A new phase in the bond markets' War on Europe opened Friday as Fitch dropped Spain from an AAA to an AA+ rating, prompting equity market declines and renewed pressure on Spanish bonds.
Aside from the sell-offs, the predictable result will be higher interest rates for loans to Spain and thus the move, taken by people who have no stake in that country and whose friends may be selling it short on the side for a windfall, effectively robs the Spanish people of more of their wealth than they might have otherwise lost.
Somewhere down the chain, this puts people out of work, out on the street, and into earlier graves.
A common definition of terrorism is "the use of violence and intimidation in the pursuit of political aims." It applies here, and I use it advisedly, aware of how promiscuously the word has been thrown around. Have bombers demanded more victims than banksters?
The terrorists delivered their demand note through the press as follows:Fitch downgraded Spain's credit rating to AA-plus, and said it expects the country's adjustment to a lower debt level will materially reduce its rate of economic growth over the medium-term.
Fitch cited an inflexible labor market and a restructuring of regional and local savings banks as hindrances to the pace of adjustment.
Source: "Stocks slide, euro falls after Spain downgrade," Reuters, Friday May 28, 2010.
http://www.reuters.com/article/idUSTRE64K0JX20100528?type=ousivMoltThe wording is taken from Fitch's front page at www.fitchratings.com. The actual report, despite its impact on a whole nation, is subscriber-only.
Fitch is one of the instruments by which the global capitalist class finds a voice that can issue commands to the nations of the world. In this case, Spain is threatened that it had best ease restrictions on firing Spanish workers and cut their benefits, and is is being told how best to organize its banking sector.
Or else.
Adding insult to injury, Spain's adjustment to a lower debt level was itself a response to pressure from the bond markets, capitalist ideologists, and EU deficit hawks.
How the Racket WorksCalls go out to reduce Spanish debt, the market pressures Spain, Spain complies with budget cuts. The analysts call the budget cuts deflationary. Again the markets pressure Spain. Debt service rises, further austerity measures follow. Everyone whose country is not yet bankrupt complains about any accompanying 'bailouts.'
That includes the banksters, whose many years of regulatory capture, fraud and recklessness set off capitalism's greatest crisis back in 2007-2008. Their many 'bailouts' around the world required only brief periods of extortion, for they were 'too big to fail.'
The bankster bailouts and the bankster-caused economic depression in turn forced many nations into higher sovereign debt. Now the ingrates turn around and decry the sovereign debt that they helped cause.
This creates a rich target environment for the hedge-fund bond vigilantes. They look around the globe for which currency, which country to short next. Right now, they are working over Europe.
They do so for no better reason than that fortunes can be made by using Europe's genuine troubles as the excuse to short the hell out of it. Never mind that this only makes everything worse for Europe. In the end, it may turn out Spain is not 'too big to fail.'
In short, money talks, bullshit walks, and that's the greatest problem that we the peoples have yet to confront.
The fiscal hardliners in France and Germany keep driving the process, ironically forcing their own major export markets in southern Europe to deflate their economies.
Even if the Germans and French were to wise up and decide to fight back before the wave of recession and danger of default finally hits home, Europe lacks many of the necessary means of defending itself in this war, as euroland policy cannot be coordinated across the board.
For a primer on the initial phase of the attack, in Greece, see "Essay: Let us reject the anti-Greek mythology..."
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x8416528Now let's take a closer look at the special role of the ratings agencies.
Fitch and the Financial Terror RacketThere are those who will reply that my views of the events are hyperbolic and unfair to the capitalist classes. One of their arguments will be that Fitch is merely exercising its free speech rights in announcing publicly what it believes about Spain.
Spain after all is heavily indebted and potentially insolvent. Should Fitch say otherwise?
Some have even argued a ratings agency downgrade is like the routinely negative economic trash talk here on DU, just more influential.
Such statements disregard several important facts about Fitch and the other two major ratings agencies, Standard & Poors and Moody's, and their role in the global financial rackets.
In the following list, the first few items may seem like unpleasant but legal facts of life that we cannot change. But please read on and take note of the three conflicts of interest inherent in Fitch's business model:
1) The word of the ratings agencies moves markets. Friday's market turmoil was the latest of literally thousands of confirmations.
2) This isn't even necessarily because the ratings agencies are so smart and the markets take them seriously. It is a predictable crowd effect. All players understand that a ratings agency downgrade acts as an impulse around which bets inevitably will be made. The creditors of a downgraded entity's debt may use it as a reason (or pretext) to go break some knuckles, raise rates, call in debts.
3) Thus a ratings agency is among the entities that serve as maestros for the market chorus.
