Mistakes are high
If insanity is doing the same thing over and over again and expecting different results
Then calamity is clearly what these guys are all about
It doesn’t make you a Luddite to say
“Well, with hindsight, our confidence in the ratings agencies was totally misplaced”
Does anyone else remember the way
That they acted yesterday?
They said to put your mind at ease with a few of these mortgage-backed securities
Good enough for your Lloyds TSB’s
Endowment funds at universities
And public sector retirees
Whose pension funds are intentionally designed not to invest in anything under a couple of B’s
And then, low on gumption, they made the false assumption
That all Eurozonia was fit for consumption
Served on a plate with a scotch at a luncheon
Whatever
Just triple A it
It doesn’t matter of what it consists
Or what it means for our parents and kids
Capital flows distort supply and demand
The price of the wheat and the price of the land
Banks act like they can increase their profits without increasing their risk
But leverage drowns in risk like crustaceans in bisque
A little whiff of Fitch saying “Greece is this way… and you’re late”
“It’s a fine time to play, the countries in the Eurozone have one blanket interest rate”
But the reality on the ground was different in different states
Acting as bait for straggling hedges
Club Med debt shorted to induce default
I guess it probably wasn’t triple A in the first place, but it certainly isn’t now
They haven’t even faced a fine
3 bedrooms in Liechtenstein
And one or two in Rome cost a dime
But no quarter for Italy
For me, it just beggars belief that people continue to take their nonsense literally
From John O’Groats to the Aegean Sea
People pay for this service, it isn’t free
And now NHS hospitals will be rated apparently
Seriously
I thought I saw them say it on TV, and I corroborated it on the PC
Just type it in, you’ll find it easily
In both the Telegraph and the Guardian, 2012, January 19
A Thursday I believe
But clearly this is no rhyming matter
The only reason any of these guys should go anywhere near a public hospital
Is to receive medical treatment
(Or to be at the side of someone close to them)
Hospitals should not be incentivised to compete
They should cooperate to cure disease
That’s what it’s there for
Not to make back door profits for Group 4 Securicor
If I didn’t know not to assume
I would assume that they will profit in some way from the new NHS
They certainly had no reluctance
To inhibit competition by hiring former public servants from the Ministry of Justice
Honestly
I fail to see a P.O.V.
From which these sleazy agencies
Have any credibility
They couldn’t find value in the Louvre
But they’d value the gold in the tomb of Tutankhamen
Their methods can’t be disputed
Because they’ll view your criticisms with the same, spurious cost-benefit analysis
That has perverted the incentive structures in our public and private sectors
They represent the epitome of the falsehood
That we should act the same in a social or political situation
As we would in a commercial situation
That’s a key facet of financialisation
Criminonymous
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1
February 4, 2012 at 06:47 -
Absolutely brilliant.
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February 4, 2012 at 06:54 -
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February 4, 2012 at 10:09 -
“And public sector retirees, Whose pension funds are intentionally designed not to invest in anything under a couple of B’s”
In all but a few cases there are no pension funds in the public sector, the government, local authorities and NHS, Military are simply paid from revenue in hand at the time. The same way the National Insurance Scheme works. You pay your council tax, income tax, national insurance, public sector employee contribution and they simply use that money to meet the paper liability of the individual scheme members.
In the private sector an investment structured in this way is referred to as a Ponzi scheme and illegal.
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February 4, 2012 at 18:32 -
It’s not just about the UK though:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aW5vEJn3LpVw
Here, we have two problems: firstly, the misselling of financial products by investment banks; secondly, the ratings agencies were complicit in this farce by rating these products AAA (I’m talking about collateralised debt obligations, and other types of mortgage-backed securities).
Worse still, investors tended to trust these guys, and assumed that their ratings actually reflected the potential risk of these products. Many pensions funds, both public and private, were able to (and were convinced to) pour money into these things. Even though many of them are not allowed to invest in anything below BBB or low-A’s, they ended up losing millions of employee pensions because the ratings did not reflect the reality.
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5
February 4, 2012 at 14:16 -
It wasn’t the credit agencies or the banks which created the crash.
It was politicians dictating that economic laws could be ignored, borrowing and spending vast amounts of other peoples money while creating an artificial boom with excessively low interest rates.
