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don't worry, the FBI/CIA have it all in their huge database (but can't prosecute due to the illegality/inadmissability of the snooped data), as well as all the insider trading info used by hedge funds. What a shame.
What about the ratings agencies?
That's what "they" always say about the financial crisis and the teeming rat's nest of corruption it left behind. Everybody else got plenty of blame: the greed-fattened banks, the sleeping regulators, the unscrupulous mortgage hucksters like spray-tanned Countrywide ex-CEO Angelo Mozilo.
But what about the ratings agencies? Isn't it true that almost none of the fraud that's swallowed Wall Street in the past decade could have taken place without companies like Moody's and Standard & Poor's rubber-stamping it? Aren't they guilty, too?
Man, are they ever. And a lot more than even the least generous of us suspected.
Thanks to a mountain of evidence gathered for a pair of major lawsuits by the San Diego-based law firm Robbins Geller Rudman & Dowd, do ents that for the most part have never been seen by the general public, we now know that the nation's two top ratings companies, Moody's and S&P, have for many years been shameless tools for the banks, willing to give just about anything a high rating in exchange for cash.
In incriminating e-mail after incriminating e-mail, executives and analysts from these companies are caught admitting their entire business model is crooked.
"Lord help our ing scam . . . this has to be the stupidest place I have worked at," writes one Standard & Poor's executive. "As you know, I had difficulties explaining 'HOW' we got to those numbers since there is no science behind it," confesses a high-ranking S&P analyst. "If we are just going to make it up in order to rate deals, then quants [quan ative analysts] are of precious little value," complains another senior S&P man. "Let's hope we are all wealthy and retired by the time this house of card[s] falters," ruminates one more.
Ratings agencies are the glue that ostensibly holds the entire financial industry together. These gigantic companies – also known as Nationally Recognized Statistical Rating Organizations, or NRSROs – have teams of examiners who analyze companies, cities, towns, countries, mortgage borrowers, anybody or anything that takes on debt or creates an investment vehicle.
Their primary function is to help define what's safe to buy, and what isn't. A triple-A rating is to the financial world what the USDA seal of approval is to a meat-eater, or virginity is to a Catholic. It's supposed to be sacrosanct, inviolable: According to Moody's own reports, AAA investments "should survive the equivalent of the U.S. Great Depression."
It's not a stretch to say the whole financial industry revolves around the compass point of the absolutely safe AAA rating. But the financial crisis happened because AAA ratings stopped being something that had to be earned and turned into something that could be paid for.
That this happened is even more amazing because these companies naturally have powerful leverage over their clients, as they are part of a quasi-protected industry that enjoys massive de facto state subsidies. Largely that's because government agencies like the Securities and Exchange Commission often force private companies to fulfill regulatory requirements by retaining or keeping in reserve certain fixed quan ies of assets – bonds, securities, whatever – that have been rated highly by a "Nationally Recognized" ratings agency, like the "Big Three" of Moody's, S&P and Fitch. So while they're not quite part of the official regulatory infrastructure, they might as well be.
It's not like the iniquity of the ratings agencies had gone completely unnoticed before. The Financial Crisis Inquiry Commission published a case study in 2011 of Moody's in particular and discovered that between 2000 and 2007, the agency gave nearly 45,000 mortgage-backed securities AAA ratings. One year Moody's doled out AAA ratings to 30 mortgage-backed securities every day, 83 percent of which were ultimately downgraded. "This crisis could not have happened without the rating agencies," the commission concluded.
Thanks to these do ents, we now know how that happened. And showing as they do the back-and-forth between the country's top ratings agencies and one of America's biggest investment banks (Morgan Stanley) in advance of two major subprime deals, they also lay out in detail the evolution of the industrywide fraud that led to implosion of the world economy – how banks, hedge funds, mortgage lenders and ratings agencies, working at an extraordinary level of cooperation, teamed up to disguise and then sell near-worthless loans as AAA securities. It's the black box in the American financial airplane.