That is a hell of a conflict of interest for an entity that earns the bulk of its living directly from the major market makers.4) To repeat an important point, Fitch very likely has raised for a time the interest rates Spain must pay, although Fitch is not a lender, it is not an official authority. Furthermore, Fitch may not and need not be involved in Spain at all.
(
Except for an office in Madrid which might get to see a big crowd outside its doors on Monday at Calle General Castanos 11, 1st Floor, Madrid, Managing Director Rui Pereira, phone +34 91 702 4612, fax +34 91 702 4620.)
5) Now the fun really begins. What is the business model? Fitch and the other two make money by serving private financial-sector clients who pay ratings agencies to rate the instruments they issue. Thus when Fitch announces a rating for one of its' clients instruments, it engages in commercial speech, at the request of the client who hired it.
The second inherent conflict of interest is self-evident.6) Spain and other countries are not paying Fitch to rate them and announce the results under its "free speech" rights.
This makes for a third inherent conflict of interest, in that Fitch has no incentive to please Latvia, Botswana or Uruguay. It merely has a completely unnacountable form of power over these countries. At the same time, its business comes from private entities that may have interests antagonistic to these countries.
7) This is a great set up for insider trading. Anyone who could get Fitch to tweak its ratings, or who merely knows when a ratings downgrade will be announced and is in a good position to trade accordingly -- for example, all of Fitch's major clients, the banks that have their own desks for Fitch and deal with it every day -- could make amazing fortunes.
Of course, I make no accusations. I merely note the possibilities. In the absence of evidence of such trades, this is baseless speculation! Chastise me with whips and scorpions!
I mean, maybe it would be all right to speculate if Fitch and Co. had a past record as participants in fraud. But it's not like they should be viewed as criminal organizations per se. Moody's is not the Mafia!
Oh. Wait a minute.
8) Fitch and to an even greater extent Moody's and S&P took part as players in the greatest financial fraud in history by dollar amount: Wall Street's securitization, derivitization and relentless cloning of subprime debt instruments in 2002-2007.
Perpetrated mainly by a class of traders and executives at major New York-based and London investment banks, this fraud generated the financial meltdown that
- first manifested in August 2007,
- saw its preliminary climax in September 2008,
- was interrupted by the banking "bailouts" and the suckers' market of 2009-10,
- and now appears to have resumed with a vengeance.
And the ratings agencies were at the heart of the fraud.
There was one main reason why Wall Street banks were able to
- buy a seemingly endless stream of high-interest junk-mortgage loans from predatory lenders in the United States, at a time when housing prices would go up forever because this time is different,
- package these into impenetrably dense securities containing fragments from thousands of loans,
- and sell them as though they were good investments to pension funds, other banks, municipalities, insurance companies, and the suckers of the world.
The reason is that Moody's, S&P and Fitch, the respected ratings agencies hired by Wall Street banks to examine and rate these junk instruments, obediently gave AAA ratings to thousands of these, often mere months before they failed.
The AAA Equations: No Quants Required
No AAA rating on junk securities = far fewer suckers to buy junk = lower demand = less incentive for Wall Street to produce junk = lower demand from Wall Street for subprime mortgages from predatory lenders = less incentive to make predatory loans to house-buying suckers from the lower classes = fewer defaults when the housing market contracts = less economic misery on the ground in the US today.
No AAA rating on the junk = fewer sales of the junk = less market heat around subprime securities = fewer derivatives and clones = a much smaller financial house of cards = less severe crash when the housing market contracts = less severe misery for investors around the world = less economic misery in the world.
Moody's, S&P and Fitch get rich by helping to generate more economic misery in the world.
Backlash?As we have been learning, slowly, from Congressional hearings, occasional exposes, whistleblowers and, of late, prosecutorial briefs, it was common knowledge at these institutions that they were engaging in fraud.
Ratings analysts were not examining the instruments they were rating. In fact those who did were discouraged, because there were more bonds than ever to rate, and business had never been so good, and giving an actual junk rating to junk might make Goldman and Bear and the Brothers go away.
When Wall Street brought the junk around to Moody's and Fitch, a higher rating than it deserved was a foregone conclusion.
If they were willing to take part in fraud on that scale, there is reason to investigate them for everything else they do. Such an organization is unlikely to be committing only one crime at a time.
So why are these fuckers all so likely to get away with it? That's the beauty of dispersed responsibility and compartmentalization. The greatest crime in capitalist history (in dollar value) was perpetrated not by individuals, but by a class of individuals who each fulfilled merely one part in a chain of fraud production that arose semi-organically. All knew to take the money and cover their asses.