This crash was made by politicians. They engineered the debt bubble and called it prosperity. They gave the Greeks access to other peoples money, they tried to smother all problems with lower interest rates and dollops of money borrowed from China.
And then they turn around and blame the ratings agencies and the banks.
That’s rubbish, it is a cheap diversion tactic.
If you really want to know why Europe is in an economic crisis than say the word ‘EURO’ until you say that word, nothing you say or write or think makes any sense.
This crisis was made by the EURO.
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February 4, 2012 at 18:44 -
Even if all of what you say is true, it does not take away from the fact that commercial banks, investment banks, ratings agencies and insurance companies took part in widespread fraudulent activity.
Regarding the European sovereign debt crisis, I can understand the argument that the Euro led to artificially low interest rates in countries such as Greece, precipitating an enormous bubble. But at the same time, the ratings agencies took steps to confirm this falsehood by rating their sovereign debt too high. In this sense, they were complicit in keeping interest rates for investment in Greece artificially low.
This is not a denial of the role of politicians. It is true that government and central bank policies have contributed significantly to the sovereign debt crisis. However, it is also important to stress the role of the financial sector and the ratings agencies in fraudulent lending practices, incompetent ratings and, most importantly, the build up of leverage in the financial sector.
Check out this chart from Morgan Stanley:
http://articles.businessinsider.com/2011-12-04/markets/30473957_1_household-debt-uk-safe-haven
I mean, shit. I find it difficult to agree with the idea sovereign debt is our biggest problem right now…
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February 4, 2012 at 19:24 -
Is not most UK hosehold debt secured against tangible assets (most notably, mortagaes on property)? Sovereign debt is secured mainly against (less secure) future tax receipts.
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February 4, 2012 at 20:00 -
“I find it difficult to agree with the idea sovereign debt is our biggest problem right now…”……astonishing, you do realise that the UK debt is now north of one trillion for a population of 60 million and you cling tenuously to a AAA rating. Imagine how bad the situation is in Greece, Portugal and Spain, where unemployment is running 20%. Where will the government get its revenue and who will buy it’s debt to fund government services?
CH Ingoldby is correct, the biggest fraud has been perpetuated by governments and their central banks, governments issued fraudulent statements that the credit agencies based their ratings on. Central banks through the magic of fractional reserve banking create “money” from thin air devaluing your currency further. The ponzi scheme continues, your government pensions are funded by little more than the faint hope that the tattooed and pierced masses in the high street will continue paying taxes at a rate to sustain future withdrawals-good luck with that! Meanwhile the commercial banks and insurance companies look forlornly at the sovereign bonds they bought when issued at AAA that are now rated BB and hear the politicians talking of 80% haircuts, meaning your private pension investment will lose further money.
It is fashionable currently to sneer at investors making money, when the last productive sector of UK industry (banking and insurance) is driven from your shores will you then be happy?
The financial sector have indeed made many mistakes in recent years, and I fear we have not been told the full extent of the problems-derivatives, however they responded in the main to ridiculous political initiatives-think euro-based on little more than a hope that structural problems could be overcome by growth, which is a forlorn hope given European demographics and too many lining up for their government handout.
But don’t worry, when (not if) the crash comes, I’m sure the pretty pieces of paper in your wallet and the numbers on your bank statement screen will entitle you to a pat on your head from the government for being a good euro citizen.
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9
February 4, 2012 at 20:19 -
“you do realise that the UK debt is now north of one trillion for a population of 60 million”
Yes I realise this, I posted a link to a graph with this exact piece of data!
“Central banks through the magic of fractional reserve banking create “money” from thin air devaluing your currency further.”
Firstly, fractional reserve banking is engaged in by commercial banks, not by the central bank. Central banks do some very stupid shit, but they don’t make loans using their customer’s deposits in the same way that Lloyds/HSBC/Bank of America do. This is the preserve of commercial banks. What you are talking about is quantitative easing (i.e. the “printing” of currency by a central bank), which does indeed have a negative impact on the purchasing power of a currency.
Secondly, and to return to your first point, the main reason I am not persuaded by the focus on sovereign debt is that financial sector debt is several times higher (see the graph by Morgan Stanley on Business Insider that I posted earlier). This is, of course, partly to do with artificially low rates set by central banks, as you suggest. However, it is also due to the decisions made in the financial sector to overleverage themselves to the point where a) the institutions in question became unstable, and b) create a bubble in the price of whatever asset this cash flows into.
