From the RampartsJunious Ricardo StantonRatings Services Cover Their Asses“NEW YORK (Reuters) - Standard & Poor's in a sweeping move on Monday that rocked markets cut ratings on a number of major U.S. securities firms including Lehman Brothers Inc and said outlooks on the large U.S. financial institutions are now mostly negative. Other major firms downgraded were Merrill Lynch & Co Inc and Morgan Stanley.”http://www.reuters.com/article/ousiv/idUSN0246031620080602In a long overdo and shocking move this past Monday Standard and Poor’s rating service lowered the ratings on several of Wall Street’s heaviest hitters. I suspect they are doing so to prevent further damage and trauma to investors but more so to protect themselves from future lawsuits and litigation. In a major economic crisis such as the one we are experiencing now, there are numerous culprits responsible for the massive mortgage and credit collapse that is rocking the US domestic markets and global economy. The Federal Reserve Bank a collection of privately owned banks who Congress gave permission to set US monetary, interest and credit policies is the prime perpetrator. But the collapse wouldn’t be this pervasive without the active participation and collusion of players such as Wall Street, the mortgage companies and brokers, insurance companies, the bond rating agencies, the media and the US government.One of the most crucial players in the massive fraud that has propped Wall Street in recent years has been the bond and financial rating services such as Standard and Poor’s, Moody’s and Fitch who colluded with Wall Street investment and brokerage houses and the shadow banking system (which is made up of unregulated hedge funds, derivatives and other exotic sounding schemes) to trick individuals and institutional entities such as mutual, pension and hedge funds into pouring their money in extremely risky investment vehicles. The rating companies have helped defraud millions of individual investors, mutual, pension and hedge funds out of their hard earned money by giving companies and investment banks like Enron or Bear Sterns, for example, favorable ratings when they knew full the accountants, bean counters and CEOs were using what George W Bu$h calls “fuzzy math”. They knew the books were cooked and the loans were high risk yet they turned a blind eye and deaf ear and gave them favorable ratings so they could get their commissions and fees.It is the job of the rating companies to analyze the ability of companies to meet their financial obligations, earn a profit and insure their investors get a good return on their investment. This means doing due diligence, researching and investigating the company’s, industry’s or government’s past history, its current financial status and projecting how well it can fulfill its responsibilities to its shareholders and investors. “Some financial analysts, called ratings analysts, evaluate the ability of companies or governments that issue bonds to repay their debts. On the basis of their evaluation, a management team assigns a rating to a company’s or government’s bonds, which helps them to decide whether to include them in a portfolio. Other financial analysts perform budget, cost, and credit analysis as part of their responsibilities. Financial analysts use spreadsheet and statistical software packages to analyze financial data, spot trends, and develop forecasts. Analysts also use the data they find to measure the financial risks associated with making a particular investment decision. On the basis of their results, they write reports and make presentations, usually with recommendations to buy or sell particular investments.” http://www.bls.gov/oco/ocos259.htmThese reports are the life blood of the ratings service, and an importatn tool for investors. If the rating services say a company, industry, government or a country is a good risk, a sure thing, it sends a signal that it is ok for investors to invest in that company, industry or government. The current mortgage crisis could never have been as widespread as it is, without the active collusion of the major bond rating companies. These companies knowingly abdicated their professional responsibilities and gave dubious bond offerings such as the shaky subprime mortgages and other loans (auto, student and speculative ventures the Wall Street investment firms subsequently repackaged, bundled and sold around the world) the highest ratings which prompted investors to buy them. The Triple A ratings these services gave and their potential for high returns are what induced many individuals and institutional investors such as pension, mutual and hedge funds and commercial banks to buy them. The bonds and loans were shaky from the jump but the ratings services didn’t care. The name of the game was to get the suckers to buy, buy, buy.The Fed started it all by lowering interest rates to record levels to stimulate massive borrowing and