November 7, 2012 archive

Nov 07

Cartnoon

It’s alive!

No, seriously, this one survived all the way from August 1, 2011.

Feather Dusted

On the other hand, the North East prepares for another Nor’easter.  It’s already slightly white outside.

I propose we name them.  This one is Grumpy.

Nov 07

Yes We Have No Bananas

Fresh vegetables via AFP

Fish and vegetables grow without soil on Gaza rooftops

By Agence France-Presse

Friday, October 26, 2012 22:30 EDT

Abu Ahmed looks out over a sea of grey, empty Gaza rooftops, and smiles as he looks back at the lush greenery sprouting in tubs and pipes on top of his apartment building.

He is part of a United Nations agency project to introduce cutting-edge urban agriculture to Gaza City, teaching Palestinians to farm without soil in the space available to them in one of the world’s most densely populated places…

Nov 07

Exceptional

Australia’s Federal Court issues landmark judgment against S&P, ABN Amro

Reuters

Mon Nov 5, 2012 4:18am GMT

SYDNEY (Reuters) – Australia’s Federal court issued a landmark judgment on Monday that Standard & Poor’s misled investors by giving its highest rating to derivatives that lost almost all their value in the run-up to the 2008 global economic crisis.

The Australian case marked the first time a ratings agency had faced trial over the complex financial products widely cited as one of the factors that triggered the crisis and could set a precedent for future litigation around the world.



“This is a major blow to the ratings agencies, which for years have had the benefit of profiting from the assignment of these ratings without ever being accountable to investors for those opinions,” said lawyer Amanda Banton of Piper Alderman, who represented the local councils.

“Today’s judgment will ultimately have the effect of ensuring ratings agencies are accountable and promoting transparency in the ratings process,” Banton added.

Monday’s ruling follows a judgment in September against Lehman Brothers Australia, which found that firm breached its legal duties when it sold collateralised debt obligations, or CDOs, to a group of charities, councils and churches that collectively lost A$250 million ($259 million).

Hero of the day, CPDO edition

Felix Salmon, Reuters

Nov 5, 2012 18:38 UTC

I’d never heard of Australian federal judge Jayne Jagot before today, but she’s my new favorite jurist, thanks to her decision in a recent court case which was brought against ABN Amro and Standard & Poors.

The coverage of the decision (Quartz, FT, WSJ, Bloomberg, Reuters) concentrates, as it should, on the hugely important precedent being set here: that a ratings agency – in this case, S&P – is being found liable for losses that an investor suffered after trusting that agency.



The case at heart is a simple one: 12 local councils in Australia bought a bunch of CPDOs, and they only did so because S&P had given those instruments a triple-A rating. S&P, in turn, should never have given the CPDOs that triple-A rating. So it’s S&P’s fault that the councils lost so much money – jointly with ABN Amro, which structured the things.

How does Jagot come to the conclusion that “a reasonably competent ratings agency” would never have given the CPDOs a triple-A rating? Simple: S&P used utterly bonkers assumptions in order to come to its conclusion.



There’s really no way of reading what S&P did, here, except that it simply massaged the assumptions it was using until it managed to find something which was consistent with the triple-A rating it wanted. When spreads are at 30bp, what makes you think they’ll average 40bp over one year and then 80bp over nine years? Especially when the index as a whole has never averaged anything like 80bp? It’s simply not a reasonable assumption, and the fact that S&P made it just goes to show how the agency was acting for its paymasters – ABN Amro – and was not putting out reliable ratings at all.



You’d think that a ratings agency, of all institutions, would be alive to the risk of ratings downgrades. But, it turns out, not so much. ABN Amro, in its model , simply didn’t include what’s known as “ratings migration” – and S&P, similarly, completely ignored it.

The result, in reality, was devastating. Because companies could borrow at such low rates, they were particularly vulnerable to being taken over by private-equity firms which could load them up with cheap debt, devastating their credit ratings. And that’s exactly what happened. A whole series of investment-grade companies, like Alliance Boots, Alltel, and Boston Scientific, got levered up by their new private-equity owners, and lost their investment-grade credit ratings.



Put it all together, and you get a very shocking view of S&P. Here’s the list:

  • S&P used the wrong model input for starting spread.
  • S&P used the wrong model input for volatilty.
  • S&P used the wrong model input for average spread.
  • S&P completely ignored ratings migration.

If S&P had just got any one of these things right, the CPDO would never have gotten that triple-A rating. If it had got them all right, the CPDO would almost certainly not even have been investment grade, let alone triple-A.

S&P was not doing its job, and as a result a bunch of Australian municipalities lost a great deal of money. Jagot has found S&P liable, as she should. Good for her.

Australian Court: Standard and Poor’s Liable for Bad Ratings on Securities

By: David Dayen, Firedog Lake

Monday November 5, 2012 12:26 pm

This will get approximately no attention today, but a federal court in Australia ruled that Standard and Poor’s, the credit rating agency, lied to investors when they awarded their highest, triple-A rating to derivative securities that lost their value within two years of purchase.



Further rulings of this type in this very new area of case law would be devastating to the rating agencies. They would also be correct. Rating agencies, paid by the banks whose securities they rate, simply failed to model the potential for a collapse in value of a basket of securities, particularly mortgage backed securities during the housing bubble. This led a host of investors to trust the ratings and buy the products, only to have their values collapse. While the banks got bailed out, the investors did not; they were collateral damage in the financial crash. And when I say “investors” I also mean municipal and union pension funds.

