimony before the House Financial Services Committee last week at a hearing on the subject. The Democrat from the Queens and Long Island district of New York (or his speechwriter) has quite a knack for folksy similes.

This is what happened in the subprime crisis as Rep. Ackerman sees it:

"Essentially, the originators and credit raters shoved enough pigs and laying hens in with the beef herd that investors expecting prime ribs on their silver platter and money in their pocket ended up with pork ribs on their paper plates and egg on their face. "

After reprimanding the credit ratings firms for helping the banks figure out how to package the securities, and then inflating their value with published ratings, he sums up the issue succinctly:

"It's like hiring a judge to advise you as to how to commit an act and then paying him to decide whether you have committed a crime."

Don't quite get it yet? Perhaps a little Enron flashback will help underscore the severity of the situation:

"This is the accounting firm telling shareholder companies how to fool their investors and then getting hired as independent auditors."

Ackerman then goes on to share some strong words for the Securities and Exchange Commission, which failed to oversee the credit ratings industry in his eyes. If necessary, they'll legislate:

"This Committee and this Congress will not be passive spectators as banks and credit-rating agencies use their control of information to fool investors into believing that a pig is a cow and a rotten egg is a calf."

And there you have it. You can't mix cow and pig and sell it as a steak.

(we're still trying to figure out the egg part.)

by Megan Barnett

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