RatingAgency.com

Roland Berger Strategy Consultants Supports Initiative to Establish European Rating Agency

steve@lubetkin.net (steve@lubetkin.net) — Fri, 24 Jun 2011 03:40:43 PDT

Roland Berger Strategy Consultants Supports Initiative to Establish European Rating Agency

NYTimes: A Corporate Sleuth Tries the Credit Rating Field

steve@lubetkin.net (steve@lubetkin.net) — Sun, 27 Feb 2011 13:47:24 PST

From The New York Times:

A Corporate Sleuth Tries the Credit Rating Field

Jules Kroll, known for corporate detective work, wants to shake up a business tarnished by the financial crisis.

http://nyti.ms/hjwQ03

Financial Times: Moody's forecasts 'distress' for US muni markets

steve@lubetkin.net (steve@lubetkin.net) — Mon, 21 Feb 2011 04:04:20 PST

February 20 2011 10:50 PM GMT
Moody's forecasts 'distress' for US muni markets
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By Aline van Duyn in New York
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'There may be additional defaults in the municipal sector. There certainly is going to be distress'

Read the full article at: http://www.ft.com/cms/s/0/01c136f6-3d2d-11e0-bbff-00144feabdc0.html (subscription may be required).

Jules Kroll Acquires Bond-Rating License - WSJ.com

steve@lubetkin.net (steve@lubetkin.net) — Tue, 31 Aug 2010 05:50:12 PDT

This could be interesting. I wonder if the top rating will be a triple-K. Hmm, guess that might not work, on a whole bunch of levels.

Jules Kroll Acquires Bond-Rating License - WSJ.com

Bond Sale? Don't Quote Us, Say Credit Firms - WSJ.com

steve@lubetkin.net (steve@lubetkin.net) — Wed, 21 Jul 2010 15:44:28 PDT

Bond Sale? Don't Quote Us, Say Credit Firms - WSJ.com

Fascinating position for the rating agencies to be in. We expect people to rely on ratings as part of the capital markets process, but we don't want to be called experts because that might mean we'd actually have to demonstrate some kind of discipline to our criteria and quality control of our ratings.

It's not just about the agencies

steve@lubetkin.net (steve@lubetkin.net) — Fri, 28 May 2010 03:23:05 PDT

Buried in Credit Agencies Under Fire at Conference - Finance Career Management, Finance Career News - fins.com, which covers extensively the lambasting that the agencies took again this year at the Ira Sohn Research Conference, is a warning from Steve Eisman of FrontPoint Financial Services Fund about a pending collapse in the financial instruments funding the commercial education companies. His preso is called "Subprime Goes to College." (Hat tip to the MarketFolly blog for summarizing the presentations, which don't seem to be available online yet.)

Hey, Schweethart, get me bond ratings.

steve@lubetkin.net (steve@lubetkin.net) — Mon, 24 May 2010 04:13:24 PDT

An interesting new entrant into the bond ratings business is Kroll Bond Ratings, whose startup is reported by Integrity Research in A Shake Up is Comming [sic] in the Credit Rating Space. Yes, it's the same Kroll that started the high-end detective agency in 1972, Kroll Associates.

Kroll claims it will do less predictive modeling to assign ratings, and will actually send people to see if mortgage-backed houses are being lived in. Good luck staffing that!

Suddenly, the Rating Agencies Don’t Look Untouchable - NYTimes.com

steve@lubetkin.net (steve@lubetkin.net) — Sat, 22 May 2010 20:45:16 PDT

Suddenly, the Rating Agencies Don’t Look Untouchable - NYTimes.com

Do you smell something burning?

steve@lubetkin.net (steve@lubetkin.net) — Thu, 20 May 2010 17:38:55 PDT

Do you think get-rich-quick schemes only catch unsuspecting private individuals in their webs? Think again. Between luxury stadium projects that only benefit sports team owners and toxic derivatives investments, you'd think municipal officials across the US had money to burn. In Harrisburg, that's essentially what they did, burned up their finances in an incinerator project financed with municipal debt. Bad move.

Lost Bet on Incinerator Leaves Harrisburg in the Red - NYTimes.com

Ratings Agencies to Lose Stranglehold on Market? - Finance Career Management, Finance Career News - fins.com

steve@lubetkin.net (steve@lubetkin.net) — Mon, 17 May 2010 03:08:46 PDT

Ratings Agencies to Lose Stranglehold on Market? - Finance Career Management, Finance Career News - fins.com

Sovereign defaults 101

steve@lubetkin.net (steve@lubetkin.net) — Wed, 05 May 2010 11:35:37 PDT

Sovereign defaults 101 - A good story in lay terminology from the National Post of Canada.

