Archive for the ‘Ratings Agencies’ Category
And coupled with it are gross internal violations of the law by the government itself.
Octonion I underscores how inflated grades during the credit boom contributed to more than $2.1 trillion in losses at the world’s financial institutions after home-loan defaults soared and residential prices plummeted. The U.S. is seeking penalties against S&P and its New York-based parent, McGraw-Hill Cos., that may amount to more than $5 billion, based on losses suffered by federally insured banks.
“During this period, nearly every single mortgage-backed CDO that was rated by S&P not only underperformed but failed,” Attorney General Eric Holder said yesterday at a news conference. “Put simply, this alleged conduct is egregious, and it goes to the very heart of the recent financial crisis.”
And Moody’s and Fitch didn’t do the same thing?
Of course they did.
So why S&P?
Well, McClatchy says that Moody’s was dropped from the investigation in the summer of 2011 — right about the time S&P downgraded the US.
Investigator interest in Moody’s apparently dropped off around the summer of 2011, about the same time S&P issued the historic downgrade of the U.S. government’s creditworthiness because of mounting debt and deficits.
“After the U.S. downgrade, Moody’s is no longer part of this,” said the person familiar with the case, who demanded anonymity in order to speak freely about the matter.
Political prosecution is nothing new. Nor is political “protection.” We’ve seen so many examples since 2007, including Citibank which had its former Chief Risk Officer admitunder oath before the FCIC that it knew it was selling crap securities into the market along with myriad other examples, that trying to list all of them would run to thousands of examples.
Never mind that the Department of Just-us has said on the record that part of their consideration when it comes to filing criminal charges is whether there would be a market disruption should a given firm be charged.
This is a bald, public admission that if you want to commit murder you should first be employed by a big bank and then have them solicit it, since the firm won’t be prosecuted since it would “damage confidence” and other such twaddle.
In the meantime RBS is allegedly paying a “big” penalty for “manipulating LIBOR.”
Yeah, right. Where are the criminal charges?
I’m not impressed. More to the point, let us remember that Bernanke himself testified under oath before Congress in March of 2007 that problems in the subprime market were “likely to be contained.” And he, along with the rest of the FOMC, was in possession of superior information.
Indeed, not only was the FOMC in possession of superior information let us not forget that in 2007 when the discount rate was cut the recently-released transcripts show that Tim Geithner was in fact communicating with banks about the impending cut despite his claim otherwise.
Was he prosecuted? No, he was appointed Treasury Secretary.
Nor was Bank of America or Ken Lewis, its CEO at the time, prosecuted. They were rescued instead.
Everyone is telling us these days that the economy and markets are “mended” and that we should all be buying stocks and “investing in America.” The truth is something different — there is a cadre of robbers and they’re both on Wall Street and in the government itself. They will not only use unfair competitive means to screw you, when push comes to shove they will use the government to come after with you with political prosecution should you not do things “their way.”
The facts are that there’s no reason for anyone to engage in entrepreneurial activity any longer. It was bad enough in the 1990s when I ran MCSNet and we had telcos doing things that appeared to be blatantly illegal under long-standing tariff rules prohibiting discriminatory pricing – but we couldn’t get anyone interested in enforcing the law.
Now it’s far worse — both Egan Jones and S&P, who have had the audacity to tell the truth (even if S&P started doing so late) have both been attacked by the government where the power and revenue that S&P had in the first place came from a effective government monopoly grant that had, after any reasonable amount of consideration, no rational purpose in the first place.
I’d be disgusted with this but I’m well-beyond the point where any sort of act by our government surprises me any longer. After turning a blind eye to massive money laundering along with supplying guns to Mexican drug gangs rather than prosecuting both nothing shocks me any longer.
As the fiscal singularity toward which we are accelerating becomes more-evident in the window expect even more lawless behavior by those in Washington. While I still believe there is time for a peaceful rescue of what once was America, with each passing day that candle dims in the window of our nation.
