Common sense in the European parliement!

[TransformX]

http://sorisomail.com/email/238743/o-politico-que-representa-realmente-a-populacao.html

[VJ]

Yep...
Of course, it is one thing to say what the current situation really is; quite another to come up with a solution for the mess...

[TransformX]

Yep...
Of course, it is one thing to say what the current situation really is; quite another to come up with a solution for the mess...

The first step is admitting and taking responsibility. You can rarely fix something without it.

[Brian Ellis]

He himself belongs to the corps of politicians that he claims caused the current problem. In fact, in his lifetime as a baby boomer, "his" Bank of England has printed money at least half-a-dozen times and has been forced to issue bonds (called 'Gilts') with high rates of returns in order to be attractive. Fortunately for the UK, the BoE has never been threatened with defaults, as it has had the wisdom to issue more Gilts to pay for the others at maturity. My Godfather bequeathed to me a few thousand quids worth of Gilts at varying maturities and returns. One was at 8¾% with a market value of about 80% of par, with two years to run. It was not worth selling as I knew the value would approach par quite quickly. A few weeks before maturity, I was invited to opt for an exchange for other selected gilts, including new issues, with a value of about 95%. No way, I opted for cash at 100% of par.

Let he who is without sin ,,,

Notwithstanding, I agree with his hypothesis about the stupidity of politicians spending more than they cam raise and then overborrowing by one means or other. The USA is a prime example with a national debt of gazillions, amounting to thousands per capita or percent of GDP http://en.wikipedia.org/wiki/List_of...overnment_debt - certainly, 'his' UK is in the top ten percentile of borrowers.

I happen to be in a country with stupid politicians and a corrupt political system. I've been watching it happen here with the country being forced to borrow billions by various means, to the extent that 2 out of the 3 ratings agencies have recently classified it down to junk status, not that this means anything as the agencies are out only to enrich themselves and insiders.

[Umfriend]

Here we go again.... The rating agencies, in fact, were so devious that it was they who forced Cyprus to borrow billions.

Let he who is without proof (or clue) keep quiet.

[Brian Ellis]

Here we go again.... The rating agencies, in fact, were so devious that it was they who forced Cyprus to borrow billions.

Let he who is without proof (or clue) keep quiet.

Rating agencies found to be falling short according to EU regulator

Credit rating agencies Moody's, Standard & Poor's (S&P) and Fitch have been told to improve internal processes or face possible enforcement from the European Securities and Markets Authority (ESMA).

It is ridiculous to state that they forced Cyprus to borrow: that was due to absolutely stupid governance. However, they de-rated the country at a time when they obviously took only negative data into account, ignoring the positive. To illustrate how partial they are. Cyprus has three major banks, other than the Central Bank. Their respective exposure to the Greek "haircut" was very different:
Laiki-Marfin was exposed to literally many billions of losses but hopes to stomach it without a bail-out
The Bank of Cyprus was exposed to about 1 billion, will not require a bail-out
The Hellenic Bank was exposed to barely more than 50 million, which hardly makes a blip in their P&L accounts, their assets being well into the tens of billions. Incidentally, the major shareholder is the Church of Cyprus!
(I don't remember the exact figures, offhand, but the orders are correct)

Yet all three banks were de-rated simultaneously by all three major agencies. Why?

[paulw]

Just out of interest. Who rates the rating agencies??

[Umfriend]

Just out of interest. Who rates the rating agencies??

Brian E. does, isn't that obvious?

Brian, I don't know why they downgraded the three banks at the same time. I have not read their reports. Have you? They're free, most likely.

That RA's may fall short is no surprise. No one is perfect. Hell, most regulators, politicians and poilitical/governmental bodies fall short. surprise surprise. But where does it say that "the agencies are out only to enrich themselves and insiders."?

RA's track their long-term rating performance like we should all wish politicians do to their decision-making process. They publish their studies. If you'd look at them, you would find that they do a pretty good job.

Moreover, they have no power other than that granted to them for free without having asked for it. They issue opinions.

[Brian Ellis]

Brian E. does, isn't that obvious?

Brian, I don't know why they downgraded the three banks at the same time. I have not read their reports. Have you? They're free, most likely.

