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Have Pensions Lost The Battle With Ratings Firms?
Blogger was down last night and I had to post my Wednesday piece on the NDP pension priority again on Friday because I lost it. Guess operational risk is present on the blogosphere as even the almighty Google can experience some slip-ups here and there.
My comment will be brief. Bruce Friesen of Global Investment Solutions sent me an article by Michael Corkery of the WSJ, Ratings Firms Notch Legal Victory:
Ratings firms won another victory against legal claims that they should be held responsible for billions of dollars in losses suffered by investors during the financial crisis.
A three-judge panel of the U.S. Court of Appeals for the Second Circuit ruled that Moody's Corp., Standard & Poor's, and Fitch Ratings can't be held liable for their ratings of mortgage-backed securities.
In a decision upholding a lower court's dismissal of the case brought by pension funds in Wyoming and Detroit, the Second Circuit judges wrote that ratings firms provided "merely opinions" about the credit-worthiness of the securities.
Opinions are protected by the First Amendment, a defense the rating firms have often used in the past.
While the ratings firms may have taken an active role in developing the mortgage-backed securities, the judges found that the companies weren't liable because they didn't act as official underwriters.
Investors lost billions of dollars when mortgage-backed securities with high credit ratings plunged in value, leading to a bevy of lawsuits and congressional hearings.
But 2½ years after the financial crisis, the credit-ratings industry has mostly avoided costly legal settlements.
"The rating firms have done quite well defending themselves against claims emanating from the subprime meltdown, and I would add this ruling to the list," said Michael Meltz, an analyst at J.P. Morgan Chase.
"The rating agencies have said all along that they have a strong defense and the legal scorecard is starting to reflect that," he said.
Moody's said on an investor conference call last month that about 20 lawsuits against the firm have been dismissed or withdrawn since the financial crisis.
The unanimous ruling by the Second Circuit, a court that is considered highly influential on corporate matters, could discourage other similar appeals or lawsuits, said Mr. Meltz.
The case at the heart of the ruling involved a pool of mortgage-backed securities underwritten by Lehman Brothers Holding Inc. The pension funds argued that the ratings firms not only provided ratings, but also had assisted in the creation of the securities.
The Second Circuit ruled this argument "fell well short" of the statutory definition of an underwriter, which is involved in the selling of the securities.
"Like all the district courts to have considered similar claims, we conclude that structuring or creating securities does not constitute the requisite participation in underwriting," the judges wrote.
Lawyers for the plaintiffs Wyoming Retirement System and Police and Fire Retirement System of the City of Detroit, couldn't be reached.
S&P spokesman Edward Sweeney said in a statement that the Second Circuit's ruling is "unambiguous in concluding that credit-rating agencies offer forward-looking opinions about credit risk and cannot be sued as underwriters."
Spokesmen for Moody's and Fitch said separately that they were "pleased" with the ruling.
The ratings firms still face numerous lawsuits in various state courts.
"There are some big cases out there that are out there that are still a risk," said Douglas Arthur, an equity analyst at Evercore Partners.
The ratings firms were a prime target of the sweeping Dodd-Frank legislation that was passed last year. The act allows investors to sue the agencies for intentional or reckless failures, while setting up a much tougher oversight regime. Among other measures, the Securities and Exchange Commission has the power under Dodd-Frank to examine and to fine agencies.
"Is anything going to dramatically change? Not likely, but it is going to be tougher place to operate,'' said Mr. Arthur.
Nothing has dramatically changed after the financial crisis. The ratings agencies are still running the same operation except now they're also rating public pension plans. I think ratings agencies got off scot-free with these legal decision because while they didn't underwrite these mortgage backed securities, they did assist the underwriters by slapping AAA ratings on what was essentially garbage.
