S&P Report on Subprime Write-downs
While there is plenty of blame to go around in the entire banking debacle, let's not forget who the key enablers were: The rating agencies. Their business model is a modern form of payola, with bond underwriters as customer #9. This allowed them to slap triple AAA ratings on the paper held by firms such as Bear Stearns.
When you consider just what a criminally negligent job they have done in covering nearly everything, from sub-prime infected RMBS to all manner of derivatives, to the duolines themselves, it is really beyond comprehension.
Last week, we heard from S&P, who opined the end was in sight for the sub-prime write downs. Are these guys really the best messenger for this?
(I may have to change the name of this blog to The Big Schandenfreude)
Which leads to this advert, circa 2005. Its a classic:
>
If anyone can scare up the full report, send it to me @ Yahoo . . .
See also:
States and Cities Start Rebelling on Bond Ratings
JULIE CRESWELL and VIKAS BAJAJ
NYT, March 3, 2008
http://www.nytimes.com/2008/03/03/business/03bond.html
Thursday, March 20, 2008 | 11:30 AM | Permalink
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http://www2.standardandpoors.com/portal/site/sp/en/us/page.article/4,5,5,1,1204834027864.html
http://www2.standardandpoors.com/portal/site/sp/en/us/page.article/4,5,5,1,1204834028416.html
These caused the big bump in the markets last week I believe.
Posted by: Cal | Mar 20, 2008 11:43:34 AM
I understand and agree. I could not believe that when S&P said that last week the dow rallied 100 points!
Do, folks not consider the source????
What I have to ask though. When are we going to get angry about crap like this? Push for change for quality data? Do we have to wait until a complete collapse? Do we have to set ourselves up for a decade of hard times, before we care enough to fix this kind of thing?
Posted by: Ralph | Mar 20, 2008 11:47:16 AM
It's like the kid who's spent all day riding the roller coasters, and now they don't want to go home when the amusement park is closing.
Posted by: Taylor | Mar 20, 2008 12:01:19 PM
Hi,
it is: "Schadenfreude", from :
"der Schaden" (damage, injury, loss, harm) and "die Freude" (pleasure, joy, delight) as in Beethoven's Symphony No. 9 "Ode an die Freude" ("Ode to Joy"), a poem by Friedrich Schiller.
So "The Big Picture" becomes "Die Große Schadenfreude"
Barry, fantastic blog, fantastic work!!!!
Vielen Dank!
Posted by: Herman the German | Mar 20, 2008 12:01:31 PM
Take a look at the SPX markets folks......although this was used as the reason the market was juiced upwards you have to look at HOW.... not the why.
Every single "rally" (with the exception of blatant market manipulation ala sticking it to shorts on options expiry week at least 4 times that I recall) has it's basis in SPX markets. Is it any coincidence that the BSC story was dropped on the market when the bulk of reactionary selling would be absorbed by the futures market?? Not a chance.....the indexes never dropped below the futures low from the night before.
This is totally telegraphed and managed.....one more to think about...was it a coincidence that the Fed happened to schedule it's latest Policy statement on the very day Goldman delivers what it called earnings?
Apparently inflating the value of bonds while having to write down mortgage obligations is OK as long as Mr. Market is not surprised.....
And yet all this information is available in the filings over at the SEC but apparently no one seems to read them or understand them at all...........well I do.
Ciao
MS
Posted by: michael schumacher | Mar 20, 2008 12:06:33 PM
Is it just me, or do the credit markets look to be under increasing strain again today.
TED Spread at 2.21, 3 month T-bill way low...
Posted by: American ZIRP | Mar 20, 2008 12:07:29 PM
The ratings agencies? Come on now... how do you expect somebody to 'guarantee' bond or investment vehicle performance for a fee? If they were certain, they'd move to the equity position, not to the fee position. The risk goes to the equity position.
The blame goes to the investors - they are responsible for checking what they bought and the risk that goes with that.
Posted by: wally | Mar 20, 2008 12:07:45 PM
ZIRP-
No it's not just you....
http://www.bloomberg.com/apps/quote?ticker=.TEDSP:IND
Not lost on me either..as BR said a day or so ago....."if that does'nt do it nothing will"...
It's not "doing" presently.
Ciao
MS
Posted by: michael schumacher | Mar 20, 2008 12:16:50 PM
TED >2.00
Nothing to see here. Move along. All's well. Fannie and Freddie have rescued America.
Posted by: Donkei | Mar 20, 2008 12:19:49 PM
So...can the Fed keep the SPX above 1270 for the whole recession? :)
Afterall, Dick Bove says "everyone back in the water!" I kid, but...
Posted by: American ZIRP | Mar 20, 2008 12:41:59 PM
for you Johnny Cash fans:
"how high is the Ted Spread mama?"
