A Smoking Gun on Corruption of Ratings Agencies: The Bankers Friends’ Scam

Jul 3, 2012

One of the things we rely on, as regular citizens, is supposedly independent agencies. We don’t have time to keep up with everything because we have lives to lead. But, what happens when an agency is not independent and lets corruption seize the day? A financial collapse, for example.

Although Australia avoided the worst of the 2008 financial crisis, some of what we worry about today–the possible collapse of the Eurozone, austerity imposed on Spain, Greece and other countries who must now pay for the bankers’ incompetence and greed–comes straight out of the lack of independence on trusted organizations. So, it’s relevant for us to look across the ocean at this story from  Gretchen Morgenson, one of the few denizens of the traditional press who questioned the worthiness of the securities, in the New York Times:

For years, the ratings agencies have contended that the grades they assign debt securities are independent opinions and therefore entitled to First Amendment protections, like those afforded journalists. But newly released documents in a class-action case in Federal District Court in Manhattan cast doubt on the independence of the two largest agencies, Moody’s Investors Service and Standard & Poor’s, in their work with a Wall Street firm on a debt deal that went bad as the credit crisis began[emphasis added].

And:

When Cheyne issued its various securities in 2005, Moody’s and S.& P. rated them all investment grade. Even though Cheyne’s portfolio was bulging with residential mortgage securities, some of its debt received the agencies’ highest ratings, a grade equal to that assigned to United States Treasury securities. About two years later, as mortgage losses began to balloon, both agencies downgraded Cheyne’s debt below investment grade, to what is known as junk

.

And what happened when a top rating was at risk?:

For example, when the primary analyst at S.& P. notified Morgan Stanley that some of the Cheyne securities would most likely receive a BBB rating, not the A grade that the firm had wanted, the agency received a blistering e-mail from a Morgan Stanley executive. S.& P. subsequently raised the grade to A.And when a Morgan Stanley colleague asked for information about the Cheyne deal, Rany Moubarak, an analyst at Morgan Stanley on the deal, wrote in an e-mail: “I attach the Moody’s NIR (that we ended up writing)” referring to the new issue report published by Moody’s in August 2005.[emphasis added]

The court filings also demonstrate a lack of methodology for analyzing the Cheyne debt. For example, in an e-mail before the deal was sold, S.& P.’s lead analyst wrote to a colleague: “I had difficulties explaining ‘HOW’ we got to those numbers since there is no science behind it. The documents show that the lead analyst at Moody’s noted there was “no actual data backing the current model assumptions” for segments of the Cheyne deal.[emphasis added]

This is really not a surprise. It is startling, given their role in the financial crisis, that the ratings agencies are even taken seriously anymore.

Understand this, as the bottom line: the ratings agencies are about making money. They are not independent. And that still matters today to every person across the nation because what Moody’s and Standard and Poor’s do echos across the globe. When they do the bidding of the bankers, we get hurt.


@jonathantasini

Big Picture, Empty Suit

Jul 2, 2012

There is really something revealing about the picture that accompanies today’s story in the Sydney Morning Herald about the carbon tax. Check it out…

The story is straightforward enough, leading with the words of The Empty Suit:

THE Opposition Leader, Tony Abbott, declared yesterday that the ”campaign is now on” as the Gillard government began the tough job of selling its carbon tax, the biggest economic reform the country has seen since the GST.

But look up higher, above the headline, and you see the real news: the billboard with a picture of The Empty Suit and the real thing, the real Empty Suit, dwarfed by the picture.

There, in a nutshell, is the story: image is bigger than reality.


@jonathantasini

 

Curtain Comes Down On “I, Gina” Show–For Now

Jun 29, 2012

This is worth coming back to from yesterday. The “I, Gina” show has had its show cut short, at least in the Fairfax boardroom.

Though, in the bigger picture of fair treatment, the Fairfax board is nothing to root for when it cuts the jobs of hundreds of workers but the CEO takes no hit, one has to applaud this:

THE board of Fairfax, publisher of the Herald, has rebuffed Gina Rinehart’s bid for a seat because she will not agree to its charter of editorial independence.

In an explosive statement released late yesterday, Fairfax chairman Roger Corbett made his first public remarks on the mining magnate’s attempts to gain seats on the media group’s board, expressing regret an agreement could not be made ”on terms acceptable to the company”.

”I regret that agreement has not been reached for Mrs Rinehart to join the Fairfax Media board of directors. I hope that this might be possible in the future. However key elements yet to be agreed include acceptance of the charter of editorial independence as it stands and the Fairfax board governance principles as agreed by all existing directors,” Mr Corbett said.

Like The Terminator, the “I, Gina” show will certainly be back because satisfying a twisted ego and narcissism is a feat that never ends. But, for now, it’s worth celebrating.