Having said this, it's up to pension fund managers to do their own due diligence on every single investment and stop passing the buck onto rating agencies and underwriters. When the non-bank asset backed commercial paper crisis hit us in Canada, I had lunch with a senior pension fund manager from a private company who told me something I'll never forget. He said: "I got calls from brokers, many of which told me it's a non-brainer since DBRS slapped a AAA credit rating on this paper. I told them all, yeah, it's a no-brainer because you have to have no brains whatsoever to invest pension money in this garbage." Very simply, pension fund managers have a fiduciary responsibility to protect pension assets. Period.
You can watch the video clip below and decide for yourself where ratings rage should be directed. There is plenty of blame to go around, but at the end of the day, we still have not implemented the measures to make sure this never happens again.
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Wanna see a magic trick Leo. CAN/USD at .65/1.37
Remember that. Hedge the obvious..not your heart baby. It's alright. As a producer of food, I'm not selling to anyone. Warned the lads last summer to avoid retarded spending and keep people hungry...TO and Montreal. None of you are getting fed. Expect another 20% increase by August on basic food costs.
Cows eat corn, no corn to be had except at OUR price and that's the price being given.
//your friendly farmer of the Valley. Even Del Monte can do fuck all. They've tried, no more being broke. It costs 15 million to build a barn, a simple to government spec barn. This is done. 15 million in Canada need to drop dead. we'll be fine in the country, enjoy the cities. Europe is fucked come august, in Canada. We'll have no NWT. TO should be 500k in people, MTL should be 300k, VAN is left to it's own accord, if the western provinces can plant more than 4% with the rain happening...the world is in big trouble. The kings of the land will rule Leo.
Michigan Southern basin, pooring rain again. Will check this weekend with real people on situation. My Wife bless her heart is fighter. She and the girls are plannig more in town gardens for souls. I am not overly concerned until first or second week of June. Patience for now.
Nor am I. But I haven't put one seed in the ground yet to produce anything. We're in the same crop zone for harvest crops and I'm looking at the deep shit summer for my leased land.
Even for the fun like home gardens, plant it in this and all anyone is going to do is pick weeds. (funny how the assholes in the MSM talk about put a seed in the groud and grow it, pricks, bit more to it than that). Yes I home garden, I like growing weird tomatoes, apples, celery, asparagus (brutal plant to grow), plums (I couldn't gorw them in the valley 10 years ago, too cold), beans, etc...fun plants. Shit that Mexico grows, but can't anymore with no water coming in.
Europe is fucked as is Asia. Can't grow when all the cycles are fucked up. My intention was to grow hops this year...again too wet and the land is too low. Going to stick with good old corn seed. Worth more than a bag of corn at a store by the kilo, offer is always paid in silver by the Chinese or the Indians.
do you have guns and ammo buried on your land? perhaps it will soon be time to go and dig them up.......
Soldiers dont' harvest because they don't know how, they are young and dumb, and didn't want to work a farm in the first place.
However I have guns, but a bow is much more effective, every living being has bits of them they can't live without. In the Ottawa Valley you don't walk into Queens country. It's French/Native/Irish/Scottish country, the Crown isn't very interested in it as it only feeds the people, the only farming that does well here is pot in terms of money.
A bow, nice and quiet. A herd of deer, some proper ability and you can bag a couple at once. Human's are pretty stupid. Can't smell. Can't hear. My dogs can.
pot cures cancer too.
are you allowed to own night vision scopes? :)
Nope, but a dog knows where a body is, train them right.