That RA's may fall short is no surprise. No one is perfect. Hell, most regulators, politicians and poilitical/governmental bodies fall short. surprise surprise. But where does it say that "the agencies are out only to enrich themselves and insiders."?

RA's track their long-term rating performance like we should all wish politicians do to their decision-making process. They publish their studies. If you'd look at them, you would find that they do a pretty good job.

Moreover, they have no power other than that granted to them for free without having asked for it. They issue opinions.

Firstly, some countries and other organisations PAY them for their "opinions". Vested interests come to mind; how can they be impartial?

Secondly, you obviously think that they issue their "opinions" out of the goodness of their little hearts; they are money-making concerns and very rich ones at that. They are not bound by the rules for insider trading, because they are nor insiders but they can influence share prices at the drop of a hat and they, or their employees, can buy or sell values in advance of a pronouncement without fear or favour,

Thirdly, they are not equitable in their "opinions". Some countries or rated companies (e.g., banks) are in a worse state than many of those rated as junk.

Fourthly, they do not look at long-term prospects for organisations, only at the short term (12 months). A hypothetical country may announce that they have discovered the richest and largest vein of gold (or rare earth minerals), but that will not raise their rating by a jot until the vein has been exploited for several years.

Fifthly, their "prophecies" are self-fulfilling. E.g., rate a country as junk when they have a cash-flow problem (yes, bad governance) forces that country to pay more for the loans needed to restore the economy, making them even more indebted and unable to raise their rating.

Etc.

I believe in a free market for capital, not one unduly influenced by proven unfair third parties, because their "opinions" are easier to read than performing one's own analysis.

[Umfriend]

Firstly, some countries and other organisations PAY them for their "opinions". Vested interests come to mind; how can they be impartial?

Incorrect. Countries do not, and have never, paid for ratings. Corporations do with a number of the ratings agencies that work on the "issuer pays" model. Their impariality is driven by the need to have a good track record. Miss the mark to often and you're out of business. Moreover, if you would compare issuer-pay-rating agencies' ratings with subscriber-pay rating agencies you'd find marginal differences on average, just like between issuer-pay-rating agencies' themselves.

Secondly, you obviously think that they issue their "opinions" out of the goodness of their little hearts; they are money-making concerns and very rich ones at that.

Where have I said that?

They are not bound by the rules for insider trading, because they are nor insiders but they can influence share prices at the drop of a hat and they, or their employees, can buy or sell values in advance of a pronouncement without fear or favour,

This is in fact not true. The rating agencies I have worked with all have code-of-conducts forbidding employees to invest in securities that they rate and they have had them a long time already. Moreover, to the extent they have non-public information, they are subject to the same insider-trading laws as anybody else. Finally, ratings quite often trail prices instead of causing them.

Thirdly, they are not equitable in their "opinions". Some countries or rated companies (e.g., banks) are in a worse state than many of those rated as junk.

In your opinion, yes. Start your own agency and outperform them, must be easy for you. But for now, I'll simply assume that their analysis is more profound and sound than yours.

Fourthly, they do not look at long-term prospects for organisations, only at the short term (12 months). A hypothetical country may announce that they have discovered the richest and largest vein of gold (or rare earth minerals), but that will not raise their rating by a jot until the vein has been exploited for several years.

This is nonsense. What do you base this assertion on? Do you actually ever read anything from the rating agencies themselves? The rating-performance is tracked over spans of decades by the rating agencies and they disclosed data on their performance in 1998 (when I entered the structured finance industry) and I do not know how long before that time they did that.

Fifthly, their "prophecies" are self-fulfilling. E.g., rate a country as junk when they have a cash-flow problem (yes, bad governance) forces that country to pay more for the loans needed to restore the economy, making them even more indebted and unable to raise their rating.

So, in your opinion, had Greece not been rated then investors would have continued to fund it? I wonder how Argentine defaulted in 1982 then when, as far as I can tell, they were not rated.

Etc.

I believe in a free market for capital, not one unduly influenced by proven unfair third parties, because their "opinions" are easier to read than performing one's own analysis.[/QUOTE]

[Brian Ellis]

I don't understand why you defend the RA so vehemently when all my contentions have been shown to be true, at least with the three major US ones. The EU is beginning to realise that there is something rotten in the State of Denmark and are proposing some severe wing-clipping.