@jonathantasini

Bankers Skate AGAIN…Laughing All The Way to Their Mansions

Jun 28, 2012

It’s worth keeping in mind, when we think of what happens in our economic lives, that global financial events trigger waves everywhere. That’s perhaps stating the obvious–so, when bankers get a “stay-out-of jail” card anywhere, it sends a message to every one of the financial global elite. Take Barclay’s.

Let’s chuckle–with a bit of dark laughter–at this pathetic “settlement”:

Barclays has agreed to pay more than $450 million to resolve accusations that it attempted to manipulate key interest rates, the first settlement in a sprawling global investigation involving many of the world’s biggest banks.

The British bank struck a deal with regulators in Washington and London, as well as the Justice Department. The settlement is seen as the first in a series of potential cases against other major financial firms.

This is not change. In fact, this kind of settlement guarantees one thing: it will happen again. The message to these guys is simple: if you do this again, you will not lose your freedom–meaning, go to jail–and you will not even lose your jobs. Indeed, we will help raise your level of mirth, comfort and happiness because, while you sock away more pay and benefits to buy your 3rd or 4th mansion, the SHAREHOLDERS will pay for your misdeeds.

This is crony capitalism defined. And the regulators–and political leadership–are simply reinforcing the game. Not that it’s surprising. The little fish get jailed–sometimes–bthe bigger crimes committed that have imposed austerity and joblessness on millions of people go unpunished. Think of this: the CEO of Goldman Sachs Lloyd Blankfein is still a free man–despite a key investigation in the U.S. that found, “a financial snake pit rife with greed, conflicts of interest, and wrongdoing”

And this is a message heard from Sydney to London to Wall Street–you will not be jailed.

You see, the justice system is just for the little people–not for the elites.


@jonathantasini

The Empty Suit and Carbon Taxes

Jun 27, 2012

The Empty Suit has been using the carbon tax scare as a key part of his assault on the government–an assault this is devoid of integrity…oh, why even bother to use that word? But, sometimes lies work wonders.

Ross Gittins makes a useful observation in his column today:

But with the carbon tax taking effect from this Sunday, the moment of truth approaches. Soon enough it will become clear that, for consumers and the vast bulk of businesses, the dreaded carbon tax will have an effect much smaller than the GST. The retail prices of electricity and gas will rise by about 9 per cent, but the increases in other prices will be very small.

Julia Gillard and her supporters have been hoping against hope that as soon as this reality dawns on a fearful public, as soon as the magnitude of the Liberals’ hoax is revealed, voters will switch back to Labor in droves.

I don’t see it happening. It rests on an unrealistic view of the lack of self-delusion in human nature.

Political parties and their cheerleaders don’t like admitting they’ve been dishonest – even to themselves. And you and I don’t like admitting we’ve allowed ourselves to be conned by unscrupulous politicians and shock jocks.

So, the point is The Empty Suit will continue to spread fear about the carbon tax because, well, fear works. Integrity is so yesterday.


@jonathantasini

Tries Lies: More Carbon Porkies to Come

Jun 27, 2012

First published on The Drum 26 June 2012

The ‘lie’ at the heart of Labor’s carbon tax has assumed legendary status. Never mind that the realities of the supposed falsehood are highly contestable – Labor’s carbon pricing scheme is arguably not a tax at all – “there will be no carbon tax under the government I lead” has become the iconic political lie of our times.

Its ruthlessly successful exploitation by the Abbott Opposition has spawned a political craze in exposing opponents’ lies, in the hope of replicating this highly successful case study in trust-related brand damage.

But what about the Opposition’s penchant for stretching the truth on impacts of the carbon tax?

George Brandis’s assertion the carbon tax was responsible for 1900 job cuts at Fairfax was a cracker, but only a natural extension of years of dubious claims the carbon tax would wipe towns off the map, spark mass shut-downs of industry and send families to the wall under crippling power prices.

With not much else to look forward to, Labor hopes the sun rising on July 1 – towns and families intact – will expose the Opposition’s spurious rhetoric about the carbon tax. Who is calling us liars now, you liars?

The collapse in trust in politics as we’ve reported on before, is a defining feature of our current political culture, driven largely by the kind of negative politics that have characterised the carbon debate.

In this environment, Labor has been unable to win back support for its carbon pricing scheme, with support levels on the eve of its introduction at the same low level they were towards the start of last year.

Q. Do you support or oppose the Government’s carbon pricing scheme which, from July 2012, will require industries to pay a tax based on the amount of carbon pollution they emit?