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don't worry, the FBI/CIA have it all in their huge database (but can't prosecute due to the illegality/inadmissability of the snooped data), as well as all the insider trading info used by hedge funds. What a shame.
insider trading is still prosecuted. as of recently. if you can't find it, I'll find it for you.
What's hilarious is that, on its face, the whole concept of dividing up ty loans into bundles and selling them as a package deal , and now suddenly it's "reliable" is incredibly asinine on its face. It's only when the mystical bankers and regulators get their hands on it and spit out mumbojumbo that people start assuming it could work.
Insider trading is how the hedge fund INDUSTRY operates, so where are the 1000s of prosecutions? We'll see if they bring down Stephen A Cohen himself after nabbing 10s of his former employees. SAC seemed to have been a purely criminal operation.
Corzine stole and lost $100Ms from his clients, gets a "settlement" with no jail time.
Prosecuted, yes, but try explaining complex stuff to the average jury pool sometime....
Vast difference between bringing charges and making them stick.
Read that outloud to a room full of my coworkers. We occasionally have to rely on those ratings agencies to evaluate companies and their investments."Lord help our ing scam . . . this has to be the stupidest place I have worked at," writes one Standard & Poor's executive. "As you know, I had difficulties explaining 'HOW' we got to those numbers since there is no science behind it," confesses a high-ranking S&P analyst. "If we are just going to make it up in order to rate deals, then quants [quan ative analysts] are of precious little value," complains another senior S&P man. "Let's hope we are all wealthy and retired by the time this house of card[s] falters," ruminates one more.
Lets just say their reaction was one of a collective head shake when I told them who the quotes were from.
convictions are rare, no doubt.
Gilkes was experiencing his own crisis of conscience by mid-2005, complaining in an oddly wistful e-mail to another S&P employee that the good old days of just giving things the ratings they deserved were disappearing. "Remember the dream of being able to defend the model with sound empirical research?" he wrote on June 17th, 2005. "If we are just going to make it up in order to rate deals, then quants are of precious little value."
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If the significance of Cheyne is that it showed how the ratings agencies sold out in an effort to get business, the significance of the next deal, Rhinebridge, is that it showed how low they were willing to stoop to keep that business.
Rhinebridge was a subprime-packed SIV structured very much like Cheyne, only both the quality of the underlying crap in the SIV and the timing of the SIV's launch were significantly more horrible than even Cheyne's.
Not only did Morgan Stanley insist that the ratings agencies allow the bank to pack Rhinebridge full of a much higher quan y of subprime than in the Cheyne deal, they were also pushing this massive blob of toxic mortgages at a time when the subprime market was already approaching full collapse.
In fact, the Rhinebridge deal would launch with high ratings from both agencies on June 27th, 2007, less than two weeks before both Moody's and S&P would downgrade hundreds of subprime mortgage-backed securities. In other words, both Moody's and S&P were almost certainly in the process of downgrading the underlying assets in the Rhinebridge SIV even as they were preparing to launch Rhinebridge with AAA-rated notes.
"It was the briefest AAA rating in history," says the plaintiffs' lawyer Dan Drosman. "Rhinebridge went from AAA to junk in a matter of months."
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http://www.voxeu.org/article/corrupt...t-and-evidenceIt is hard to read some of the legal arguments without being struck by a sense of irony.
In its defence, Standard & Poor’s argues (without admitting any rating bias) that it has never made a legally binding promise to produce objective and independent credit ratings. Instead, the agency describes its mission "to provide high-quality, objective, rigorous analytical information" as well as instructions to its employees like "Ratings Services must preserve the objectivity, integrity and independence of its ratings" as aspirational statements of how business should be conducted (McGraw-Hill Companies, Inc. and Standard & Poor's Financial Services LLC 2013). According to The Wall Street Journal it is almost as if Standard & Poor’s feels impelled to characterise its claims of independence and objectivity as mere "puffery" that was "never meant to be taken at face value by investors" (Neumann 2013). For an agency whose business model is based on its reputation as an impartial 'gatekeeper' of fixed income markets, this defence is most remarkable.