This is also how the mafia works, and was able to work to such great advantage for so many years: Thanks to the dispersal of responsibility among different fronts, limited liability entities and role players, most of whom didn't even want to know more than they needed to know. It was nearly impossible for prosecutors and the FBI to pin the crimes on the family chiefs and capos.
This is why the federal government finally devised the RICO acts, which allow proven members of criminal organizations to be convicted for crimes committed by other members. It would be a pleasure to see these applied to the banksters.
Unlike the mafia, however, the banksters are protected by a powerful legitimating ideology that until now had widespread acceptance:
The unregulated free market is best, only traitors to America think otherwise, God prefers it. Greed serves higher interests, it's good to be rich, rich is sexy, everyone wants to work for Goldman, your value is your income, you only hate it if you're a loser. Wall Street funds America, it is indpendent of the government, it generates wealth for everyone else, it allocates capital more efficiently than the public sector or a bunch of hippies on the town council, and it is bringing development and wealth and jobs and lots of goodies to every poor country on earth. Taxation robs wealth from those who create it, government spending maintains the lower class as freeloaders. Europe is full of communists.The banksters also are a lot more powerful than the mafia.
At the end of the 20th century, they used their influence to repeal the laws against the crimes they committed in the 21st.
Thus their collusions and corruptions could be committed in the open, or at least be visible to anyone who can afford a Bloomberg machine -- or a Fitch subscription plan!
Goldman's traders can claim they believed their own bullshit analysis, or merely did what their clients wanted. The executives of these large institutions, as we have seen in their Congressional testimonies, can claim they were too high up to know shit from shinola. They're very sorry, by the way.
Hedge fund managers who created the derivatives bomb can say they were only able to place their bets because suckers were willing to take the other side.
And so almost all of them keep their plunder and their positions and can continue their class war on the world.
If there is a weak link that can begin to unroll the bankster complex and start getting some of these furries into Supermax, it is at the ratings agencies.
The excuses end with the raters who announce themselves as independent, neutral, third-party auditors. The same entities that today are playing a spearhead role in the bond markets' offensive in Europe, and who not so long ago knocked down California and are no doubt planning a return visit to the Golden State.
Shut them DownEvery day you hear about how the government seizes properties from persons and companies suspected of crimes. Beyond the ACLU, there isn't much outcry in these cases of due process for drug dealers. The drug dealers are not 'too big to fail.' Apparently, they are more of a disaster than the Gulf oil spill, which isn't going to result in the seizure of BP. They are more of a national emergency than the banksters, who engaged in these frauds and continue to wage an international class war.
Iceland Jails Top Bankers, Why Can't New York AG Do the Same?http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x8328133Prosecutors Ask if 8 Banks Duped Rating AgenciesBy LOUISE STORY
Published: May 12, 2010
The New York attorney general has started an investigation of eight banks to determine whether they provided misleading information to rating agencies in order to inflate the grades of certain mortgage securities, according to two people with knowledge of the investigation.
http://www.nytimes.com/2010/05/13/business/13street.html?hp ...BLUMENTHAL SUED THE RATERS -
CHECK OUT THE PUNCH-LINE AT THE END OF HIS PRESS RELEASE(This is a public domain document, quoting is not limited.)
Attorney General Sues Credit Agencies For Tainted Ratings That Enabled Financial Meltdownhttp://www.ct.gov/ag/cwp/view.asp?A=2341&Q=456804Attorney General Richard Blumenthal today sued two of the nation’s largest credit rating agencies -- Moody’s and Standard & Poor’s -- for knowingly assigning tainted credit ratings to risky investments backed by sub-prime loans. Blumenthal said Moody’s and S&P’s alleged misconduct enabled the worst economic downturn in the nation since The Great Depression. The lawsuits, unique and unlike others filed on behalf of specific investors or pension funds, are sovereign enforcement actions brought under the Connecticut Unfair Trade Practices Act.
Despite repeated statements emphasizing their independence and objectivity when rating structured finance securities, Moody’s and S&P knowingly failed to live up to their representations. In particular, their ratings on structured finance securities were tainted by their desire to earn lucrative fees. Moody’s and S&P knowingly catered to the demands of investment banks and other large issuers of structured finance securities in order to increase their own revenues. As a result, many structured finance securities that contained a great deal of credit risk undeservedly received Moody’s and S&P’s highest ratings, Blumenthal alleges.
SNIP
“Moody’s and S&P violated public trust -- resulting in many investors purchasing securities that contained far more risk than anticipated and that have ultimately proven to be nearly worthless. The results have been catastrophic -- crippling the entire economy.