A correction: when I said they were short term in their outlook, I meant in the future. Of course, their analyses take into account their past history over the long term, as this gives a clue over future reactions.

Take UBS for example, which was saved from bankruptcy only by a government bail-out (which they have since paid back with interest) mainly because of their exposure to US mortgage excesses. They have made a colossal effort to get out of a hole. UBS, Switzerland’s biggest bank, has a long-term rating of Aa3 at Moody’s, and a proposed, on the watch-list, three-level downgrade would reduce it to A3, the fourth-lowest investment grade. Yet they made a zillion CHF profit in 2011. Their 2 billion CHF of 3.125 percent notes maturing in 2016 have an above-par selling price. They are proposing a dividend payment of CHF 0.10 per UBSN share to be ratified by the AGM next month, the first dividend for four years. To me, that does not sound like a bank in dire straits justifying Moody's proposed three-level downgrade. Yet this same bank, at its worst moment, had a much higher rating than the Hellenic Bank, which has never been in trouble and has had only one major loss of about 6% of its investment portfolio due to the Greek haircut.

At a country level, I can also quote Cyprus' junk rating, which was announced well after Noble (a US company) announced natural gas findings of 3-10 tcf, since narrowed to 5-8 tcf with probable major findings of both oil and gas in the country's EEZ, confirmed with a test drilling? The confirmed gas field alone is worth over 50 times the whole of the country's debt and infrastructure is being built as I write, yet the country is junk by Noody and S&P (not Fitch).

Makes no sense except as a manipulatory weapon.

[Umfriend]

I don't understand why you defend the RA so vehemently when all my contentions have been shown to be true, at least with the three major US ones.

Sure, if you deem repeated allegations by yourself as proof, than the case is clear You have repeatedly accused them of insider trading and market manipulation. Not even the EU has done that, let alone proven it (or even made it probable). Moreover, you fail to address my point that the ratings of issuer-pay raters hardly deviate from the ratings of subscriber-pay agencies. If issuer-pay raters are so rotten, then why do subscriber-pay raters agree so often?

The reason I defend them is simple: As long as problems are attributed to the wrong cause, the issue will not be addressed. In fact, regulators (e.g. Basel-II accord) and central banks (FED and ECB mainly) have made a lot of decisions that were significant factors in the credit crisis of 2007 and governments (US and EU) have consistently neglected to work a decent balance during benign economic conditions.

A correction: when I said they were short term in their outlook, I meant in the future. Of course, their analyses take into account their past history over the long term, as this gives a clue over future reactions.

I had not understood this otherwise. Yet you fail to address my assertion that rating agencies measure their performance not on 12-months horizons but over decades.

Take UBS for example, which was saved from bankruptcy only by a government bail-out (which they have since paid back with interest) mainly because of their exposure to US mortgage excesses. They have made a colossal effort to get out of a hole. UBS, Switzerland’s biggest bank, has a long-term rating of Aa3 at Moody’s, and a proposed, on the watch-list, three-level downgrade would reduce it to A3, the fourth-lowest investment grade. Yet they made a zillion CHF profit in 2011. Their 2 billion CHF of 3.125 percent notes maturing in 2016 have an above-par selling price. They are proposing a dividend payment of CHF 0.10 per UBSN share to be ratified by the AGM next month, the first dividend for four years. To me, that does not sound like a bank in dire straits justifying Moody's proposed three-level downgrade.

Wow, are you misinformed. Let's say they get rated A3, do you know what that means? That is about a 3.7% probability of default in 10 years time (in their opinion, Moodys). How is that 'dire straits'?

As Moody's puts it: "Obligations rated A are considered upper-medium grade and are subject to low credit risk." or S&P: "Strong capacity to meet financial commitments, but
somewhat susceptible to adverse economic conditions and changes in circumstances"

Yet this same bank, at its worst moment, had a much higher rating than the Hellenic Bank, which has never been in trouble and has had only one major loss of about 6% of its investment portfolio due to the Greek haircut.

I'm not getting into this. Read their reports in which they present their opinion. Many factors may play a role here: implicit government support (and the rating of that sovereign), other exposures (huge bad loan book), economic environment, refinancing flexibility etc.