JPMorgan in Talks to Settle Energy Manipulation Case for $500 Million
JPMorgan Chase is aiming to settle accusations it devised “manipulative schemes” that transformed “money-losing power plants into powerful profit centers,” a deal that is expected to cost the bank, the nation’s largest, about $500 million.
JPMorgan and the regulator of the nation’s energy markets are still negotiating a potential fine, according to people briefed on the matter, and the talks are not yet final. The $500 million figure could shift as the two sides inch closer to a settlement, a potential record for the Federal Energy Regulatory Commission, or FERC.
The accusations against JPMorgan surfaced in a confidential government do ent, reviewed by The New York Times, that outlined a pattern of illegal trading in California and Michigan electric markets. The do ent also claimed one of JPMorgan’s most senior executives gave “false and misleading statements” under oath.
Investigators for FERC sent the do ent to the bank in March, a preliminary warning that they intended to recommend that the agency pursue an action against JPMorgan and the executive, Blythe Masters. The bank replied to the accusations in mid-May, the people briefed on the matter said, ultimately leading to settlement talks in recent weeks.
It is unclear whether the energy regulator will pursue a separate action against Ms. Masters, known for developing complex financial instruments like derivatives that played a role in the financial crisis. A majority of the five-member energy commission must approve any action — settlement or otherwise — that the FERC investigators recommend.
http://mobile.nytimes.com/blogs/deal...?from=homepage
Wall St + ratings agencies = total fraud
Banks Find S.&P. More Favorable in Bond Ratings
The Wall Street ratings game is back.
Five years after inflated credit ratings helped touch off the financial crisis, the nation’s largest ratings agency, Standard & Poor’s, is winning business again by offering more favorable ratings.
S.& P. has been giving higher grades than its big rivals to certain mortgage-backed securities just as Wall Street is eagerly trying to revive the market for these investments, according to an analysis conducted for The New York Times by Commercial Mortgage Alert, which collects data on the industry. S.& P.’s chase for business is notable because it is fighting a government lawsuit accusing it of similar action before the financial crisis.
As the company battles those accusations, industry participants say it has once again been moving to capture business by offering Wall Street underwriters higher ratings than other agencies will offer. And it has apparently worked. Banks have shown a new willingness to hire S.& P. to rate their bonds, tripling its market share in the first half of 2013. Its biggest rivals have been much less likely to give higher ratings.
“The general consensus was that these changes have let them get their market share back,” said Darrell Wheeler, a bond analyst at Amherst Securities.
Standard & Poor’s said the “methodology used and the conclusions drawn by The New York Times are flawed,” though it declined to elaborate on what those flaws were.
In its response to the government lawsuit, the company said that its ratings had always been “uninfluenced by conflicts of interest.”
But David Jacob, who ran the S.& P. division that rated mortgage-backed bonds until 2011, said that in his time at the company, after the financial crisis, he saw employees adjusting criteria in response to business pressure.
“It’s silly to say that the market share doesn’t matter,” said Mr. Jacob, who is now retired. “This is not God’s holy work. It’s a business.”
Along with its chief rivals — Moody’s Investors Service and Fitch — S.& P. was criticized for offering top-flight ratings to subprime mortgage securities, which made those bonds appear more attractive to investors before the crisis. The agencies had an incentive to offer higher ratings because banks choose which ratings agency grades each bond. The flaws in the system became apparent when many bonds with the highest ratings ended up plunging in value, inflicting enormous damage on the economy.
The government, though, chose in February to file suit against only S.& P., accusing it of relaxing its rating methodology before the crisis to win business.
The methodology and motivation of the ratings agencies are important because they play such a vital role in the financial system. Many investors are allowed to buy only bonds that have been rated AAA by S.& P. or one its two largest compe ors, Moody’s and Fitch. Banks often adjust the riskiness of their investment products to satisfy the agencies.