Today’s lawsuit seeks an order stopping Moody’s and S&P from deceiving consumers, as well as civil penalties and disgorgement of ill-gotten profits.” Structured finance securities have been the centerpiece of the national financial crisis. They are financial products whose value is derived from a stream of revenue flowing from a pool of underlying assets -- assets most commonly backed by residential mortgages, including subprime mortgages. They can also be backed by other assets such as student loans and credit card balances. Moody’s and S&P dominate the ratings market for structured finance securities -- and are responsible for rating virtually all structured finance securities issued into the global capital markets. Investors and other market participants rely on Moody’s and S&P to fulfill their stated promise of independence and objectivity.
SNIP
Blumenthal said Moody’s and S&P’s lack of independence and objectivity, violating the Connecticut Unfair Trade Practices Act, has manifested itself in several ways, including:
Moody’s and S&P modified rating methodologies to make more money: In short, in direct contrast to their public representations, and unbeknownst to investors and other market participants, Moody’s and S&P’s rating methodologies were directly influenced by a desire to please their clients and enhance their own revenue. Assessing actual credit risk was of secondary importance to revenue goals and winning new business.
Ratings shopping: Issuers unhappy with a credit rating agency’s initial analysis can attempt to influence the process by informing the rating agency of a more desirable rating that one of its competitors is willing to assign. As a result, the rating agency knows that it must meet its competitor’s rating or forgo the revenue altogether. Both Moody’s and S&P knuckled under to this pressure and allowed it to influence the ratings they assigned to structured finance securities.
SNIP
Today’s action is distinct from Blumenthal’s ongoing litigation against all three credit rating agencies -- Moody’s, S&P and Fitch -- that was filed in July 2008. The earlier lawsuits allege that the agencies knowingly gave state, municipal and other public entities lower credit ratings as compared to other forms of debt with similar or even worse rates of default. Those cases remain pending.(And then Blumenthal went and blew himself up, not quite as fatally yet as Spitzer. But one wonders. Andrew Cuomo had best stay out of high-end bordellos and not talk about Vietnam.)
A Gem From The Eve of the Meltdown:Fitch says confident in "AAA" subprime ratings
NEW YORK
Wed Jul 18, 2007 11:31am EDT
July 18 (Reuters) - Subprime mortgage bonds carrying the highest, "AAA," rating have not eroded in quality despite price declines in the securities in recent days, Fitch Ratings said on Wednesday.
Bonds
"We continue to be confident that "AAA" ratings reflect the high credit quality of those bonds," Glenn Costello, co-head of Fitch's residential mortgage group, said on a conference call. The top-rated bonds are designed to withstand a very high percentage of defaults, he said.
Fitch, Standard & Poor's and Moody's Investors Service last week roiled debt markets by announcing downgrades or potential cuts to bonds and collateralized debt obligations backed by subprime loans. Using new rating criteria that boosts default expectations, Fitch said it may take rating actions on at least $7.1 billion in low-investment grade debt, and about $803 million in CDOs.
A benchmark index of "AAA" rated subprime bonds dropped last week as investors speculated losses would not be isolated to the riskier, "BBB" rated bonds.
http://www.reuters.com/article/idUSN1831999120070718Prior Threads:
Moody's Prepares Financial Terror Attacks on US and World - Time to Shut Them Downhttp://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x7922092#7923431 Now the Wall Street mob come to rob the very same nations and states who rescued them of a few interest points more, and to destroy and discredit any and all entities or people who may have the power and inclination to resist them.
It is only the latest price we pay for that cowardly act of appeasement by the leaders in Washington, Republican and Democrat, in September 2008.
Turn on your TV, and you can see propaganda spots for Bank of America and Citi, paid by your taxes and the cheapening of your currency that allowed the Fed to flood them with cash. Read the gossip pages, and you can find out how the leading criminals are enjoying their latest round of bonuses. Paid by you. Watch the news, and you will see evidence of their lobby’s latest successes in Washington, and again the lobbyists are paid - millions - by you, to screw you. Banking regulation? That has to go through legislative bodies filled with the paid servants of the banks, and even if some minor restraint does come out of the process, it will take years.
Meanwhile, Moody’s can downgrade a country in less time than it takes for Madam Speaker to read the title of a bill. Soon as it is spoken, their decree has the force of a natural disaster.
California, the United States, Greece and the EU should not be living in terror of Moody's.
Moody's should be living in terror that the law enforcement is going to knock down their doors and seize their files - tomorrow morning could not be soon enough.
Nations have been whores to capital long enough. They've given everything, and capital demands more, and more, unto their death. Real change will never happen except by socialism. Start by expropriating the banks.http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x7777568