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One-sided Dueling Pistol Set (Photo: Older Firearms, flickr)
In the midst of the Eurozone/Euro mess, as the troika (the European Commission [EC], the European Central Bank [ECB] and the International Monetary Fund [IMF]) work furiously to contain (didn’t Bernarke claim “containment” re: subprime disaster in 2007?) the contagion of investor panic and debt yields rising to unsustainable levels, Standard & Poor’s “accidentally”sent out an “erroneous” email on Thursday suggesting that it lowered France’s triple-A rating. Not that it was planning to lower it, but that it already had.
Hmmm. Can it be a coincidence that the EC is planning to issue new rules on credit ratings agencies in a few days?
In the U.S. we’ve already seen the damage wrought by the three Stooges, Standard & Poor’s, Moody’s and Fitch’s. They plastered triple-A ratings all over toxic waste mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs–which entail pooling MBSs and slicing them up). As the true nature of these putrid instruments revealed itself, the credit ratings agencies downgraded the obtuse structured financial vehicles to junk bond status, sometimes dropping them several notches within a week.
Because the issuers of the “debt” pay the agencies to rate them, the conflict of interest was (and still is) evident. The agencies have strong incentive to lie upwards and they did to a fantastic degree. Unfortunately, the damage was done. Pension funds and other fixed income cash cows were caught holding the bag.
In the U.S. the credit ratings agencies hide behind the First Amendment. Their legal argument is that they cannot be held accountable because they are merely issuing “opinions”. It’s your tough luck if you take them seriously. You rock the financial world, not them.
The European regulators are trying to put protections in. A draft released earlier this week made that clear:
European supervisory authorities would be able to temporarily prevent the issuing of ratings on countries in “a crisis situation.”
Investors would also gain a framework to take legal action against agencies “if they infringe intentionally or with gross negligence” on their obligations. A ratings agency would also have to disclose information about is rating methodologies.
Standard & Poor’s errant email went out on Thursday just before 4pm Paris time when the European markets were still open. Its “opinion” thrust a knife into “containment”. The yield for France’s 10-year bond jumped 25 basis points to 3.48% and the spread between 10-year French and German bonds hit 1.7%, a euro-era record. Standard & Poor’s waited 2 hours to issue a correction, after the European markets had closed.
A shot across the bow, eh? A bit of nasty extortion.
15 Comments
Very good point. These agencies need to go. There full of it. They are entwined with the crooks and only represent them.
These agencies have been thoroughly discredited. Why does anybody take them seriously? What kind of idiot “investor” makes decisions based on S&P’s lies?
It’s all a sophisticated Monopoly game to them. They play with nations and peoples like they were toys. In fact, they think of them just that way. They are dangerously insane.
They should be locked up.
If it is an attempt at extortion S&P are making a very big mistake. You don’t fuck with the French on this. The boys at Bercy and the Banque de France know the score, and so does their government.
For any who don’t know, we have statutes and/or regulations that REQUIRE many institutional investors, most especially those administering PENSION funds, to invest ONLY in securities that have a AAA rating from the major rating agencies.
would ypu please explain each of the two parts of your last (two sentence) paragraph.
“extortion” ?
i certainly would not put it past these boys, but i’d like a bit more detail about your thinking.
thanks
S&P just hugely manipulated the French Stock market. Anyone in the know stood to make a killing.
S&P is apparently above the law. Obama is S&P’s sock puppet.
And we have discovered that if they are so inclined, S&P rates junk as AAA. Shorts rule. Buying and holding is for suckers like us.
College Funds, IRA’s, Pension Funds…
We buy and hold so they can steal it.
“. . .European supervisory authorities would be able to temporarily prevent the issuing of ratings on countries in “a crisis situation. . .”
WSJ had covered this not long ago. The context included the EU setting up its own dedicated agency in the future, but that which would take awhile. Search in WSJ, “European Credit Agencies,” sort by date, look at 10/20 and 10/21.
Also it appears Europe would not be able to prevent S&P, etc., issuing opinions out of New York.
60 Minutes did a story tonight on how Congress can legally trade on inside information. People in the market biz have known this for years, but it has never been put before the public like this before. All this stuff is good for OWS. Our only remaining hope.
Buy and hold is a fool’s game. Shorter duration buy and sell trades are the way to make the real money these days, but it takes a lot of skill and knowledge. A lot.
The institutional investors that were required to buy only securities with the rating agency seal of approval were heavily weighted toward those that hold regular people’s money. I trust we can all see how very evil that makes the fraudulent ratings scandal.
Get em addicted, then they do what you tell em and always come back for more…
So if you placed a massive long bet on French bonds just before the close and after the “mistaken” rating release, you would have made a large amount of easy money. This combined with SP’s missing 2Trillion dollars in budget calculations, in their US downgrade, but refusing to revoke their downgrade after the error was pointed out, should make it pretty obvious by now that Standard and Poors is using their ratings franchise to manipulate markets, and is leaking advance information to insiders. You don’t make these kinds of mistakes rating entire countries’ credit if you are a competent, honest organization. Standard and Poors should be shut down and investigated immediately, there just another band of criminals manipulating markets for their insiders’ profits.
Decades ago, when I was dealing with S&P and Moody’s on a regular basis, I thought that S&P was the more honest of the two, but I was appalled at how they both operated. Sadly, things are worse now. The simple fact is, the finance industry has been mostly about looting for a long time. It makes no meaningful contribution that could not be more efficiently handled if the major institutions were broken up and the principal actors were prosecuted for the crimes they are committing in full public view even now.
No one has actually said this, so I will. S&P is now and has been for quite some time a fully captured subsidiary of the criminal Wall Street banks aiding and abetting their plundering and pillaging of financial markets.
Presumably Moody’s and Fitch’s also have been captured.
I am not by nature a conspiracy theorist and I have neither owned nor do I now own any tinfoil hats, but I do believe we have overwhelming circumstantial evidence from which to conclude that the enforcement of the laws that protect we the people from ravaging predatory capitalism by the Wall Street banks have been suspended and they have even gained firm control over the money supply by capturing Ben Bernanke and the Federal Reserve.
Seriously, I have no doubt that this is the current situation. I am certainly open to being convinced that I’m wrong, but I don’t believe there is any evidence that supports a contrary conclusion.