The SEC has successfully silenced the only ratings agency that consistently told the truth; only honest voice in ratings, silenced for 18 months.
SEC Bars Egan-Jones From Rating The US And Other Governments For 18 Months
It is refreshing to see that the SEC has taken a much needed break from its daily escapades into midgetporn.xxx and is focusing on what is truly important, such as barring Egan-Jones from rating the US and other governments. From the SEC: “EJR and Egan made a settlement offer that the Commission determined to accept. Under the settlement, EJR and Egan agreed to be barred for at least 18 months from rating asset-backed and government securities issuers as an NRSRO. EJR and Egan also agreed to correct the deficiencies found by SEC examiners in 2012, and submit a report – signed by Egan under penalty of perjury — detailing steps the firm has taken.” Hopefully the world is no longer insolvent in July of 2014 when this ban runs out.
Egan-Jones and Founder Sean Egan Agree to 18-Month Bars from Rating Asset-Backed and Government Securities Issuers as NRSRO
The Securities and Exchange Commission today announced that Egan-Jones Ratings Company (EJR) and its president Sean Egan have agreed to settle charges that they made willful and material misstatements and omissions when registering with the SEC to become a Nationally Recognized Statistical Rating Organization (NRSRO) for asset-backed securities and government securities.
EJR and Egan consented to an SEC order that found EJR falsely stated in its registration application that the firm had been rating issuers of asset-backed and government securities since 1995 — when in truth the firm had not issued such ratings prior to filing its application. The SEC’s order also found that EJR violated conflict-of-interest provisions, and that Egan caused EJR’s violations.
EJR and Egan made a settlement offer that the Commission determined to accept. Under the settlement, EJR and Egan agreed to be barred for at least 18 months from rating asset-backed and government securities issuers as an NRSRO. EJR and Egan also agreed to correct the deficiencies found by SEC examiners in 2012, and submit a report – signed by Egan under penalty of perjury — detailing steps the firm has taken.
“Accuracy and transparency in the registration process are essential to the Commission’s oversight of credit rating agencies,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “EJR and Egan’s misrepresentation of the firm’s actual experience rating issuers of asset-backed and government securities is a serious violation that undercuts the integrity of the SEC’s NRSRO registration process.”
Antonia Chion, Associate Director of the SEC’s Division of Enforcement, added, “Provisions requiring NRSROs to retain certain records and address conflicts of interest are central to the SEC’s oversight of credit rating agencies. EJR’s violations of these provisions were significant and recurring.”
Egan and his firm were charged last year for falsely stating on EJR’s July 2008 application to the SEC that it had 150 outstanding asset-backed securities (ABS) issuer ratings and 50 outstanding government issuer ratings, and had been issuing credit ratings in these categories on a continuous basis since 1995. Egan signed and certified the application as accurate. According to the SEC’s order, EJR had not issued any ABS or government issuer ratings that were made available through the Internet or any other readily accessible means. Therefore, EJR did not meet the requirements for registration as a NRSRO in these classes. The Commission found that EJR continued to make material misrepresentations about its experience in subsequent annual certifications. EJR also made other misstatements in submissions to the SEC, and violated recordkeeping and conflict-of-interest provisions governing NRSROs — which are intended to safeguard the integrity of credit ratings.
EJR and Egan agreed to certain undertakings in the SEC’s order, including that they must conduct a comprehensive self-review and implement policies, procedures, practices, and internal controls that correct issues identified in the SEC’s order and in the 2012 examination of EJR conducted by the SEC’s Office of Credit Ratings. EJR and Egan consented to the entry of the order without admitting or denying the findings. The order requires them to cease and desist from committing or causing future violations.