consumption to keep the US economy afloat following the dot.com bubble’s collapse and the recession of 2000. The Bu$h administration promoted home ownership and “the AmericKKKan Dream” especially to lower class folks and the media pumped it up via advertising and the talking heads on the financial programs. The rating companies got into the act by giving high risk debt packages triple A ratings, for which they got paid handsomely. The mortgage companies, insurance companies and bankers sold people loans they couldn’t afford, bundled them together and sold them as bonds and securitized debt. Duped and unsuspecting suckers bought them to the tune of trillions of dollars.Now the whole system is coming unraveled. The culprits are scurrying like rats on a sinking ship. Everyone is trying to CYA cover their ass. The Fed and the US government are desperately trying to put together a bail out package that will save Wall Street but under the guise of helping homeowners facing default and foreclosure. Don’t believe the hype, it is a scam to put the onus on taxpayers instead of the banks and speculators! It will be a redo of the Saving and Loan scandal. Now the rating agencies and Bond insurers who faced a crisis of their own this summer, are scrambling to avoid wholesale litigation from institutional investors and the blue bloods who lost billions in the mortgage scams because they believed the ratings were legit and valid.Keep your eyes and ears open, 2009 will be a year of massive litigation as more and more institutional investors (governments, pension funds, mutual funds etc) lose money because the housing, bond and credit markets continue to contract. It will be a big mess, which will exacerbate the recession. Federal, state and local courts will get involved due to an avalanche of litigation. I predict the courts will side with the bankers and rating companies because money talks and judges like politicians are being bought off yearly. The courts will side with Wall Street, the insurance companies and rating services because if they don’t, the resulting losses in restitution, pay outs and punitive damages will be in the trillions. Joe and Jane Sixpack will get no relief from the courts. Wall Street, the banks and rating services are in deep trouble already and can’t afford that kind of public spanking. So they will collude with the US Congress to bail them out, or the courts will look out for the class interests of the financial elites. As usual the little guy will get shafted.-30-.
fwd: from an article read by us on the depth of the problem. How many so-labeled "law makers" much less day-to-day people understand this?
The Sub Prime Meltdown Is Tip Of The Iceberg The Financial Tsunami has not reached its Climax
Credit Default Swaps: Next Phase of an Unravelling Crisis
By F. William Engdahl
6-7-8
While attention has been focussed on the relatively tiny US "sub- prime" home mortgage default crisis as the center of the current financial and credit crisis impacting the Anglo-Saxon banking world, a far larger problem is now coming into focus. Sub-prime or high-risk Collateralized Mortgage Obligations, CMOs as they are called, are only the tip of a colossal iceberg of dodgy credits which are beginning to go sour. The next crisis is already beginning in the $62 TRILLION market for Credit Default Swaps. You never heard of them? It's time to take a look, then.
The next phase of the unravelling crisis in the US-centered "revolution in finance" is emerging in the market for arcane instruments known as Credit Default Swaps or CDS. Wall Street bankers always have to have a short name for these things.
As I pointed out in detail in my earlier exclusive series, the Financial Tsunami, Parts I-V, the Credit Default Swap was invented a few years ago by a young Cambridge University mathematics graduate, Blythe Masters, hired by J.P. Morgan Chase Bank in New York. The then-fresh university graduate convinced her bosses at Morgan Chase to develop a revolutionary new risk product, the CDS as it soon became known.
A Credit Default Swap is a credit derivative or agreement between two counterparties, in which one makes periodic payments to the other and gets promise of a payoff if a third-party defaults. The first party gets credit protection, a kind of insurance, and is called the "buyer." The second party gives credit protection and is called the "seller". The third party, the one that might go bankrupt or default, is known as the "reference entity." CDSs became staggeringly popular as credit risks exploded during the last seven years in the United States. Banks argued that with CDS they could spread risk around the globe.
Credit default swaps resemble an insurance policy, as they can be used by debt owners to hedge, or insure against a default on a debt. However, because there is no requirement to actually hold any asset or suffer a loss, credit default swaps can also be used for speculative purposes.