The point I would like to make is that the argument regarding the politicians screwing everything up is not mutually exclusive with the argument that the banks and ratings agencies screwed everything up. Take the fact that you talk about sovereign bonds – it took the politicians to sell them, the agencies to rate them and the banks to leverage their equity to buy them. All of this contributed towards the excessive leverage in our public and private sectors, as well as amongst households.
Also, had to comment on this: “too many lining up for their government handout” – I agree with you, there have been some who have taken over £1 trillion in handouts since 2007 in the UK alone, and over $10 trillion in the US – they’re called the banks!
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10
February 4, 2012 at 22:21 -
You seem to want to argue over terminology.
First, fact is fractional reserve banking is obviously practiced by central banks, nobody believes that the entirety of the bonds issued are backed by real assets (ie gold or even piles of copper). In fact their fractional asset often consists of a piece of paper, an IOU. So governments are much worse offenders.
Second, banks leverage their deposits to the extent that law (government) allows them.
Third, you agree that politicians sold sovereign bonds, in the case of Greece based on outright lies.
Fourth, banks lining up for bailouts, at last we agree, but had government allowed some bankruptcies and not forced reasonably well-run banks to absorb the basket cases the problems might be on the way to (admittedly a painful) resolution. This in no way excuses governments continuing ruinous and unaffordable social programs.
Perhaps you can see the common factor in these problems-central banks, lax government, fraudulent government and inept government. That does not mean that a few bankers should not have been locked up though.
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11
February 4, 2012 at 19:15 -
I find it difficult to agree with the idea sovereign debt is our biggest problem right now
Fair enough but sovereign insolvency IS the biggest problem now.
QE only defers the day when the first fat domino topples.
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12
February 4, 2012 at 19:45 -
In America, the root cause of the crisis was the political decision to make mortgages available to people with uncertain means of repaying them (so-called NINJA mortgages). A decision by politicians – no doubt with good intent, but with insufficient forethought about possible (arguably inevitable) consequences.
In the UK, the 2008 crisis was the result of confusion amongst regulators (BoE, FSA, Treasury) about who was responsible for what. That regulatory regime was a replacement for the straight BoE/Treasury regime, put in place by politicians to divide and rule – unfortunately, they forgot to rule adequately. There was undoubtedly hubris and greed in bank boardrooms, but it is almost certain that the mistakes that resulted would not have been permitted under the previous, simpler, regulatory regime.
The Eurozone ignored economic facts for political expediency. Certainly Greece, and probably Italy, Spain, Portugal and Ireland did not comply with joining criteria when they entered the Euro – so their joining was political expediency, not in accord with economic conditions.
Certainly the ratings agencies have made some mistakes, notably in grading financial derivatives based on Ninja mortgages as AAA, and there has been much rubbish from economic academics (notably about the Euro), but the bulk of blame for current Western economic woes must lie with politicians in America, in the UK and in the EU – they made the decisions.
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13
February 4, 2012 at 20:01 -
So Engineer, Mick, C H Ingoldby, 2Mac, Anna, Rogerh – irrespective of where you think the “bulk” of the blame is placed, or who is “more” or “less” responsible for these problems, does anybody think that the faith shown by investors in the ratings agencies wasn’t misplaced? Does anybody here object to what some have called the monopolisation of the credit rating industry?
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February 4, 2012 at 20:18 -
For me it simply isn’t that much of an issue. A ratings agency isn’t a guarantor so the onus remains on the lender to assess the credit risk for himself.
That said, there has obviously been a somewhat incestuous relationship between the agencies and the risks they were appraising but proper regulation of the sector should have seen to that.
So it comes back to the regulators and politicians, I’m afraid.
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15
February 4, 2012 at 21:00 -
Personally, I object to the credit rating industry, period. I object to the likes of Standard and Poor’s (and it amazes me that the large institutions with their own analysts don’t check what credit ratings agencies tell them more assiduously), and I object even more to the likes of Experian, Equifax and the like who rate individuals’ creditworthiness, usually on the basis that those with more debt they are CURRENTLY making repayments against are more credit-worthy than those with no debts at all. The whole set-up is totally cock-eyed in my view.
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