Vanguard Retire Savings Trust V
Effective date
04/30/2011
Year-to-date rate of return
1.01%
1-year rate of return
3.02%
3-year rate of return
3.27%
5-year rate of return
3.78%
10-year rate of return
—
Rate of return since inception
3.92%
Inception date
02/03/2003
are pension funds playing with derivatives and doubling down in this bogus stock market trying to make back all of the money they lost in 2008. What does calpers say their rate of return has to be? it is about 7.5 percent isn't it? it used to be 8 percent, but they lowered it a bit. nice of them. the stupid politicians won't dare try and raise taxes on us to cover the losses on these stupid pensions. they had better not. well as it was before 2008, as long as the stock market by hook or by crook continues on its upward movement, everything is kosher. but if there is another big hickup, there will another hue and cry coming from the state pension funds, whining about their losses, as usual........texas, right now , is struggling with a 28B dollar budgetary shortfall. I am sure most states are like this. these huge state pensions are dinasaurs walking around looking into the abyss of extinction.
http://www.star-telegram.com/2011/01/31/2811814/legislators-looking-at-t...
http://www.texasbudgetsource.com/2011/04/trs-funding-in-trouble/
in texas, the waves that started in 2008 are hitting hard on the beach now. the no more excuses tour is in full effect as the polticians must make some hard choices.......
http://www.nytimes.com/2010/03/09/business/09pension.html
again, the public pension funds are taking more risks in order to attempt to get back all of the money they lost in 2008. i predict this will not end well.
http://doctorbulldog.wordpress.com/2009/08/23/fed-to-steal-state-pension...
there has been talk about the social security administration absorbing public pension fund money. i think this will happen very soon. they have no choice. besides they probably think this money is government money since these employees worked for government.
so i don't have much faith in either public or private pension funds. if they steal from one, they will steal from them all.........
Pension funds are done, and they know it. But the people who are depending on it don't know it. Just google Prichard Alabama, they didn't have the money so they just stopped paying out any retirement benefits to retired county employees.
Pension funds are not done! In fact, as income inequality grows, they will make a huge comeback in the future. Mark my words, pensions are far from dead.
Seriously, as much as I detest many of your views, your lack of logic still manages to surprise me still, at times like these.
If you accept the fact that pensions are built on economy of scale, and you further accept that fewer and fewer people in the workforce (in North America) will have pension benefits as a perk of employment (a firm trend that is now entrenched in the U.S. AND even Canada), how in the hell are pensions going to "make a huge comeback?"
I would love for you to cite some empirical data, at long last, to support your broad (and factually suspect) positions.
I asked you to do it when I stated that a simple Vanguard No-Load total equity market fund would outperform 99%+ of pension fund managers at approximately 1/100th of the cost that churn and burn pension managers are compensated, and you failed to provide any rebuttal then.
I am not going to do the legwork on empirical data to defend the ridiculous things you write and speak, Leo.
You'll have to take my word for it, pensions will make a huge comeback. I was right about the 2008 financial crisis, and I will be right about this too. It might take a decade, but pensions are not going to die. Quite the opposite.
"You'll have to take my word for it, pensions will make a huge comeback."
Well, that seals it for me ;-)
I assume you're talking about private sector pensions?
A lot of things would have to happen on corporate tax treatment/accounting, and regulatory levels. These would involve government policy making decisions.
Meanwhile, they also need ice water in hell.
"It's up to pension fund managers to do their own due diligence on every single investment and stop passing the buck onto rating agencies and underwriters."
Are there any pension fund managers who are in court right getting sued by the pension recipients, or just pension fund managers suing the ratings agencies?
Also, how will income disparity propel a recovery for pension funds?
Only with massive interest rate hikes
Someday our sun will burn out, you'll have to take my word for it though. It might take several million years, but its gonna happen.
How the hell does a pension recipient expect a steady payout from an unsteady world? Unless, they're union....then I understand cause union workers are basically ignorant and inbred and should be expected to believe the unbelievable. Thats right ladies.....junk away!
Pension Funds are managed by scumbags (the kind of people that would ordinarily sell used cars on subprime lots), for the overwhelming part.
Quit being such a proxy defender of the 'white hat' pension racket, Leo.
Just because you claim to be one of them doesn't mean you should get loud and attract attention to what is an incredibly parasitic industry.
I heard CALPERs is really scraping for some serious cash.
Gee, I wonder why?