Firms like Standard & Poor, charged with fraud by the DOJ, are criminally incompetent and serve no public purpose.AlterNet
Credit Ratings Agencies Are Pimps of Wall Street: It's Time to Ban Them!
Marshall Auerback
(h/t Charles Hayden at Facebook, MMT Deficit Owl USA Committee)
Did unethical conflict of interest result in the rating agencies becoming complicit in control fraud?
12 comments:
"criminally incompetent"
I dont think this is an actual legal term in criminal law...
http://legal-dictionary.thefreedictionary.com/incompetency
So "incompetency" sometimes is used TO GET OUT OF A CRIME... iow the defendant can plead "mental incompetence", etc...
Ive heard of "criminal negligence" though...
http://legal-dictionary.thefreedictionary.com/negligence
"A person has acted negligently if she has departed from the conduct expected of a reasonably prudent person acting under similar circumstances. The hypothetical reasonable person provides an objective by which the conduct of others is judged. In law, the reasonable person is not an average person or a typical person but a composite of the community's judgment as to how the typical community member should behave in situations that might pose a threat of harm to the public."
So from what I've heard from S&Ps lawyers, they are going to point to the Fed minutes and identify that even the Fed did not see this coming, so that S&P DID NOT act negligently, as they will identify the Fed as a "reasonably prudent person" and then measure S&Ps conduct vs. the Fed's... and then get them out of it...
This case will address the "moron vs conspiracy" issue pretty well...
I've taken the position they are all morons and still do ... while many others have accused them of some sort of criminal conspiracy or fraud ... they have the emails so if there was fraud it should come out...
It looks like the only defense they can make is that they are morons... they are going to plead "incompetence" ie "morons" ... ie "we were too stupid to see this coming and that was not unreasonable"...
rsp,
" prohibit banks and other government-protected institutions from buying this crap in the first place"
I dont think it is clear that "banks bought them" vs these securities just remained on the balance sheets of the institutions that originated them.
Yes they originated them with the intent to distribute, but the fact that these institutions were the ones to get bailed out would imply that they never were able to distribute them to a great extent... why?
Why couldnt they distribute them? to the point where they got stuck with them and then needed a bailout....
Did the other institutions that MBS originators intended to sell these things to even have any balances available to buy them?
When the govt was running more or less a balanced budget or very small deficit during these times?
These idiots didnt think it through... in order for your customer to buy something from you, they need the "money" to be able to do so... just as in any business..
They created a product that logically only the banks themselves would ever have the balances created by the loan originations in the first place...
You create loans based on Property Develoment. So logically you would have to sell the securitized loans back to the developers/contractors/building material vendors who received the loan principles... how do the balances get from the construction entities over to a state government employees pension fund that you intend to sell the securities to? They dont.. so they got stuck with them...
rsp,
One of the unresolved problems in the wake of the credit collapse is that nobody has gone to jail and since the fish rots from the head, while the DOJ is suing S&P, they should also take aim at the Bernanke Fed, Hank Paulson, Tim Geithner, Loyd Blankfein, John Mack, Vikram Pandit and others who fueled the bubble and didn't see it coming but nevertheless profited handsomely from the bailouts at the expense of main street.
If the public could ever pull themselves away from watching all the banalities on TV long enough to comprehend the magnitude of the theft that the Fed bailout of AIG represented there really would be blood in the streets. Of course the AIL bailout was really a bailout of Goldman Sachs, Deutsch Bank, Societe Generale and other big banks that had bought credit default swaps from AIG. The US government paid 100 cents on the dollar on $13 billion of CDS on sub-aqua sub-prime mortgage loans to Goldman Sachs and as I recall Deutsch Bank was paid something like $7 billion. Its enough to make you weep.
Ed,
maybe they started to see these things pile up on their books as their intended market for these securities never obtained adequate balances to be able to buy them as the deficit became too low and IIRC in 2007 there were large multi-month periods where the govt was actually running a surplus... meanwhile we had a CAD that was blowing out (60-70B/mo) so the only way to keep that going was thru the issuance of more private debt...
but again those additional debts did not create $NFA in the accounts of the institutions that the banks plans identified as the target market for the MBS...