Paul Krugman, Op-Ed Columnist - Berating the Rating Agencies - NYTimes.com

steve@lubetkin.net (steve@lubetkin.net) — Mon, 26 Apr 2010 17:58:31 PDT

Paul Krugman suggests radical changes to the way rating agencies get paid, in "Berating the Rating Agencies" - NYTimes.com.

Recall that the current system of rating agencies being paid by issuers began after the Penn Central commercial paper defaults in the 1970s, when investors and their investment banks -- caught by surprise by the default on "Prime" paper -- demanded that the agencies do a better job of anticipating problems. The agencies agreed to ramp up their analytics, but told the banks they would have to foot the bill for the huge investments in technology and analysts that would be required. The banks agreed, and the current system of pay-for-ratings was born.

Rating agencies have the advantage of being written into the securities laws. They would face largely the same existential problem newspapers now face if they weren't required by law, and if they depended on investors to pay for the rating analysis. There would be few investors willing to pay. And no reason to do so.

Take me out of the ball game...

steve@lubetkin.net (steve@lubetkin.net) — Sun, 25 Apr 2010 05:30:48 PDT

It seems yet another big city newspaper has suddenly realized that all that stadium development over the past 25 years has basically been a great deal for sports team owners, but less than helpful to taxpayers or the local businesses hoping for a boost in traffic.

The Philadelphia Inquirer today (Camden's baseball-inspired rally comes up short | Philadelphia Inquirer | 04/25/2010) examines the Camden River Sharks stadium. Sadly, the minor league teams have done a way better job of being good community neighbors and making a nice family sports experience available to their fans. You can go to a minor league game and not be set back $300-400 for the evening. Try taking a family of four to a Phillies game for under $200.

We wrote about stadium development in December when the New York Times "discovered" this decades old reality.

To review, stadium development was foisted on taxpayers by team owners who claimed it was a way to stimulate economic development. New stadia would generate business for shops around the site, and companies wouldn't dream of locating their expansion plans in a city that didn't have such a great new stadium.

It's mostly poppycock. (This is a family blog.)

And this is not a new story, despite how shocked, shocked, the local newspapers suddenly profess to be.

Standard & Poor's analyst Robert Durante was warning about the poor economics of stadium development in the early 1990s. I know, because I helped get him interviewed by media in cities that were considering such luxury stadium development.

It didn't make sense economically then, and people shouldn't be surprised now.

Sports fans -- and wealthy, powerful team owners -- always drown out the rational voices in this conversation. Fans are so invested in their "teams" -- and owners in lining their own pockets -- that they will demand their elected officials make ill-advised economic deals to keep the team in town. It doesn't matter how bad the deal is for fans, taxpayers, and local businesses.

To prove it, please name one company, just one, where the CEO said, "We'd love to build a factory or office in your city, but you don't have a new baseball stadium, so we have to go elsewhere."

The only people who benefit from a taxpayer funded stadium are the people who own the team and control the prices at the stadium. Read and repeat, please.

Alter ego companies, or, we just do the paperwork...

steve@lubetkin.net (steve@lubetkin.net) — Tue, 13 Apr 2010 03:46:23 PDT

In today's New York Times we learn about how Lehman Brothers used a company it controlled to shift debt associated with asset-backed securities off its books. See Lehman Used ‘Alter Ego’ to Transfer Risks - NYTimes.com.

It reminded me of a conversation I had many years ago at one of S&P's Asset Backed Securitization conferences. At the height of the asset-backed boom in the mid-90s, these conferences were held at the Renaissance Esmeralda Resort in Indian Wells, CA.

I met a fellow at the conference's cocktail party ("at the drinks," the Brits would say) who, with his cousin, had found a great way to make money from the asset-backed market without much of the credit risk.

Each asset-backed structure requires the creation of a "special purpose corporation" that would own the underlying collateral, mortgages, car loans, or whatever.

This SPC, as they are acronymized, is supposed to be "bankruptcy remote," meaning that the company issuing the bonds would have no incentive to file the SPC into bankruptcy, because then all of those loans would come back onto the issuing company's balance sheet.

Each of these SPCs, and remember, every structured bond issue has its very own SPC, has to be incorporated as a real company in a real state. They have to have a board of directors and file board minutes with the state in which they are incorporated, etc.

So this fellow and his cousin, recognizing a need and providing a service to all the issuing banks, set up a company to do nothing more than incorporate SPCs and hold board meetings and file all the papers etc. The banks loved the service because it was less administrative headaches for them.