The SEC’s investigation was conducted by Stacy Bogert, Pamela Nolan, Alec Koch, and Yuri Zelinsky. The SEC’s litigation was led by James Kidney with assistance from Alfred Day and Ms. Nolan. The related examinations of EJR were conducted by staff from the SEC’s Office of Credit Ratings, Office of Compliance Inspections and Examinations, and Division of Trading and Markets. Examiners included Michele Wilham, Jon Hertzke, Mark Donohue, Kristin Costello, Scott Davey, Alan Dunetz, Nicole Billick, David Nicolardi, Natasha Kaden, and Abe Losice.
And to think of all the actions the SEC took against S&P, Moodys and Fitch for rating AAA-rated suprime junk weeks before the market imploded. Oh wait, the SEC did nothing there, because, you see, they filed their NRSRO applications without any glitches.
So be careful S&P: you are on thin ice here with your 2011 downgrade of the US, and likely next in the SEC’s sights: better go through all those registration applications and make sure every comma is in place.
Now we look forward to news that Moodys and Fitch are about to get the Congressional medal of honor.
The sell-off is largely due to this — Fitch is now warning that unless the US Government stops running deficits it will be downgraded.
And there is no credible plan to do that, because doing so means that you must admit that the so-called “growth” and “recovery” of the last four years has been an intentional lie.
Removing the 10% deficit spending means that GDP instantly contracts by that same 10%. This is arithmetic and cannot be avoided, evaded, or bargained away. GDP = C + I + G + (x – i)
Reduce “G” 10%, GDP contracts 10%. Period.
Increase taxes and either “C” or “I” contracts by the same amount. Period.
There is no path out of this box without recognizing what we have done and accepting the accumulated damage and pain that we have taken on over the last four years, and continue to accumulate each and every day.
If we do not address this the market will. This is the fallacy of the Libertarians, Republicans and Democrats.
We are watching the start, here now and today, of an all-on meltdown in the markets as the promise of lies is meeting with the reality of arithmetic.
The other day I wrote a Ticker in which I asked how Rochdale could put on a $700 million position in Apple with $3 million in capital. The answer is that in an honest market it could not do so as it could never clear the trade. The fact is that it is reported they did, which means the market is not honest, and this is just the latest bit of evidence.
The entire market and political system are one gigantic scam. The market is now calling the bluff on the politicians and this will continue right up until someone tells the truth.
Where does it end? It doesn’t, if this isn’t stopped. It doesn’t end until all of the accumulated damage in the system, more than $5 trillion over the last four years and close to $25 trillion since 2000, comes back out.
It can either happen via the truth or the market will start to force margin calls on everyone who has those trades on and we will then find out who doesn’t have capital behind them.
The answer is, quite likely, literally nearly everyone.
The European debt crisis has just gone to an entirely new level. Just when it seemed like things may be stabilizing somewhat, we get news of huge financial bombs being dropped all over Europe. Very shortly after U.S. financial markets closed on Friday, S&P announced credit downgrades for nine European nations. This included both France and Austria losing their cherished AAA credit ratings. When the credit rating of a country gets slashed, that is a signal to investors that they should start demanding higher interest rates when they invest in the debt of that nation. Over the past year it has become significantly more expensive for many European nations to borrow money, and these new credit downgrades certainly are certainly not going to help matters. Quite a few financially troubled nations in Europe are very dependent on the ability to borrow huge piles of cheap money, and as debt becomes more expensive that is going to push many of them over the edge. Yesterday I wrote about 22 signs that we are on the verge of a devastating global recession, and unfortunately that list just got a whole lot longer.
Over the past several months we have seen quite a few credit downgrades all over Europe, but we have never seen anything quite like what S&P just did. Standard & Poor’s unleashed a barrage of credit downgrades on Friday….
-France was downgraded from AAA to AA+
-Austria was downgraded from AAA to AA+
-Italy was downgraded two more levels from A to BBB+
-Spain was downgraded two more levels
-Portugal was downgraded two more levels
-Cyprus was downgraded two more levels
-Malta was downgraded one level
-Slovakia was downgraded one level
-Slovenia was downgraded one level
This is really bad news for anyone that was hoping that things in Europe would start to get better. Borrowing costs for many of these financially troubled nations are going to go even higher.