But the agencies have long been accused of tailoring their ratings to the banks to win more business. Before the crisis, the biggest problems involved ratings of bonds tied to subprime residential mortgages. More recent concerns have come about since S.& P. made an apparently benign change last September to the criteria it uses to rate bonds backed by commercial real estate mortgages, which is now the hottest portion of the mortgage bond market.
The company said at the time that the change was not designed to win more business. Before the change, though, S.& P. was lagging, in part because of tougher standards it put in place immediately after the crisis.
Since the change, the company has been much more likely than its big rivals to offer higher ratings on the commercial real estate bonds, according to the analysis for The Times. On half of the deals that it rated since last September, S.& P. has given at least a portion of the deal a higher rating than the other agencies rating the same deals. Before the change in standards, it rarely offered higher ratings.
Some investors buying the bonds worry that the willingness of some agencies to give better ratings is encouraging banks to issue lower-quality bonds.
“When one agency loosens up on something, it forces others to as well,” said Edward Shugrue, the chief executive of the bond investing firm Talmage.
Immediately after the crisis, the agencies themselves moved to tighten their standards. S.& P. offered top positions to Mr. Jacob and his partner, Mark Adelson, from the consulting firm Adelson & Jacob, both of whom had called for more scrutiny of bonds.
The two quickly pushed inside the company for tougher standards for the bonds that were at the root of the financial crisis. This alienated many banks, and the agency was rarely chosen to rate the mortgage-backed bonds. The company rated only 22 percent of the bonds issued in 2011, down from 80 percent in 2006.
Inside the company, Mr. Jacob said, “People weren’t happy with losing market share.”
A spokesman for the company said it rejected Mr. Jacob’s assertions and noted that he did not raise his concerns when he was at the company.
S.& P. ran into particular trouble in August 2011 after it backed out of rating a bond being issued by Goldman Sachs and Citigroup because of internal disagreements about how to rate the bonds. It was in the months after that episode, when no banks would hire S.& P., that the company pushed out many of the employees who had been ins uting tougher standards, including Mr. Jacob and Mr. Adelson.
At the same time, the company began working on new criteria for rating bonds tied to commercial real estate.
When S.& P. released the new standards in September 2012 it was not immediately clear if they would result in higher ratings. The do ent describing the changes left many of the specifics vague.
But the company quickly managed to win the job of rating a number of smaller bonds. And in each of the first five deals where it was chosen, Standard & Poor’s offered higher grades than its compe ors to at least a portion of the multilayered deals, according to the data from Commercial Mortgage Alert. The pattern has not slowed down more recently. On each of the five most recent deals that Standard & Poor’s rated, it gave better ratings than the other agencies.
The company’s numbers stand in particular contrast to Moody’s, which has not given the highest ratings to any deal it rated over the last two years. Fitch, the third big ratings agency, gave higher ratings on only 8 percent of the bonds it rated over the last year.
S.& P.’s willingness to give higher ratings makes it look more like the three smaller ratings agencies that work on bonds tied to commercial real estate: Kroll, DBRS and Morningstar. They were all more likely to give higher ratings than Fitch and Moody’s. Even among those three, though, only Morningstar was more likely to give higher ratings than S.& P., according to the Commercial Mortgage Alert data. Morningstar gave higher ratings than compe ors on 52 percent of the deals it graded.
Joseph Petro, an executive with Morningstar’s ratings business, said that it won fewer overall contracts than other agencies because it applied tougher standards in the preliminary phases of the process, which are not publicly visible.
Several bond investors said that ratings mattered less than they did in the past because the financial crisis taught them to do their own analysis before putting their money down. That is particularly true for bonds backed by commercial mortgages, which are popular with more sophisticated investors.
But Mr. Shugrue said that the little things being allowed could turn into steps toward much bigger problems.