 

7 Mar 2011

23 May

1 Aug

21 Nov

Total

25 Jun 2012

Vote Labor

Vote Lib/Nat

Vote Greens

Total support

35%

41%

39%

38%

35%

67%

13%

74%

Total oppose

48%

44%

51%

53%

54%

21%

81%

21%

Strongly support

9%

14%

15%

14%

14%

28%

4%

38%

Support

26%

27%

24%

24%

21%

39%

9%

36%

Oppose

19%

15%

19%

17%

19%

12%

24%

13%

Strongly oppose

29%

29%

32%

36%

35%

9%

57%

8%

Don’t know

18%

15%

10%

10%

11%

12%

7%

6%

 

If there’s a positive for Labor there, it’s that it has been able to win the support of its base on this issue, with two-thirds of Labor voters (admittedly a small pool – link to table) supporting the policy.

But despite Labor’s focus on selling the compensation elements of the carbon pricing reform, the public has bought the cost-of-living scare, with 71% believing their cost of living will increase moderately or a lot. A further 20% thought there would be a small increase and just 2% thought there would be no impact. Power, petrol, groceries and fruit and veg – people are expecting the introduction of the carbon tax to be a disaster for their hip pockets.

Q. And what impact do you expect the carbon tax to have on each of the following?

 

 

Increase a lot

Increase a little

Stay much the same

Decrease a little

Decrease a lot

Don’t know

Energy prices

67%

26%

4%

*

3%

Fuel prices

53%

31%

11%

1%

*

4%

Grocery prices

41%

41%

14%

1%

4%

Fresh fruit and vegetable prices

39%

39%

18%

*

*

4%

Unemployment

31%

27%

32%

2%

1%

8%

Interest rates

22%

18%

38%

8%

1%

13%

And herein lies the risk for Tony Abbott.

With the happy bonus that most of us aren’t really too sure what the carbon tax actually is, we can expect plenty more Brandis-style water-muddying as the carbon tax is blamed for job losses, power price rises, divorces and bad haircuts caused by completely unrelated factors.

But what if the Opposition can’t deliver carbon tax Armageddon? What if people accept that any moderate increases in prices have been offset by the one-off ‘cashforyou’ payments and associated support packages? Or, and this may be stretching it, what if the media starts questioning come of the tenuous links between price rises and carbon that the Opposition attempts to exploit?

If the world doesn’t end on Sunday, will people shift their opinion of the Carbon Tax or, worse still for Abbott, start to wonder whether they have been played for fools? Already the rhetoric is shifting from ‘death strike’ to ‘python’s grip’ but is this sustainable as a basis for the daily high-vis vest photo opp that has become the Oppostion’s modus operandi.

Another potential porky lies in the Opposition Leader’s promise to repeal the carbon tax.Abbott has pledged ‘in blood’ there would be no carbon tax under the government he leads.

Currently, we’re fairly evenly split on whether a pledge in blood is actually a core promise, with a slight majority believing he’ll go through with it.

Q. If they won the next election, how likely do you think it would be that Tony Abbott and the Liberal Party would repeal the carbon tax?

 

Total

Vote Labor

Vote Lib/Nat

Vote Greens

Total likely

44%

28%

64%

42%

Total unlikely

40%

62%

22%

41%

Don’t know

17%

11%

14%

17%

 

But what if he can’t get the numbers through the Senate? What if he is forced to negotiate and, God forbid compromise, with those holding the balance of power? Will this be a case of a politician dealing with the hand they are dealt or just another example that all politicians lie?

While it’s easy to dismiss the dealing in truth and lies as business as usual politics, but in turning it into a Weapon of Mass Destruction it will be interesting to see if the Opposition leader has not set set his own future government onto a path of Mutually Assured Destruction.

 

 

With “White Knights” Like This, Who Needs Enemies? Show Gina The Door.

Jun 26, 2012

The “I, Gina” show kicked into high gear last night. Now, her lordship is threatening–oh, please, wait while we cower–to walk away from Fairfax if she doesn’t get her way. It may be raining on some but Fairfax should see this as the sun shining through and bid her goodbye–and, if possible, add a swift kick in the backside on the way out.

The day dawns and bring us this news:

GINA RINEHART hopes to be a ”white knight” for Fairfax Media, but might sell her shareholding unless she is offered positions on the board without ”unsuitable conditions”.

The mining entrepreneur told the ABC’s Four Corners program, via her company Hancock Prospecting (HPPL), that she would be prepared to sell the 18.6 per cent chunk of the company’s stock that she holds and consider investing again if her demands were later met.

”Fairfax’s largest three mastheads [including the Herald] have been declining in circulation for five years, a long time,” Hancock Prospecting said. ”Fairfax’s share price has also declined … approximately 90 per cent.