So the risk started to build up on their balance sheets so some of the less stupid ones came up with a hedging strategy via the CDS which might have looked good short term too, but in the end also had to implode, and at the system level could not provide any true "insurance" as the whole thing is a closed system an only an external injection could ultimately provide financial relief at the points of malfunction within the system...
so with the deficit imploding, it was only a matter of "when not if"...
they are all morons....
rsp,
so with the deficit imploding, it was only a matter of "when not if"...
Agreed the mortgage/housing bubble was predicated on the biggest expansion of credit the world has ever seen. It also makes sense that by 2007, the budget deficit had become too small to support the credit structure that existed at that time. As we now know, much of this investment was either fraudulent or just too risky which the Austrians refer to as malinvestment.
I can't help wondering if that Minsky like magnitude of credit expansion is more likely to happen in fiat currency than under a hard money regime which tends to constrain credit. I have asked Warren Mosler about this but he insists that a hard currency relative to a soft currency would have no bearing on constraining the credit bubble. I remain skeptical.
Hard currency never prevented previously bubbles and busts. The world was on gold in the lead up to the Great Depression.
The standard answer is fractional reserve. Well if gold were the standard and only savings in gold were lent out one to one, what kind of an economy would be have when the effect would be deflationary and therefore gold would be hoarded?
Under gold it would not seem that a loan would actually "lend out the gold" but a loan would establish a liability for the balance of the loan plus interest in USD balances ... only those USD balances would perhaps be convertible into some certain mass of gold upon demand...
So just like today, there would be no identification of where those USD balances were to come from in order for the borrower to happen upon the USD balances necessary to repay a loan...
and also just like today, at loan inception, the USD balances would be created for the principle balance of the loan without any thought of where the USD balances are supposed to come from to pay the interest... other than hope the govt runs a high enough USD balance deficit or future loans are made the principle USD balances of which somehow make their way to past borrowers... which doesnt seem like it happens with any assurance or certainty...
Either the govt morons deny their fiscal authority or at some point the banks hit the limits of their regulatory capital in order to make additional loans...
rsp,
Matt, the gold bugs want to go to bullion coinage. If this is not implemented, then any issues will be attributed not doing it. Even gold-backed paper is funny money to some.
"hard money regime which tends to constrain credit"
I think this in incorrect.
proceeds from gold loans are almost always deposited back in banks and lent out again. Many times more the gold supply can be lent. Or the amount of gold available for loan is relatively the same regardless of previous loan activity.
Also there is nothing stopping two parties without gold, to make a contract or mortgage payable in gold.
Just like a bank which creates a promise to pay base money on demand, when it creates a bank deposit. Banks usually have more claims on base money (bank deposits) than actual base money.
It will always leads to a boom bust, as the debt levels can rise but the amount of physical to pay back is fixed.Gold denominated assets ( gold owed ) goes down as defaults occur.
Historically booms and bust were more frequent under gold regimes.
Also meant to add that's why gold isn't necessarily going to stabilize prices. A hot economy will have easier credit as the means to pay seems a better prospect. Which in turn means more purchasing power in gold terms. As described above.
The gold bug fallacy is their reliance on a simpleton model of
amount of physical gold divided by amount of current available goods equals price. And there is nothing more to look at.
That's why you hear this childish false proverb all over the internet. "every dollar printed decreases the purchasing power of all the others." Also why the guarantee hyperinflation every chance they get.
The have examined only one variable in a complex dynamic system
There is always the fact that, under the old gold standard, variations in world gold extraction could contradict the "scarcity principle" and impose undesired fluctuations in prices and interest rates.
So it is definitely not true that relying on gold as a basis for "money" can provide the ultimate protection against inflation.
Credit rating agencies do serve an important purpose. But most of their income currently comes from issuers, who pay big bucks for a rating. This is a huge conflict of interest. Issuers should pay nothing. Instead, investors should pay larger subscription fees for a completely independent service.
Alternatively, nationalize them.
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