July 20 (Bloomberg) -- Federal Reserve Bank of St. Louis President William Poole said investors who lost money buying subprime mortgage-linked securities got what they deserved.
Poole criticized the underwriting standards and interest- rate assessments of Wall Street and endorsed the Fed's steps to strengthen consumer safeguards. His remarks come after Chairman Ben S. Bernanke committed to tougher rules to protect consumers during his semiannual monetary policy testimony this week.
``The punishment has been meted out to those who have done misdeeds and made bad judgments,'' Poole told reporters in St. Louis after a speech on the market for mortgages to borrowers with sketchy or weak credit histories. ``We are getting good evidence that the companies and hedge funds that are being hit are the ones who deserve it.''
I certainly don't think we should be quick to shed too many tears for large institutional investors and others who should know better, but I don't think "the system is fine but some players were morons" really captures the full situation here. I don't know much about credit ratings agencies, but it's their job to not be morons and it seems like they were. And, more than that, if this stuff spreads more widely then there clearly is something wrong with the system.