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EU Allowing Rating Agencies To Be Sued For Errors Should Backfire Spectacularly - Cause Massive Downgrades Across The Continent!

Reggie Middleton's picture




 
Reuters reports that the EU now has made it easier to sue the ratings agencies for errors they have made, as excerpted:

Michel Barnier, the European commissioner in charge of regulation who helped broker a deal on the new law, said it aimed to reduce the over-reliance on ratings and establish a civil liability regime. The new rules should make it easier to sue the agencies if they are judged to have made errors when, for example, ranking the creditworthiness of debt.

The agencies came under fire for giving top-notch AAA credit scores to debt that later unravelled and they provoked more criticism by downgrading countries at sensitive moments of the crisis. The EU PTB need to make up their collective minds. If the agencies are to correct the (purposeful) errors made in giving entities AAA ratings that didn’t deserve them, then those very same entities will (and should’ve) been downgraded at sensitive moments in the crisis. This is the kicker, and the statement really should make the EU officials regret they did this, as well as bring back true returns on fundamental analysis realistic market pricing:

The EU's executive said that the new rules ensured that a rating agency could be held liable in cases of negligence or intent that damaged an investor.

You see, if you can really sue the agencies for being wrong, slow or negligent, then the Pan-European Sovereign Debt Crisis is a civil litigators 30 year capitalized Christmas present come true (even if they are Jewish). Let’s look at how this would have played out with the Greek debt and banks which should have traded as junk nearly 3 years ago as foretold by BoomBustBlog:

  1. Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! It was clear all were too optimistic regarding the Greek situation.
  2. Moody’s Follows Suit Behind Our Analysis and Downgrades 4 Greek Banks Moody's downgrades after the fact, and after investor losses are taken - LAWSUITS???!!!
  3. As I Explicitly Forwarned, Greece Is Well On Its Way To Default, and Previously Published Numbers Were Waaaayyy Too Optimistic! Greece's default was a foregone conclusion easil seen on BoomBustBlog, yet the agencies didn't reflect this in ratings. LAWSUITS???!!!
  4. A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina Greece's bond restructuring would have had to have been extreme (as in damn near no recovery) to have had a chance of being effective. Did the agencies tell us this? LAWSUITS???!!!!
  5. This Time Is Different As Icarus Blows Up & Burns Greece's redefault was clearly visible before they even competed their first default. This was not reflected in agencies' opinions, analysis or reporting. LAWSUITS anyone???!!!

Greece's primary balance went long term negative in 2004, save the bubble levitated year of 2006...

Greece_Primary_balanceGreece_Primary_balanceGreece_Primary_balanceGreece_Primary_balance

The primary balance looks at the structural issues a country may have.

Government expenditures have outstripped revenues ever since 2007 and have gotten worse nearly every year since, despite 3 bailouts a restructuring, austerity and a default! Simple addition and subtraction shows that there's no way in hell Greece can service its debt, defautled debt, or even its redefaulted debt or the round of debt after that. 

Greece_Primary_deficit_copyGreece_Primary_deficit_copyGreece_Primary_deficit_copyGreece_Primary_deficit_copy

We don't have to dwell in the past to prove this point either. Why hasn't Italy been dramatically downgraded? It's a wonder they finally got around to downgrading France (The Beginning Of The Great French Unwind…), after all of the evidence that I put forth - reference Italy Woes Lead To French Lows. Believe It… Let's stay on topic, about Italy? The 10 page BoomBustBlog report (subscribers, download the full report here File Icon Italy public finances projection, click here to subscribe) excerpted below is approaching 3 years old and it clearly outlined the tumult that is today's Italy and did so well in advance. My analytical staff is small in than Moody's stamp licking staff, yet somehow they fail to warn what I unequivocally cautioned on years ago. What was it did that EU official proclaim? Oh yeah... 

"The EU's executive said that the new rules ensured that a rating agency could be held liable in cases of negligence or intent that damaged an investor."

 Italy public finances projections Page 01Italy public finances projections Page 01Italy public finances projections Page 02Italy public finances projections Page 02Italy public finances projections Page 03Italy public finances projections Page 03

Subscribers (click here to subscribe) can dig in the archives for this still highly relevant and profitable Italy research:

File Icon Italy Exposure Producing Bank Risk
File Icon Italian Banking Macro-Fundamental Discussion Note

icon Sovereign Contagion Model - Retail (961.43 kB 2010-05-04 12:32:46)

File Icon Sovereign Contagion Model - Pro & Institutional

Tell me, why do you have to hear this from me versus the rating agencies? Here's the reason...

What Is More Valuable, The Opinion Of A Major Rating Agency Or The Opinion Of A Blog? Go Ahead, I DARE You To Answer!

There are many areas where ratings agenceis still are not putting enough pressure, a few of which have been pointed out at the blog:

For those who haven't seen this documentary on the rating agencies by VPRO, it is more than worth your time...