Warren Buffett once described derivatives bought speculatively as "financial weapons of mass destruction". In his Berkshire Hathaway annual report to shareholders he said "Unless derivatives contracts are collateralized or guaranteed, their ultimate value depends on the creditworthiness of the counterparties. In the meantime, though, before a contract is settled, the counterparties record profits and losses - often huge in amount - in their current earnings statements without so much as a penny changing hands. The range of derivatives contracts is limited only by the imagination of man (or sometimes, so it seems, madmen)." A typical CDO is for five years term.
Like many exotic financial products which are extremely complex and profitable in times of easy credit, when markets reverse, as has been the case since August 2007, in addition to spreading risk, credit derivatives, in this case, also amplify risk considerably.
Now the other shoe is about to drop in the $62 trillion CDS market due to rising junk bond defaults by US corporations as the recession deepens. That market has long been a disaster in the making. An estimated $1.2 trillion could be at risk of the nominal $62 trillion in CDOs outstanding, making it far larger than the sub- prime market.
No Regulation
A chain reaction of failures in the CDS market could trigger the next global financial crisis. The market is entirely unregulated, and there are no public records showing whether sellers have the assets to pay out if a bond defaults. This so-called counterparty risk is a ticking time bomb. The US Federal Reserve under the ultra- permissive chairman, Alan Greenspan and the US Government's financial regulators allowed the CDS market to develop entirely without any supervision. Greenspan repeatedly testified to skeptical Congressmen that banks are better risk regulators than government bureaucrats.
The Fed bailout of Bear Stearns on March 17 was motivated, in part, by a desire to keep the unknown risks of that bank's Credit Default Swaps from setting off a global chain reaction that might have brought the entire financial system down. The Fed's fear was that because they didn't adequately monitor counterparty risk in credit-default swaps, they had no idea what might happen. Thank Alan Greenspan for that.
Those counterparties include J.P. Morgan Chase, the largest seller and buyer of CDSs.
The Fed only has supervision to regulated bank CDS exposures, but not that of investment banks or hedge funds, both of which are significant CDS issuers. Hedge funds, for instance, are estimated to have written 31% in CDS protection.
The credit-default-swap market has been mainly untested until now. The default rate in January 2002, when the swap market was valued at $1.5 trillion, was 10.7 percent, according to Moody's Investors Service. But Fitch Ratings reported in July 2007 that 40 percent of CDS protection sold worldwide was on companies or securities that are rated below investment grade, up from 8 percent in 2002.
A surge in corporate defaults will now leave swap buyers trying to collect hundreds of billions of dollars from their counterparties. This will to complicate the financial crisis, triggering numerous disputes and lawsuits, as buyers battle sellers over the technical definition of default - this requires proving which bond or loan holders weren't paid - and the amount of payments due. Some fear that could in turn freeze up the financial system.
Experts inside the CDS market believe now that the crisis will likely start with hedge funds that will be unable to pay banks for contracts tied to at least $150 billion in defaults. Banks will try to pre-empt this default disaster by demanding hedge funds put up more collateral for potential losses. That will not work as many of the funds won't have the cash to meet the banks' demands for more collateral.
Sellers of protection aren't required by law to set aside reserves in the CDS market. While banks ask protection sellers to put up some money when making the trade, there are no industry standards. It would be the equivalent of a licensed insurance company selling insurance protection against hurricane damage with no reserves against potential claims.
Basle BIS worried
The Basle Bank for International Settlements, the supervisory organization of the world's major central banks is alarmed at the dangers. The Joint Forum of the Basel Committee on Banking Supervision, an international group of banking, insurance and securities regulators, wrote in April that the trillions of dollars in swaps traded by hedge funds pose a threat to financial markets around the world.
"It is difficult to develop a clear picture of which institutions are the ultimate holders of some of the credit risk transferred,'' the report said. "It can be difficult even to quantify the amount of risk that has been transferred.''
Counterparty risk can become complicated in a hurry. In a typical CDS deal, a hedge fund will sell protection to a bank, which will then resell the same protection to another bank, and such dealing will continue, sometimes in a circle. That has created a huge concentration of risk. As one leading derivatives trader expressed the process, "The risk keeps spinning around and around in this daisy chain like a vortex. There are only six to 10 dealers who sit in the middle of all this. I don't think the regulators have the information that they need to work that out.''
