Rating Agencies

Back in January, an article by Reuters' head financial blogger on the topic of the Greek bond restructuring, which effectively said that Greeks have all the leverage, prompted us to pen Subordination 101 (one of the year's most read posts on Zero Hedge), in which we patiently explained why his proposed blanket generalization was completely wrong, and why litigation arbitrage in covenant heavy UK-law bonds would be precisely the way to go into the Greek restructuring. 4 months later, those who listened to us made a 135% annualized return by getting taken out in Greek UK-law bonds at par, whereas those who listened to Reuters made, well nothing. What is amusing, is that such examples of pseudo-contrarian sophistry for the sake of making a statement, any statement, or better known in the media world as generating  "page views", no matter how ungrounded in financial fact, especially from recent Loeb award winners, is nothing new. To wit, we go back to May 29, 2008 where courtesy of the same author, in collaboration with another self-proclaimed Twitter pundit, we read "Defending Libor" in which the now Reutersian and his shoulder-chipped UK-based academic sidekick decide that, no Carrick Mollenkamp and Mark Whitehouse's then stunning and quite incendiary discoveries on Liebor are actually quite irrelevant, and are, to use the parlance of our times, a tempest in a teapot. His conclusion: "What the WSJ has done is come up with a marginally interesting intellectual conundrum: why is there a disconnect between CDS premia, on the one hand, and Libor spreads, on the other? But the way that the WSJ is reporting its findings they seem to think they’re uncovering a major scandal. They’re not." Actually, in retrospect, they are.

But please don’t tell me that you are surprised that Barclays was “manipulating” LIBOR.

Objective analysis, or media spin to gauge popular reaction to Plan Z? Whatever it is, today's staff lead article in the English section of Spiegel has a piece that will likely raise more than a few eyebrows: "The common currency union was supposed to benefit the economy of the entire European Union. Now that the euro is struggling, however, it is bringing growth down with it. Germany's economy, once seemingly immune to the crisis, is now facing mounting difficulties."

With Europe, the BBA, and virtually everyone shocked, shocked, that the global bank cabal schemed and colluded for years to manipulate interest rates, so far only America appears relatively blase, and totally ignorant, about the issue. Perhaps it is because the first bank exposed in the manipulation scheme so far is European, perhaps because it is just tired of all the endless crime coming out of the criminal complex known as Wall Street. It is unclear. Then again, America will soon have its own manipulation scandals to deal with: and if it is not the US BBA member banks, all of whom were just as guilty as Barclays, and the only question is which bank will be the sacrificial scapegoat whose CEO will have to demonstratively depart (to warmer, non-extradition climes), it will be the following story from Bloomberg which will likely pick up much more steam over the next weeks and months, detailing how the bank which just barely avoided a triple notch downgrade (wink wink) has had previous dealings with the very same rating agencies seeking to, picture this, artificially inflate ratings! So to summarize: Fed manipulates capital markets, HFT manipulates bid ask spreads, "self-policing" CDS pricing market groups fudge the prices on trillions in Credit Default Swaps, bank cabals collude and manipulate short-term interest rates, and now banks are confirmed to have manipulated the ratings on tens of billions of bonds using monetary incentives and threats. Is there anything in this "market" that was fair over the past several decades, and was actual price discovery ever actually possible? Because by now it should be very clear going forward all the things that actually make a free and fair market are forever gone, and that without endless fraud and manipulation by all the market participants who realize that anyone defecting the ponzi group means immediate and terminal losses for all, and all those calls for an S&P 400 would actually prove to be overly optimistic.

Neoclassical Economics Is a Scam ...

So who's big enough to bailout France? How do you spell "No One" in French? This banking thing is about to get uglier than most comprehend!!!

There are now reports that the Reserve Bank of India (RBI) is likely to clamp down on gold bullion coin sales by banks as the rising bullion imports are adding pressure to the current account deficit and weakening the rupee.  

Western central banks and mints will not be clamping down on gold bullion coin sales in the near future as demand for gold and silver bullion coins fell in Q1 2012.

PIIGS are only the beginning.

Goldman got those positions in last week, just like BoomBustBloggers did, and now its time to tell the muppets to help drive the prices down??? Paranoid conspiracy theory or just plain fact?

The middle class has a gut feeling they are being screwed by somebody, they just can’t figure out who to blame. The ultra-wealthy elite keep up an endless cacophony of propaganda and misinformation designed to confuse an increasingly uneducated and willfully ignorant public while blurring the facts for those educated few capable of understanding the truth. They have been able to keep the masses dumbed down through government run education; distracted by sports, reality TV, Facebook, internet porn, and igadgets; lured by mass media messages of materialism; and shackled with the chains of debt used to acquire the goods sold by mega-corporations. We’ve become a society oppressed by a small faction of ultra-wealthy masters served by millions of impoverished, uneducated, sedated slaves. But the slaves are getting restless and angry. The illegally generated wealth disparity chasm is growing so large that even the ideologue talking head representatives of the elite are having difficulty spinning it. Even uneducated rubes understand when they are getting pissed on.

Two days ago we noted with muted disgust that Europe has legislated to scrap the use of rating agencies, who were everyone's best friend during the up-phase in the global ponzi, but now that deleveraging is accelerating and ratings downgrades are coming, are like the drunk guest who refuses to leave the insolvent party at 4 am. Sure enough, the time has come to enact rules to kick them out. But wait, there is much more. Moments ago Reuters reported that the European Central Bank is discussing a medium-term plan (as in indefinite) to scrap rating rules on euro zone sovereign bonds and instead set their value when used as collateral in lending operations on its own internal assessment, central bank sources said. You read that right: the ECB itself will decide what the collateral value is of pieces of paper it accepts, in exchange for other pieces of paper with the faces of famous dead people on one side (even if technically the whole operation takes place electronically). And to think that for some odd reason allowing drug addicts to write their own prescriptions is illegal. Apparently all is fair in love and breaking all rules of sinking monetary systems.

The rating agencies have lots of problems, but they are not to blame for the financial crisis.  The regulators and investors are the ones who deserve the blame.  The agencies have too much influence, but it’s been given to them by the regulators. Clearly Europe is trying to get rid of rating agencies to be aggressive, but the situation has to change.  For too long, laziness has driven regulatory policy.  Too much emphasis has been put on ratings, and the safety at the high end has been dramatically exaggerated.  One thing virtually every banking crisis has in common, is when a previously “safe” or AAA asset, that carried minimal capital charges deteriorates.  The sub-prime mortgage market and European Sovereign debt are just two of the most recent examples. We need a realistic regulatory framework like the one we discuss in regulatory-capital-size-and-how-you-use-it-both-matter. What the EU is doing is probably even worse than the existing framework, but the idea of diminishing the role of rating agencies is a good one.

Why are we not surprised? The EU has just voted to scrap the use of ratings agencies in the next step on the road to a ban of all policy criticism. Via Bloomberg,

• *EU LAWMAKERS APPROVE AMENDMENT TO END USE OF CREDIT RATINGS

It seems just a few years ago, when these very same ratings agencies were raising ratings and supporting banking systems, mortgage provision, and sovereign-inclusions-into-monetary-unions, that the political elite could not showing off their bronzed statues of AAA/AA-ness.

And in the most bizarre of twists, they would prefer if they were allowed to rate themselves:

• *LAWMAKERS CALL FOR EU TO ISSUE SOVEREIGN CREDIT RATINGS :MCO US

What the MSM is missing is that Spain's failings make this real. Spain is big enough to bring down the whole shebang, right now, and its banks cannot be salvaged with just a hundred billion or so.