Reggie_VPRO_Ratings_agenciesReggie_VPRO_Ratings_agenciesReggie_VPRO_Ratings_agencies

Continuing my rant on the effectiveness (not) of the ratings agencies, I bring to you an interesting documentary on the rating agencies' effect on the sovereign debt crisis in Europe, produced by VPRO Tegenlicht out of Amsterdam. You can see the full video here, but only about half of it is in English. I appear in the following spots: 4:00, 22:30, 40:00...

Reggie Middleton Discussing the Rating Agencies effect on Sovereign Europe

 

 

 

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Fri, 11/30/2012 - 15:08 | 3024468 Joebloinvestor
Joebloinvestor's picture

I thought the EU was gonna form its' own ratings agency.

Is this just a different way of getting the established ones to "tow the line"?

I think they should retaliate and not rate any EU bond issue.

Fri, 11/30/2012 - 15:32 | 3024565 shovelhead
shovelhead's picture

LOL.

"MOM! Moody's called me a poopie-pants...Hit him."

Fri, 11/30/2012 - 15:03 | 3024446 Zaydac
Zaydac's picture

OK, make your not-so-funny jokes. This is serious. If the rating agencies can't carry on as before and have to downgrade early to avoid being sued then where is the BasleIII tier 1 going to come from? If the banksters can't find enough tier 1 lending will freeze up even more than it is at present. Liquidity crisis?

Fri, 11/30/2012 - 15:40 | 3024583 markovchainey
markovchainey's picture

Gold?

 

Or is that supposed to be "Gold bitchez" per the ZH guidlines?

 

:-)

Fri, 11/30/2012 - 15:59 | 3024542 shovelhead
shovelhead's picture

Liquidity crisis?

No offense guy,  but WAKE UP!

Euro banks passed a liqiudity crises a long time ago.

You're looking at a full-blown SOLVENCY crisis.

As in overleveraged, flat broke, can't pay shit crisis thats half a ripple away from a contagion crisis that all the money printing in the world can't stop.

Happy talk from a bought ratings agency doesn't make banks solvent, but it does sucker in a few more buyers who like to walk the highwire.

Ask Greek PSI bondholders about how they're enjoying their liquidity.

But what do I know...It could all turn out just fine if they rate everyone AAA.

Fri, 11/30/2012 - 16:18 | 3024745 Zaydac
Zaydac's picture

Yes it's a solvency crisis (people were saying this in 2009) but the wheels stop going round if the banksters can't tick the BasleIII tier 1 box. Without the ratings agency support of the AAA sovereign bond ponzi scam where on earth are the banksters going to find what they need to keep the wheels going round? If they fail, solvency or no solvency, it's a liquidity crisis.

Fri, 11/30/2012 - 14:48 | 3024372 shovelhead
shovelhead's picture

C'mon Reggie, are you a terrorist?

We need confidence in our fearless leaders, not subversive mathematics.

Remember this, in Euro-land, truth is not a defense against a libel suit. You hurt their feelings and you will pay.

New Yawkers...such an insensitive bunch.

Sat, 12/01/2012 - 19:02 | 3026993 Zero Govt
Zero Govt's picture

the only point of putting a Law in place to make it easier to sue the ratings agencies is to put a Law in place that solidifies the established fat cat Agencies and screw/scare off new or smaller entrants

that's what Law/regulation has always been about since Day 1 ...a protection racket for monopolists

Fri, 11/30/2012 - 14:33 | 3024321 OneTinSoldier66
OneTinSoldier66's picture

"The EU's executive said that the new rules ensured that a rating agency could be held liable in cases of negligence or intent that damaged an investor."

 

Quickly summarized...

 

"Through the use of government force and coercion, we are taking over the ratings agencies just like we do with anything else that we need to take over in order to continue our scam and confiscation scheme(ponzi)."

 

It's a small club. Are there any here on ZH that are in it? I know MDB is, unless he's a Tyler Durden. Which is really what I think MDB is, even though I've quipped back at him a few times as if he's a statist ponzi perpetuator.

Fri, 11/30/2012 - 16:07 | 3024699 Dareconomics
Dareconomics's picture

Reggie missed the most important part of the new legislation. Rating agencies may only change sovereign ratings on three days a year designated in advance.

http://dareconomics.wordpress.com/2012/11/27/wrath-of-france-focused-on-...

If Spain goes into the tank after one of these days, the rating agency will have to wait four months to downgrade!

Fri, 11/30/2012 - 14:26 | 3024299 are we there yet
are we there yet's picture

I get it... Something something very bad will happen, buy my website access to find out more.

Sat, 12/01/2012 - 18:58 | 3026986 Zero Govt
Zero Govt's picture

something bad is happening ...that's the 254th posting of Reggie's Dutch video ...it doesn't get any better round here

Fri, 11/30/2012 - 14:18 | 3024259 LawsofPhysics
LawsofPhysics's picture

Sorry, but the ratings agencies are partners in this massive game of fraud.

I remain long black markets and personal security firms.

Do NOT follow this link or you will be banned from the site!