In addition, there was another really, really troubling piece of news that came out of Europe on Friday.
It was announced that negotiations between the Greek government and private holders of Greek debt have broken down.
The Institute of International Finance has been representing private bondholders in negotiations with the Greek government about the terms of a “voluntary haircut” that is supposed to be a key component of the “rescue plan” for Greece.
Greece desperately needs private bondholders to agree to accept a “voluntary haircut” of 50% or more. Without some sort of an agreement, the finances of the Greek government will collapse very quickly.
For now, negotiations have failed. There is hope that negotiations will resume soon, but Greece is rapidly running out of time.
The Institute of International Finance issued a statement on Friday which said the following….
“Unfortunately, despite the efforts of Greece’s leadership, the proposal put forward … which involves an unprecedented 50% nominal reduction of Greece’s sovereign bonds in private investors’ hands and up to €100 billion of debt forgiveness — has not produced a constructive consolidated response by all parties, consistent with a voluntary exchange of Greek sovereign debt”
The IIF says that negotiations are “paused for reflection” right now, but they are hoping that they will be able to resume before too long….
“Under the circumstances, discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach”
Something needs to be done, because Greece is experiencing a complete and total financial meltdown.
Back at the end of July, the yield on one year Greek bonds was sitting at about 40 percent. Today, the yield on one year Greek bonds is up to an astounding 396 percent.
That is how fast these things can move when confidence disappears.
Those living in the United States should keep that in mind.
Unfortunately, Greece is not the only European nation that is completely falling apart financially.
We aren’t hearing much about it in the U.S. media, but Hungary is a total basket case right now. The credit rating of Hungary was reduced to junk status some time ago, and now the IMF and the EU are threatening to withhold financial aid from Hungary if the Hungarians do not run their country exactly as they are being told to do.
The European Union has stepped up pressure on Hungary over the country’s refusal to implement austerity policies and threatened legal action over its new constitution.
The warnings escalated the standoff between Budapest and the EU, as Hungary negotiates fresh financial aid from Europe and the International Monetary Fund.
Over the past months, the country’s credit rating has been cut to junk by all three major rating agencies, unemployment is 10.6 percent and the country may be facing a recession.
But bailout negotiations broke down after Budapest refused to cut public spending and implemented a new constitution reasserting political control over its central bank.
Slovenia is a total mess right now as well. The following comes from a recent article posted on EUObserver.com….
Slovenia’s borrowing costs have reached ‘bail-out territory’ after lawmakers rejected the premier-designate, putting the euro-country on the line for further downgrades by ratings agencies.
Zoran Jankovic, the mayor of Slovenia’s capital Ljubljana, fell four votes short of the 46 needed to be approved as prime minister by the parliament, with the country’s president set to re-cast his name or propose someone new within two weeks.
Some time ago, I warned that 2012 was going to be a more difficult year for the global economy than 2011 was.
Well, things are certainly starting to shape up that way.
Europe is heading for some really hard times. What is about to happen in Europe is going to shake the entire global financial system.
Those that live in the United States should take notice, because the U.S. financial system is far more fragile than most people believe.
Our banking system is a gigantic mountain of debt, leverage and risk and it could fall again at any time.
In addition, the U.S. debt problem is bigger than it has ever been before.
For example, did you know that the federal government is on a pace to borrow 6.2 trillion dollars by the end of Obama’s first term in office?
That is more debt than the U.S. government accumulated from the time that George Washington became president to the time that George W. Bush became president.
For now the U.S. government is still able to borrow giant piles of super cheap money, but such a situation does not last forever.
Just ask Greece.
Already there are indications that foreigners are starting to dump large amounts of U.S. debt. If this trickle becomes a flood things could become very bad for the United States very quickly.