“You can see that we are slipping our way back to 2007,” he said.
http://mobile.nytimes.com/blogs/deal...?from=homepage
The quotes from the S & P executives in emails as far back as 2005 are the most incriminating thing possible, imo. But this is not the first time these quotes have come to light.
It is a complete mystery to me why the big Buy-Side ins utions don't change their use of rating agencies in light of all of this. Much of the problem with the Agencies' impact on the financial system was, as someone else pointed out, a function of the fact that certain ins utions can only invest in assets with a certain rating from a rating agency. Since it is manifest that the agencies cannot be trusted, I am at a loss to understand why the big pension funds (like Calpers, etc.) don't change their investment criteria to avoid reliance on these jerks, and since Calpers and others lost so much money by relying on these ratings, why they themselves aren't suing S&P and Moody's until the world is flat.
Plutocrats Brazenly Collude to Hurt State Economies and Screw Working People
Let’s step inside a recent gathering of the corporate-backed Union League Club of Chicago, where former Illinois Attorney General Ty Fahner, who now leads a band of plutocrats known as the “Civic Committee of the Commercial Club of Chicago,” recently launched into an hour-long diatribe on the evils of state pensions.
Fahner, a top GOP fundraiser, can’t abide the notion that teachers, firefighters, nurses and other public workers in the state of Illinois can still expect a decent retirement. Not a luxurious retirement, mind you — the average pension is $32,000 a year, and most state employees will not receive Social Security. But even a modest retirement for hard-working people is too much for today’s fatcats.
Fahner is part of a virulent strain of public raiders and economic crackpots who have become dominant in the Republican Party (and increasingly among the Democrats, too) who are -bent on destroying unions and attacking public employees. Ultimately they wish to privatize everything and reduce their tax responsibilities down to nothing.
That’s why Fahner has declared war on pensions and is promoting a pension crisis in order to justify it.He has called for cost of living cuts, raising the retirement age, capping pension earnings and shifting the cost of the pension obligation of teachers to local school districts,many of which are too poor ever to pay.He styles himself as a savior who wants only to protect the public from debt, when in reality he is a brutal plutocrat who will stop at nothing to line his pockets at public expense and reduce his and his friends' taxes.
During Fahner’s talk to the Union League Club, an unidentified person in the audience suggested that pressuring credit agencies to rig the state bond ratings in order to attack pensions might be a jolly good idea. Fahner gleefully replied that he had already thought about that — and his group has tried it.
Audience member: “Maybe sometimes you gotta be irresponsible to be responsible. If a political solution really doesn’t produce a favorable outcome, maybe you really need a market solution. And a market solution, I don’t mean bankruptcy, I mean actually talking down the state rating even further so the state’s bonds essentially become below investment grade. And it drives up the borrowing cost to the state and all of us to a significant level enough that you really feel the public pressure…”
Fahner: “The Civic Committee, not me, but me and some of the people that make up the Civic Committee… did meet with and call – in one case in person – and a couple of calls to Moody’s and Fitch and Standard & Poors, and say, How in the can you guys do this?"
Fahner went on to take credit for downgrades to Illinois credit ratings, saying, "If you watch what happened in the last few years, it's been steadily down.”
In a nuts , here’s what the video reveals:
- Corporate honchos — some of whom may have a vested financial interest in Illinois bonds — feel perfectly comfortable calling and exerting pressure on ratings agencies.
- Ratings agencies are political en ies whose supposedly impartial research can be influenced and perhaps even bought.
- CEOs think nothing of willingly and knowingly screwing the bond rating and economic standing of their home state in order to enact their anti-worker philosophy and fatten their own bank accounts.
- Proclaiming you are “fixing” state fiscal problems is a great cover for potential insider self-dealing in the bond market.
- Committing economic treason against fellow citizens and taxpayers is simply a matter of course for today’s American plutocrats.