At a country level, I can also quote Cyprus' junk rating, which was announced well after Noble (a US company) announced natural gas findings of 3-10 tcf, since narrowed to 5-8 tcf with probable major findings of both oil and gas in the country's EEZ, confirmed with a test drilling? The confirmed gas field alone is worth over 50 times the whole of the country's debt and infrastructure is being built as I write, yet the country is junk by Noody and S&P (not Fitch).

In revenue perhaps, but how much will accrue to the sovereign? It requires investments and operations, those cost money. Not Fitch? Indeed, BBB- by Fitch, Ba1 by Moody's, a 1-notch difference.

Makes no sense except as a manipulatory weapon.

Yet, you fail to provide a single case where a rater or involved employee has benefited from manipulation. You fail to demonstrate bias in issuer-pay rating agencies relative to subscriber-pay rating agencies (and in the case of sovereign ratings, neither are issuer-pay). The fact that you do not agree (or understand) the analysis supporting their opinion does not make their ratings a manipulatory weapon, no matter how often you repeat yourself.

I wonder, what reasonable, feasible, objective fact could convince you you are wrong?

[Brian Ellis]

Just Google 'rating agencies wrongdoing' and then tell me they are all as squeaky clean as you pretend, on both sides of the Atlantic, after reading the links of the first 2 pages of the 234,000 hits. Many of them show downright fraud including cover-ups, with whistle-blowing by ex-employees and SEC accusations.

Squeaky clean? My foot!

[Umfriend]

Thanks for wasting my ducking time Brian. I have spent some time finding evidence against my case. I found 219000 hits in Google and looked at the first ten. Hope you understand.
1.http://www.internationalfx.com/News/...ind-wrongdoing - accusations, no proof or fact supporting claim except interested parties dislike outcome of rating process.
2. Same.
3. Video I cannot watch atthis time.
4. Liverpool university saying "However, statistical tests can always be contested. With this in mind, it is rather unlikely for the EU watchdog to conclude, beyond a reasonable doubt, any wrongdoing by credit rating agencies, let alone impose any sanctions. What the watchdog's investigation can definitely do, is put pressure on credit rating agencies to increase transparency and avoid misinterpretation." - wow, what a surprise
Skipping to #7: http://news.firedoglake.com/2010/04/...ting-agencies/ - this one unwillingness look at. The author is factually wrong in any case but some of the material may be damning
#5, 6, 8 to 10: accusations, nothing even remotely bearings relevant fact.

"climate change fraud" yielded over 23 mln hits. Have a nice day...

[Umfriend]

Thanks for wasting my ducking time Brian. I have spent some time finding evidence against my case. I found 219000 hits in Google and looked at the first ten. Hope you understand.
1.http://www.internationalfx.com/News/...ind-wrongdoing - accusations, no proof or fact supporting claim except interested parties dislike outcome of rating process.
2. Same.
3. Video I cannot watch atthis time.
4. Liverpool university saying "However, statistical tests can always be contested. With this in mind, it is rather unlikely for the EU watchdog to conclude, beyond a reasonable doubt, any wrongdoing by credit rating agencies, let alone impose any sanctions. What the watchdog's investigation can definitely do, is put pressure on credit rating agencies to increase transparency and avoid misinterpretation." - wow, what a surprise
Skipping to #7: http://news.firedoglake.com/2010/04/...ting-agencies/ - this one unwillingness look at. The author is factually wrong in any case but some of the material may be damning
#5, 6, 8 to 10: accusations, nothing even remotely bearings relevant fact.

"climate change fraud" yielded over 23 mln hits. Have a nice day...

Ah, okay. Yes, rating agencies probably tucked up big time. That relates to:
-Alt-A and subprime - US mortgages during 2005-2006/7 and
- CDOs and derivative preoducts like CDPOs.

None of this, however reflects on sovereign or corporate ratings. Moreover, this appears to be limited to the US wrt mortgages only and CDOs mostly. Meanwhile, analysts and fee-negotiators have been split by Chinese walls. Sometimes annoyingly so.

But even in these cases, rating agencies may have had their "opinions" influenced by commercial for considerations. No insider trading or market abuse accusations are made even by Kevin. Much like pundits may change their tone to placate advertisers.