2.1 and risin'
Feel free to repeat over the course of the next three weeks.
Ciao
MS
Posted by: michael schumacher | Mar 20, 2008 12:48:00 PM
As John Foggerty says: It's deja vu all over again.
Like the other great debacle of this decade, Iraq, those who instigated, promoted, cheerlead, profited from and are responsible for this crisis, will escape unscathed from this and will not only be welcomed to continue to spew their B.S., but be sought out to offer us their sage advice.
Posted by: edhopper | Mar 20, 2008 12:51:48 PM
Two things:
(1) I've decided that ratings only work as a lagging indicator. "Past results are not indicative of future returns." Now the implications for this are much broader, but that's a separate discussion.
(2) Why is everyone convinced that the fed can "run out of ammo"? Why aren't negative interest rates possible?
Posted by: Ivan Y | Mar 20, 2008 12:51:55 PM
And the award for "having a firm grasp of the obvious" goes to the ECRI:
The United States is "unambiguously" in a recession, a New York-based forecasting group said on Thursday, citing a nine-month decline in its weekly measure of the economy.
Why do they tout their "weekly leading indicator" when they announce the recession when we are unambiguously in it?
Sounds like a coincident indicator to me.
Posted by: American ZIRP | Mar 20, 2008 12:55:33 PM
Ivan Y,
(1) I believe the ratings agencies explicitly state that their models are based on historical information.
(2) In theory, nominal interest rates could be made effectively negative by, for example, levying a temporary "stamp tax" on t-bills.
Real interest rates can be (and currently are) negative any time rates < inflation.
Posted by: Estragon | Mar 20, 2008 1:01:57 PM
Question (OT) for the good folks here.
I've been considering using something like Everbank where you can get CDs in currencies other than the dollar. I already have precious metal hedges, a small store of physical cash (dollars), and a nice toe hold in the market, but this would seem to be a decent way to curb the Fed-a-licious inflation dollar freefall that is in full effect these days.
My question to you folks is what are good currencies that will hold up well against a weakening dollar? Euros seem overpriced a bit, is the Canadian Looney a good bet, the Swiss Franc? I'm afriad I'm new to using other currencies for this purpose.
Any advise is appreciated, thanks.
Posted by: zot23 | Mar 20, 2008 1:13:20 PM
I love it that Buffett, the guy who calls derivatives financial weapons of mass destruction, is Moody's biggest shareholder. It gets even better because Moody's rates ABK and MBIA, competitors to Buffett's new muni insurance company.
Posted by: Don | Mar 20, 2008 1:14:13 PM
Ivan Y,
More on negative rates:
And in reality,
Posted by: Estragon | Mar 20, 2008 1:16:13 PM
Are the guys real Wall Street Pig Men or are they models?
Posted by: JL | Mar 20, 2008 1:18:40 PM
Zot23,
You can also use the likes of FXC (loonie), FXE (euro), and FXY (yen), or trade currency directly through the likes of Interactive Brokers.
The loonie is vulnerable to a pullback with the energy/commodity complex and spillover from the US slowdown in the near term.
Posted by: Estragon | Mar 20, 2008 1:24:58 PM
Subprime?
Ratings Model?
Negative Interest Rates?
Recession?
F That...
OP Expiration? Yeah...That's the ticket....
Nothing to see here, just move along.....
Posted by: MarkTX | Mar 20, 2008 1:56:39 PM
But they're so well groomed and tailored!
Posted by: cathompson | Mar 20, 2008 2:12:40 PM
This ad refers to their bank loan recovery analysis. Though they have bungled immensely in rating structured products, their analysis of Bank loans is still universally respected.
In the old days people focused on default risk and largely ignored recovery analysis. S&P's work has helped to change that. I don't think the entire organization should be painted with the same brush.
Posted by: EV | Mar 20, 2008 2:58:58 PM
Hope nobody's eating, but the guy on the left looks like he's on the commode.
And straining.
Posted by: Douglas Watts | Mar 20, 2008 3:02:58 PM
In my opinion the failure of the ratings agencies is a major cause of the credit crisis. Not only did they fail to appropriately rate mortgage backed securities to begin with, they are continuing to fail to downgrade them in a timely manner. Moreover, they failed to accurately rate the monolines and they failed to accurately rate Bear until after it collapsed. The rating agencies, in theory serve a valuable function, allowing investors to feel confident in a security or company without doing extensive research. Without reliable rating agencies, institutions and investors must do extensive reserch prior to any investment. In this way, the unreliability of the ratings agency has done much to freeze credit markets and make investors cautious in their purchase of equities.
Posted by: William Roth | Mar 20, 2008 3:36:25 PM