Those who want to defend the system argue that investors should have done their own due diligence before deciding on purchasing these structured finance products. The Australian court didn’t agree. They argued that the rating agencies are culpable for their work, and that their failures amounted to fraud. Rating agencies have never been held accountable for the ratings they assign, and this ruling, if replicated, would completely upend that expectation. The first place we could see further action from investors would be in Europe. The US has seen some case law in this area, and by and large the rating agencies have gotten off scot-free, using both disclaimers in their written materials and Constitutional protections on freedom of speech, believe it or not. There are some outstanding cases, however.

But Mr. Market certainly took notice of this ruling, dropping the stock of S&P’s parent company, McGraw-Hill, over 5%. Other rating agency stocks fell as well. And that’s appropriate, because the money that Standard and Poor’s will now have to pay the local councils in Australia outstrips the money the councils lost on the securities. There’s massive exposure here.

Nov 07

On This Day In History November 7

Cross posted from The Stars Hollow Gazette

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

November 7 is the 311th day of the year (312th in leap years) in the Gregorian calendar. There are 54 days remaining until the end of the year.

On this dayin 1940, Only four months after its completion, the Tacoma Narrows Bridge in Washington State suffers a spectacular collapse.

When it opened in 1940, the Tacoma Narrows Bridge was the third-longest suspension bridge in the world. Built to replace the ferry system that took commuters from Tacoma across the Tacoma Narrows to the Gig Harbor Peninsula, the bridge spanned 2,800 feet and took three years to build. To save cost, the principle engineer, Leon Moisseiff, designed the bridge with an unusually slender frame that measured 39 feet and accommodated just two vehicular lanes.

The Tacoma Narrows Bridge opened with great fanfare on July 1, 1940. Human traffic across the waters of the Tacoma Narrows increased dramatically, but many drivers were drawn to the toll bridge not by convenience but by an unusual characteristic of the structure. When moderate to high winds blew, as they invariably do in the Tacoma Narrows, the bridge roadway would sway from side to side and sometimes suffer excessive vertical undulations. Some drivers reported that vehicles ahead of them would disappear and reappear several times as they crossed the bridge. On a windy day, tourists treated the bridge toll as the fee paid to ride a roller-coaster ride, and the Tacoma Narrows Bridge earned the nickname “Galloping Gertie.

Nov 07

Muse in the Morning

Photo Sharing and Video Hosting at Photobucket
Muse in the Morning


Basket 6

Nov 07

Late Night Karaoke

Nov 07

why romney has not conceded… yet

US Elections Live: Hour after networks call, Romney yet to concede

Typically the defeated concedes before the winner speaks. One theory is that he (Romney) isn’t willing to concede, the other is that he doesn’t have a concession speech.

Nov 07

Live Steam: Election 2012

If you can’t stand the pitiful coverage by networks and cable, there is always the alternative to shut off the TV. On the other hand if you’re addicted to finding out who won, there are alternatives. There is Al Jezeera English and Current that are carried by some cable providers. Then there is the Internet. Again Al Jazeera English and Russia Today are both live streaming. RT is embeddable.

Nov 07

2012 Election Open Thread

This is your space to share your thoughts and reactions.

My prediction?  Boring Barack Blowout.  It really isn’t even as close as all that.

Poll Closings

  • 6 pm– Parts of Indiana and Kentucky (no results yet)
  • 7 pm– Parts of New Hampshire and Florida (no results yet), Vermont, Virginia, South Carolina, Georgia, all of Indiana and Kentucky (results)
  • 7:30 pm– Ohio, West Virginia, North Carolina (results)
  • 8 pm– Parts of Michigan, North Dakota, South Dakota, Kansas, Texas (no results yet), Maine, Massachusetts, Rhode Island, Connecticut, Pennsylvania, New Jersey, Delaware, Maryland, D.C., Illinois, Missouri, Tennessee, Mississippi, Alabama, Oklahoma, all of New Hampshire and Florida (results)
  • 8:30 pm– Arkansas (results)
  • 9 pm– New York, Minnesota, Wisconsin, Nebraska, Wyoming, Colorado, New Mexico, Arizona, Louisianna, all of North Dakota, South Dakota, Michigan, Kansas, Texas (results)
  • 10 pm– Parts of Oregon, Idaho (no results yet), Iowa, Montana, Utah, Nevada (results)
  • 11 pm– Washington, California, all of Oregon, Idaho (results)

Alaska and Hawaii close much later, but the election will be well over by then.

It’s not really about the race at the top of the ticket though, it’s how badly Romney and the Tea Party Partisans have damaged the Republican brand for the under ticket.  I’m predicting +2 D in the Senate and +23 D in the House (just short of a Pelosi Speakership).

TheMomCat and I will be trying to follow the under ticket as best we can, the final results will probably not be known until the end of the week on those races.

If you’re just sick of it and want to talk about that?

It’s an Open Thread, no subject off topic.  If I wasn’t running this myself I’d be sorely tempted to watch The Looney Toons premier, the Chopped marathon or American Pickers (anyone know what I can get for my McCain/Palin ‘Wet Start’ bumper sticker?).