Traders, and even the banks that serve as dealers, don't always know exactly what is covered by a credit-default-swap contract. There are numerous types of CDSs, some far more complex than others. More than half of all CDSs cover indexes of companies and debt securities, such as asset-backed securities, the Basel committee says. The rest include coverage of a single company's debt or collateralized debt obligations...
Banks usually send hedge funds, insurance companies and other institutional investors e-mails throughout the day with bid and offer prices, as there is no regulated exchange to process the market or to insure against loss. To find the price of a swap on Ford Motor Co. debt, for example, even sophisticated investors might have to search through all of their daily e-mails.
Banks want Secrecy
Banks have a vested interest in keeping the swaps market opaque, because as dealers, the banks have a high volume of transactions, giving them an edge over other buyers and sellers. Since customers don't necessarily know where the market is, you can charge them much wider profit margins.
Banks try to balance the protection they've sold with credit- default swaps they purchase from others, either on the same companies or indexes. They can also create synthetic CDOs, which are packages of credit-default swaps the banks sell to investors to get themselves protection.
The idea for the banks is to make a profit on each trade and avoid taking on the swap's risk. As one CDO dealer puts it, "Dealers are just like bookies. Bookies don't want to bet on games. Bookies just want to balance their books. That's why they're called bookies."
Now as the economy contracts and bankruptcies spread across the United States and beyond, there's a high probability that many who bought swap protection will wind up in court trying to get their payouts. If things are collapsing left and right, people will use any trick they can.
Last year, the Chicago Mercantile Exchange set up a federally regulated, exchange-based market to trade CDSs. So far, it hasn't worked. It's been boycotted by banks, which prefer to continue their trading privately.
Global Research Associate F. William Engdahl is author of A Century of War: Anglo-American Oil Politics and the New World Order (PlutoPress), and Seeds of Destruction: The Hidden Agenda of Genetic Manipulation. (Global Research, available at www.globalresearch.ca). He may be reached at info@engdahl.oilgeopolitics.net.
When open reads and considers the above and how if effects our community/Black nation to secure resources because of these games or legal fraud, it no wonder that youth view adults as the worse of hypocrits. Clinton is as guilty as Bush in the promotion and creation of this as we see that Alan Greenspan lasted longer that five U.S. Presidents in order to pull this theft off.
We would suggest that before this goes too far, what needs to be done is to learn who is the board members and people who ran all of these companies while they were riding high.
We suggest if this list were to be compiled as a wanted for questioning poster and circulated, then the "rats scurrying for cover on a sinking ship" would even be more so because bringing this issue to the masses on a grassroots level... would cause a reaction that would shake the foundations of the world. If the everyday people not only knew who the culprits were but their faces and their addresses, all of which is totally public record, would cause a reaction that would at least prevent the sleigh-of-hand job of passing this off on the already victimized American taxpayer.
Those Africans who would take this up, those same that tend to listen to "God Damn..." speeches by Reverends like Jeremiah Wright, would be yet another along the lines of unsung sheroes and heroes of fighting oppression.
https://theblacklist.net/
Comments
The Sub Prime Meltdown Is Tip Of The Iceberg
The Financial Tsunami has not reached its Climax
Credit Default Swaps: Next Phase of an Unravelling Crisis
By F. William Engdahl
6-7-8
While attention has been focussed on the relatively tiny US "sub- prime" home mortgage default crisis as the center of the current financial and credit crisis impacting the Anglo-Saxon banking world, a far larger problem is now coming into focus. Sub-prime or high-risk Collateralized Mortgage Obligations, CMOs as they are called, are only the tip of a colossal iceberg of dodgy credits which are beginning to go sour. The next crisis is already beginning in the $62 TRILLION market for Credit Default Swaps. You never heard of them? It's time to take a look, then.
The next phase of the unravelling crisis in the US-centered "revolution in finance" is emerging in the market for arcane instruments known as Credit Default Swaps or CDS. Wall Street bankers always have to have a short name for these things.