”HPPL had hoped that Mrs Rinehart may be viewed by the board as a successful business person and a necessary ‘white knight’ with mutual interest in a sustainable Fairfax, however unless director positions are offered without unsuitable conditions, Mrs Rinehart is unable to assist Fairfax at this time,” the statement said. ”HPPL may hence sell its interest, and may consider repurchasing at some other time.” [emphasis added]

There is so much wrong with this story it’s hard to decide where to begin. First, can someone please point out, in the story, that a “white knight” does not include arriving on the scene and, as a first act, commence to soil  (this may still be a “family site” so just trying to be somewhat restrained) a fundamental principle of the business, in this case, editorial independence. Indeed, the Fairfax board is showing, so far, a modicum of spine on that principle, which, not withstanding the awful unconscionable cuts ordered even though the CEO and top management is not taking a hit, one has to give those folks credit for:

The Fairfax board has been resisting her push, and insisting she abides by the company’s Charter of Editorial Independence, which states that board members do not interfere with the content of the newspapers. Mrs Rinehart, reportedly, will not agree to that charter.

This being a family site, let us just say, mildly, Gina, go fuck yourself. There are some things that very rich people do not understand and that is principle. Principles that are stronger than (a) the whims of a rich person and (b) principles that are more important to society than the needs and ego of one person.

The Fairfax board should go further than simply resisting. End the charade. Tell the “I, Gina” show it’s not welcome in this town.


@jonathantasini

Rolling in Dough

Jun 25, 2012

As Gina continues on her “I, Gina” self-absorbed stomp, it’s always useful to keep in mind that a society always has the ultimate option: if rich people, or mining barons, don’t care about the national interest, they can just move somewhere else. And what is pretty clear is that most don’t, and won’t, because they have it good where they are–which brings us to the whinging about resources taxes.

Gina and her ilk–Clive Palmer and Twiggy Forrest come most quickly to mind–bring up the usual fiction heard around the world whenever higher taxes on the wealthy are pushed as a way of making sure a society sustains itself: it’s anti-business and hurts “us” from being competitive.

Well, to focus on just mining, that’s pure rubbish, as we learn from a pithy summary from Peter Colley, National Research Director at the Construction, Forestry, Mining and Energy Union (we don’t have a link to a place it might be posted–we’re just privileged to get such gripping, novelistic American Idol-like fare sent our way…). As Peter writes:

One would think the mining companies were losing money when the overall picture for the mining industry globally is one of rude good health.

PriceWaterhouseCoopers, one of the global Big 4 accounting firms, in their annual survey of the mining industry summarised the good news for big mining companies:

“In 2011, the financial results for the Top 40 hit new heights”, it said, listing the following facts:

• Revenues increased 26% to over $700 billion

• Net profit was up 21% to $133 billion

• Operating cash flows grew 34% to $174 billion

• Investing cash flows grew 92%

• The Top 40 returned 156% more to shareholders than in 2010

• Total assets remained above $1 trillion and grew a further 13%.

Imagine that. They are rolling in dough. And it isn’t the case that the local barons, Gina and The Gang, would have it so much better in another place on the planet. Back to Peter:

At least 25 countries increased taxes and royalties on their mining industries, or announced intentions to do so. These include all the major mining nations – Canada, the USA, South Africa, Indonesia, Chile, Brazil, Colombia and even China and India.

These taxes and royalties are often far higher than in Australia – in Colombia they can reach 81% of coal mining profit, while in the oil and gas sector it is well known that Norway taxes almost all the profit of the North Sea oil industry – but what remains is still enough to keep the investors coming.

So, the proper response to “we’ll take our business elsewhere” should be, “what flight can we book you on?” The truth is that what Gina and The Gang are really up to is a extortion–but they aren’t holding much of a weapon. The resources are in the ground. You can’t take it with you. But, by all means, if life is so cruel for Gina and The Gang, the country should organize a collective farewell party, wave goodbye and invite others to do their business here.

UPDATE:

And we neglected to mention that Fortescue is out there whinging about the mining tax and, per the SMH, taking the government to court:

While large miners Rio Tinto and BHP were able to strike a deal with the federal government over the final scope of the tax, smaller miners including Fortescue and Gina Rinehart’s Hancock Prospecting have waged a fierce battle against the tax.

Fortescue has been threatening to challenge the MRRT in the High Court for months, arguing it is unfair and was been stitched up by the government in conjunction with the big miners.

A spokesman for the acting prime minister and Treasurer Wayne Swan said the challenge had not come as a surprise.

”Mr Forrest has made it clear that he is staunchly opposed to the government spreading the benefits of the mining boom to millions of households and small businesses who aren’t in the fast lane,” he said.

“The Gillard government believes Australia’s non-renewable natural resources belong to all Australians, not just to a handful of mining billionaires, and is determined to deliver the MRRT to ensure the Australian community shares in the benefits and opportunities of the mining boom.” [emphasis added]

To which we say: good on the government, and the Swanster for saying what needed to be said.


@jonathantasini