Ratings Agencies

DOJ Scrambles To Appear Impartial, Says "Don't Think Moody's Is Off The Hook"

While Moody's slipped over 20% when the DoJ announced its cajillion dollar lawsuit against S&P for knowing the crisis was coming but not telling anyone, it later bounced back over 10% as investors believed the non-US-downgrading rating agency (that happened to be owned by Buffett) was too-big-to-jail. After-hours today, Reuters is reporting that the Justice Department and multiple states are discussing also suing Moody's Corp for defrauding investors, according to people familiar with the matter, but any such move will likely wait until a similar lawsuit against rival Standard and Poor's is tested in the courts. The stock is trading down 3% after-hours as sources (not authorized to speak publicly) added "don't think Moody's is off the hook." We can't help but think about the pending sequester-delaying deficit spike as perhaps, to appear impartial, the DoJ will keep the threat of a lawsuit against Moody's alive... during the entire period when the US may and should be downgraded.

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Unfortunately, the spectacular rise of Wall Street’s securitization machine will likely forever frustrate attempts to ascertain the extent to which the Fed is responsible for what happened to the U.S. housing market and financial system in 2008.  After all, it wouldn’t be fair to short sell (no pun intended) all the Special Purpose Vehicle sponsors, CDO asset managers, investors, and ratings agencies who, for at least five years, worked so hard to collapse the system.

Guest Post: The Linchpin Lie: How Global Collapse Will Be Sold To The Masses

The globalists have stretched the whole of the world thin.  They have removed almost every pillar of support from the edifice around us, and like a giant game of Jenga, are waiting for the final piece to be removed, causing the teetering structure to crumble.  Once this calamity occurs, they will call it a random act of fate, or a mathematical inevitability of an overly complex system.  They will say that they are not to blame.  That we were in the midst of “recovery”.  That they could not have seen it coming. Their solution will be predictable They will state that in order to avoid such future destruction, the global framework must be “simplified”, and what better way to simplify the world than to end national sovereignty, dissolve all borders, and centralize nation states under a single economic and political ideal?

BoE's Haldane: "Too Big To Fail Is Far From Gone"

Prior to the crisis, the 29 largest global banks benefitted from just over one notch of uplift from the ratings agencies due to expectations of state support. Today, those same global leviathans benefit from around three notches of implied support. Expectations of state support have risen threefold since the crisis began. This translates into a large implicit subsidy to the world’s biggest banks in the form of lower funding costs and higher profits. Prior to the crisis, this amounted to tens of billions of dollars each year. Today, it is hundreds of billions. Too-big-to-fail is far from gone.

Fiscal Cliff Loose Ends

The fiscal cliff deal appears to be a done deal and markets have reacted accordingly (although President Obama is apparently awaiting a photo-op later today to sign it). However, the deal leaves a large number of loose ends that ensure high drama for the next two months on the US fiscal front. The immediate impact of all the loose ends and deadlines may be smaller than the Dec 31 fiscal cliff, but all of these loose ends are important and could lead to short-term price action. Several of them are very important for the long run USD outlook as well.

Guest Post: Fiscal Cliff Contingencies

The divergence between consumers and producers within the real economy that has stumped economists for the better part of 2012 can, at least in part, be attributed to the Fiscal Cliff; but the anticipatory effects of the Fiscal Cliff on the United States of America evidently began with American politicians, and probably for the worse, that is where it will end. The division that has plagued Washington has grown starker in recent years, and the divergence between consumers and producers as a result of divided leadership stands as a testament to the irresponsibility of those sent to Washington D.C. to serve their country. These divergences cannot last forever, and depending on the events of the next couple weeks, the United States is due for a reversion to the mean. The direction of that reversion - either production up to meet consumption or consumption down to meet production and confirm a recession within the United States - is wholly on the shoulders of the politicians in Washington D.C.

17 Macro Surprises For 2013

Just as Byron Wien publishes his ten surprises for the upcoming year, Morgan Stanley has created a heady list of seventeen macro surprises across all countries they cover that depict plausible possible outcomes that would represent a meaningful surprise to the prevailing consensus. From the "return of inflation" to 'Brixit' and from the "BoJ buying Euro-are bonds" to a "US housing recovery stall out" - these seventeen succinctly written paragraphs provide much food for thought as we enter 2013.

Greece 'Selective Default' And Geithner's 'Selective Memory'

Late last night S&P placed Greece into “Selective Default” again, raising the issues, once again, of the $90 billion in Greek derivatives, the Greek bank bonds guaranteed by the country and now at the ECB, some central banks and some commercial banks where some clause may get triggered, various clauses in repos, inter-bank lending contracts and guarantees by Athens of various corporate entities all potentially seeing triggers. In the meantime, because Americans hate to be left out of anything, we continue to behave like fools. The raising of the tax rate on the wealthy will operate the country for about eight days and it seems like the savants in Washington have forgotten that there are three hundred and forty-eight days left in the year. Secretary Geithner’s ,“We are prepared to go over the fiscal cliff,” has all of the dramatics of some bluff on World Wide Poker. The focus on redistribution of wealth is a secondary consideration when you cannot pay your bills. We propose that unhappy Americans unite, buy the Abaco islands from the Bahamas, they need the money, and begin our own island nation and let the 46.5 million on food stamps fend for themselves. We honestly feel that way some days as the idiocy in Washington D.C. seems to recognize no boundaries.

Yelling 'Fundamentals' In A Crowded 'Corporate Bond Market'

Thanks in large part to the supply-constructing yield-compressing repression of a few 'apparently well meaning' bad men running the central banks of the world, the divergence between fundamental weakness and credit spread 'strength' is at record levels. The overwhelming 'technical' flow of funds from investors combined with an 'end of equity' cult and belief that tail-risks have been removed (OMT) juxtaposes with earnings crumbling, ratings downgrades, and the exogenous fact that a complex system means a systemic crisis is inevitable (especially after such ongoing volatility suppression). As Citi's Matt King notes, while "it is almost impossible to predict exactly when they start," the desperation for yield has led to highly unstable equilibria - as what investors can't earn they will lever; via lower-quality 'levered' assets (PIKs and BB/CCCs for example) or 'levered' vehicles (CLOs and structured credit). Sure enough, margins (street repo haircuts are low and NYSE margin accounts high) look very 2007-like. While yelling 'fire' in a crowded theater will typically get the people moving, it seems the movie that is playing in corporate credit is simply too engrossing for many to listen.