As I pointed out in detail in my earlier exclusive series, the Financial Tsunami, Parts I-V, the Credit Default Swap was invented a few years ago by a young Cambridge University mathematics graduate, Blythe Masters, hired by J.P. Morgan Chase Bank in New York. The then-fresh university graduate convinced her bosses at Morgan Chase to develop a revolutionary new risk product, the CDS as it soon became known.
A Credit Default Swap is a credit derivative or agreement between two counterparties, in which one makes periodic payments to the other and gets promise of a payoff if a third-party defaults. The first party gets credit protection, a kind of insurance, and is called the "buyer." The second party gives credit protection and is called the "seller". The third party, the one that might go bankrupt or default, is known as the "reference entity." CDSs became staggeringly popular as credit risks exploded during the last seven years in the United States. Banks argued that with CDS they could spread risk around the globe.
Credit default swaps resemble an insurance policy, as they can be used by debt owners to hedge, or insure against a default on a debt. However, because there is no requirement to actually hold any asset or suffer a loss, credit default swaps can also be used for speculative purposes.
Warren Buffett once described derivatives bought speculatively as "financial weapons of mass destruction". In his Berkshire Hathaway annual report to shareholders he said "Unless derivatives contracts are collateralized or guaranteed, their ultimate value depends on the creditworthiness of the counterparties. In the meantime, though, before a contract is settled, the counterparties record profits and losses - often huge in amount - in their current earnings statements without so much as a penny changing hands. The range of derivatives contracts is limited only by the imagination of man (or sometimes, so it seems, madmen)." A typical CDO is for five years term.
Like many exotic financial products which are extremely complex and profitable in times of easy credit, when markets reverse, as has been the case since August 2007, in addition to spreading risk, credit derivatives, in this case, also amplify risk considerably.
Now the other shoe is about to drop in the $62 trillion CDS market due to rising junk bond defaults by US corporations as the recession deepens. That market has long been a disaster in the making. An estimated $1.2 trillion could be at risk of the nominal $62 trillion in CDOs outstanding, making it far larger than the sub- prime market.
No Regulation
A chain reaction of failures in the CDS market could trigger the next global financial crisis. The market is entirely unregulated, and there are no public records showing whether sellers have the assets to pay out if a bond defaults. This so-called counterparty risk is a ticking time bomb. The US Federal Reserve under the ultra- permissive chairman, Alan Greenspan and the US Government's financial regulators allowed the CDS market to develop entirely without any supervision. Greenspan repeatedly testified to skeptical Congressmen that banks are better risk regulators than government bureaucrats.
The Fed bailout of Bear Stearns on March 17 was motivated, in part, by a desire to keep the unknown risks of that bank's Credit Default Swaps from setting off a global chain reaction that might have brought the entire financial system down. The Fed's fear was that because they didn't adequately monitor counterparty risk in credit-default swaps, they had no idea what might happen. Thank Alan Greenspan for that.
Those counterparties include J.P. Morgan Chase, the largest seller and buyer of CDSs.
The Fed only has supervision to regulated bank CDS exposures, but not that of investment banks or hedge funds, both of which are significant CDS issuers. Hedge funds, for instance, are estimated to have written 31% in CDS protection.
The credit-default-swap market has been mainly untested until now. The default rate in January 2002, when the swap market was valued at $1.5 trillion, was 10.7 percent, according to Moody's Investors Service. But Fitch Ratings reported in July 2007 that 40 percent of CDS protection sold worldwide was on companies or securities that are rated below investment grade, up from 8 percent in 2002.
A surge in corporate defaults will now leave swap buyers trying to collect hundreds of billions of dollars from their counterparties. This will to complicate the financial crisis, triggering numerous disputes and lawsuits, as buyers battle sellers over the technical definition of default - this requires proving which bond or loan holders weren't paid - and the amount of payments due. Some fear that could in turn freeze up the financial system.
Experts inside the CDS market believe now that the crisis will likely start with hedge funds that will be unable to pay banks for contracts tied to at least $150 billion in defaults. Banks will try to pre-empt this default disaster by demanding hedge funds put up more collateral for potential losses. That will not work as many of the funds won't have the cash to meet the banks' demands for more collateral.