The We Are One Illinois union coalition has released a statement [4] condemning Fahner and calling for an investigation into the matter:
"Ty Fahner and unnamed members of his corporate-backed committee have shown their true colors. Fahner bragged openly about joining members of the business-backed group, behind closed doors, in lobbying credit rating agencies to lower Illinois' bond ratings in an irresponsible and unethical attempt to put the state in an even more difficult position. They show total contempt for the taxpaying public, total disregard for the difficult fiscal challenges the state faces, and total hypocrisy over their alleged care for the working families of Illinois.”
In addition, a serious conflict of interest may exist if either these unnamed CEOs or the big corporations they control profited in any way from lobbying to make Illinois pay more interest on its bonds—bonds which they or their corporations may hold.”
http://www.alternet.org/print/econom...tack-collusion
and this is BLUE STATE ILLINOIS
so whether you're red or blue voter, the 1% is gonna you every which way.
Last edited by boutons_deux; 08-02-2013 at 05:36 AM.
the more things change...
http://www.nytimes.com/2016/01/10/bu...isis.html?_r=0Ten credit ratings agencies are currently registered and operating in the United States. As their overseer, the S.E.C. must conduct examinations of them every year and issue an annual report of its findings.
The most recent such report came out on Dec. 28, easily missed in the holiday crush. But its contents are a potent reminder that absent strong enforcement of the rules, questionable behavior is not likely to change.
The S.E.C. report doesn’t identify which agencies ran afoul of what rules. That’s unfortunate. But it does separate the companies into two groups based on size. So when the regulator describes a problem at one of the “larger” credit ratings agencies, you know it means one of the big three — Fitch Ratings, Moody’s or Standard & Poor’s.
Some of the problems uncovered by the S.E.C. are frighteningly basic. For example, two of the larger companies “failed to adhere to their ratings policies and procedures, methodologies, or criteria, or to properly apply quan ative models.” These failures occurred on numerous occasions, the report noted.
Errors seem common. Because of a coding mistake, a structured finance deal made by one larger ratings agency didn’t reflect its actual terms. It took some time for this error to be detected and when it was, the transaction’s rating took a substantial hit.
In another example, a larger ratings agency employee noticed an error in the calculations used to determine certain ongoing ratings, but in subsequent publications, the company disclosed neither the mistake nor its implications. This ratings agency also inaccurately described the methodology it used to determine some of its official grades, the S.E.C. said.
Then there were the analysts at one larger ratings agency who learned of flaws in outside models used to determine ratings. But no one at the company assessed the impact of the errors or told others about them as required under its procedures. The S.E.C. also identified instances where substantive statements made by this agency in its rating publications directly contradicted its internal rating records.
Even more alarming, policies and procedures at one larger credit ratings agency did not prevent “prohibited unfair, coercive or abusive practices,” the report found. As a result, the agency gave an unsolicited rating to an issuer that was “motivated at least in part by market-share considerations.” Such a practice would allow an agency to gain an issuer’s business by offering a better rating than a compe or.
The only activity more corrupt than the entire financial sector is politics. And of course BigFinance pays their political s very well.
SEC enforcement?
REPUG House GOP cuts IRS, SEC funding
House Republicans rolled out a $21.3 billion financial services bill Tuesday that cuts more than $2 billion from President Barack Obama’s budget requests — chiefly at the expense of the Internal Revenue Service and Securities and Exchange Commission.
The IRS is promised $10.9 billion, about $341 million below current funding and $1.5 billion less than what Obama has asked for in the new fiscal year that begins Oct. 1. The SEC is essentially frozen in place at $1.4 billion, $300 million below the president’s request.
At one level, the 148-page measure defines a new realism and measure of moderation for the GOP which sought much more dramatic cuts in the same bill a year ago.
But it also keeps up what’s become an almost relentless war of attrition aimed at slowing the implementation of the president’s most prized initiatives: health care and Wall Street reforms.
http://www.politico.com/story/2014/0...op-cuts-107940
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