We are on the verge of some very bad things. The kinds of “financial bombs” that we saw dropped today are going to become much more frequent. As governments, banks and investors scramble to survive, we are going to see extreme amounts of volatility in the financial marketplace.
Things are not going to be “normal” again for a really, really long time.
Hold on tight, because 2012 is going to be a very interesting year.
09:36 15Jul11 RTRS-S&P PLACES U.S. ‘AAA/A-1+’ RTGS ON CREDITWATCH NEGATIVE
09:37 15Jul11 RTRS-RPT-S&P PLACES U.S. RATINGS ON CREDIT WATCH NEGATIVE
09:38 15Jul11 RTRS-S&P SAYS AT LEAST A 1 IN 2 CHANCE IT COULD CUT RATING
09:38 15Jul11 RTRS-S&P SAYS POLITICAL DEBATE ON DEBT CEILING A SIGNIFICANT UNCERTAINTY
09:39 15Jul11 RTRS-S&P SAYS SEES INCREASING RISK OF POLICY STALEMATE
09:39 15Jul11 RTRS-S&P SAYS COULD LOWER U.S. RATINGS WITHIN 3 MONTHS
09:39 15Jul11 RTRS-S&P SAYS MIGHT CUT RATINGS BY 1 OR MORE NOTCHES IN AA RANGE
09:39 15Jul11 RTRS-S&P SAYS BELIEVES RISK OF PAYMENT DEFAULT SMALL BUT INCREASING
The danger is right there in the bold.
This is not about the “ceiling.” It is about fiscal sustainability.
– We may lower the long-term rating on the U.S. by one or more notches into the ‘AA’ category in the next three months, if we conclude that Congress and the Administration have not achieved a credible solution to the rising U.S. government debt burden and are not likely to achieve one in the foreseeable future.
There it is.
Folks, it is time to cut the crap. We must cut the growth of government debt to below the growth in GDP. Since at present the government is providing ~12% of GDP via borrowing, this means we must cut federal spending by something closer to 15% of GDP, since GDP will contract when we do this (it’s the math, and is inescapable) and debt must shrink faster than GDP does, or grow slower than it does.
Incidentally, that means we must cut federal spending approximately in half, double tax receipts (not rates), or some combination of the two that adds to the same figures.
And we must do it now, because the laws of exponents, which we cannot change, state that the longer we take to get to the above point the greater the cut in the federal budget will have to be.
In other words we will soon get to the point where it makes absolutely no difference what we do – default will become mathematically inevitable.
This sucks, and I understand it sucks. It doesn’t matter if it sucks. It also doesn’t matter if Congress likes this or not.
In blunt language it no longer matters whether there is political will to act as is required. Arithmetic does not care if you like the answer that it provides.
I have been warning of this outcome for four years, and saying that time, while available, is not unlimited.
We are now out of time.
Seriously, it doesn’t get much more stupid than this:
EU FINANCIAL REGULATION CHIEF: EU COULD LOOK INTO POSSIBILITY OF SUSPENDING RATINGS ON EU COUNTRIES RECEIVING BAILOUTS
Off the wires.
There’s idiotic and then there’s really idiotic. This is the EU’s apparent response to ratings agencies saying that they will consider what amount to forcible debt swaps (that are falsely labeled “voluntary”) an act of default (they are.) Rather than have those bonds deemed ineligible for pledging to the ECB and similar programs, the Europeans are now willing to simply say that they will take defaulted instruments by literally refusing to accept an objective determination that the default occurred!
The market, of course, loves this – it was good for an immediate few-point ramp in the S&P and DOW.
Can I ask when (and why) it became bullish to not only lie, but do so openly and accept defaulted bonds as collateral?
If this sort of desperation move – a clear statement that the ECB and EU banks are insolvent and now must resort to open and flagrant lies – has become bullish news then our international banking and monetary system is literally one mosquito breath away from utter and complete collapse.
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