Sellers of protection aren't required by law to set aside reserves in the CDS market. While banks ask protection sellers to put up some money when making the trade, there are no industry standards. It would be the equivalent of a licensed insurance company selling insurance protection against hurricane damage with no reserves against potential claims.
Basle BIS worried
The Basle Bank for International Settlements, the supervisory organization of the world's major central banks is alarmed at the dangers. The Joint Forum of the Basel Committee on Banking Supervision, an international group of banking, insurance and securities regulators, wrote in April that the trillions of dollars in swaps traded by hedge funds pose a threat to financial markets around the world.
"It is difficult to develop a clear picture of which institutions are the ultimate holders of some of the credit risk transferred,'' the report said. "It can be difficult even to quantify the amount of risk that has been transferred.''
Counterparty risk can become complicated in a hurry. In a typical CDS deal, a hedge fund will sell protection to a bank, which will then resell the same protection to another bank, and such dealing will continue, sometimes in a circle. That has created a huge concentration of risk. As one leading derivatives trader expressed the process, "The risk keeps spinning around and around in this daisy chain like a vortex. There are only six to 10 dealers who sit in the middle of all this. I don't think the regulators have the information that they need to work that out.''
Traders, and even the banks that serve as dealers, don't always know exactly what is covered by a credit-default-swap contract. There are numerous types of CDSs, some far more complex than others. More than half of all CDSs cover indexes of companies and debt securities, such as asset-backed securities, the Basel committee says. The rest include coverage of a single company's debt or collateralized debt obligations...
Banks usually send hedge funds, insurance companies and other institutional investors e-mails throughout the day with bid and offer prices, as there is no regulated exchange to process the market or to insure against loss. To find the price of a swap on Ford Motor Co. debt, for example, even sophisticated investors might have to search through all of their daily e-mails.
Banks want Secrecy
Banks have a vested interest in keeping the swaps market opaque, because as dealers, the banks have a high volume of transactions, giving them an edge over other buyers and sellers. Since customers don't necessarily know where the market is, you can charge them much wider profit margins.
Banks try to balance the protection they've sold with credit- default swaps they purchase from others, either on the same companies or indexes. They can also create synthetic CDOs, which are packages of credit-default swaps the banks sell to investors to get themselves protection.
The idea for the banks is to make a profit on each trade and avoid taking on the swap's risk. As one CDO dealer puts it, "Dealers are just like bookies. Bookies don't want to bet on games. Bookies just want to balance their books. That's why they're called bookies."
Now as the economy contracts and bankruptcies spread across the United States and beyond, there's a high probability that many who bought swap protection will wind up in court trying to get their payouts. If things are collapsing left and right, people will use any trick they can.
Last year, the Chicago Mercantile Exchange set up a federally regulated, exchange-based market to trade CDSs. So far, it hasn't worked. It's been boycotted by banks, which prefer to continue their trading privately.
Global Research Associate F. William Engdahl is author of A Century of War: Anglo-American Oil Politics and the New World Order (PlutoPress), and Seeds of Destruction: The Hidden Agenda of Genetic Manipulation. (Global Research, available at www.globalresearch.ca). He may be reached at info@engdahl.oilgeopolitics.net.
We would suggest that before this goes too far, what needs to be done is to learn who is the board members and people who ran all of these companies while they were riding high.
We suggest if this list were to be compiled as a wanted for questioning poster and circulated, then the "rats scurrying for cover on a sinking ship" would even be more so because bringing this issue to the masses on a grassroots level... would cause a reaction that would shake the foundations of the world. If the everyday people not only knew who the culprits were but their faces and their addresses, all of which is totally public record, would cause a reaction that would at least prevent the sleigh-of-hand job of passing this off on the already victimized American taxpayer.
Those Africans who would take this up, those same that tend to listen to "God Damn..." speeches by Reverends like Jeremiah Wright, would be yet another along the lines of unsung sheroes and heroes of fighting oppression.