And my drinks companion and his cousin turned an administrative headache into a very nice living just creating the companies that helped Lehman and all the others get us into this mess.

Moody's and S&P dodge a legal bullet yet again...

steve@lubetkin.net (steve@lubetkin.net) — Thu, 01 Apr 2010 15:55:38 PDT

Judge Rakoff Throws Out Suit Against Moody’s and S. and P. - NYTimes.com

Was Bank of America In on Repo 105-style Accounting Tricks? - ProPublica

steve@lubetkin.net (steve@lubetkin.net) — Wed, 24 Mar 2010 04:31:02 PDT

And the blog author is surprised at the statement from BofA spokesman Silvestri?

Was Bank of America In on Repo 105-style Accounting Tricks? - ProPublica

Wall Street Journal report: Lehman Whistle-Blower's Fate: Fired - WSJ.com

steve@lubetkin.net (steve@lubetkin.net) — Tue, 16 Mar 2010 04:09:15 PDT

Same old story in the financial services industry. Kill the messenger, cover the mess, regulators and bond raters totally asleep at the switch.

Lehman Whistle-Blower's Fate: Fired - WSJ.com

Fair Game - The Swap Contracts That Swallowed Your Town - NYTimes.com

steve@lubetkin.net (steve@lubetkin.net) — Sat, 06 Mar 2010 14:14:12 PST

Gretchen Morgenson makes excellent points about the muni swaps market in Fair Game - The Swap Contracts That Swallowed Your Town - NYTimes.com.

The fatal flaw in all these financial scenarios is a lot like so many other things that go wrong. No one believes the "worst case" scenario will ever happen, so they don't model what that would look like for them.

No one believed that the temperature in Florida would be below freezing for a space shuttle launch, so no one crosstabbed O-ring erosion against ambient temperature. No one who gets an ARM mortgage ever believes that the mortgage rate will reset at the annual maximum or the lifetime maximum, so they never bother to calculate what that monthly payment looks like. Ask all the dentists and doctors who invested in boxcars in the 1970s how that worked out for them when changes to the investment tax credit in the tax laws made boxcars toxic.

So why are they are shocked, shocked! when the impossible actually happens?

Rule of thumb: start with the worst case scenario and see if the deal makes sense under worst case stress. If it doesn't make sense there, it doesn't make sense under the great terms being proposed. That's not really hard to understand. Greed just gets in the way.

Commercial Real Estate Threat to Banks

steve@lubetkin.net (steve@lubetkin.net) — Sat, 13 Feb 2010 18:58:08 PST

msnbc.com: Commercial Real Estate Threat to Banks

Visit msnbc.com for breaking news, world news, and news about the economy

U.S. debt fears make Germany a safer haven, Pimco bond director says

steve@lubetkin.net (steve@lubetkin.net) — Tue, 09 Feb 2010 02:55:34 PST

A fascinating perspective on the bond markets in a Reuters report in the Financial Post of Canada, entitled

U.S. debt fears make Germany a safer haven, Pimco bond director says. Mohamed El-Erian, head of PIMCO, is quoted saying "As we stand today, we prefer to take interest rate risk like government bonds in Germany, which has much better conditions than in the United States."

El-Erian's comments follow a January warning by Moody's Investor Service that the US sovereign 'AAA' rating is under pressure.

It's a measure of how much the world has changed that bond funds think Germany is a more stable economic market than the US, and Moody's thinks it might ding the US 'AAA' rating.

Please fasten your seat belts and remain seated, the captain has not yet parked the plane at the gate.

Breakingviews | PNC

steve@lubetkin.net (steve@lubetkin.net) — Mon, 08 Feb 2010 10:13:48 PST

Breakingviews | PNC

S&P jumped the gun on its announcement of PNC Financial's capital raising. Apparently issued its comment before the bank had made its plans public.

Build it and even if they don’t come, you’ll be paying for it forever, not us.

steve@lubetkin.net (steve@lubetkin.net) — Fri, 25 Dec 2009 05:36:49 PST

The New York Times reports today, in “Stadium Boom Deepens Municipal Woes, (http://www.nytimes.com/2009/12/25/sports/25stadium.html?ref=business) that taxpayers are being asked to cough up money to cover shortfalls from the boom in taxpayer-financed stadium construction over the past decade.

Reports the Times’ Ken Belson,

From New Jersey to Ohio to Arizona, the stadiums were sold as a key to redevelopment and as the only way to retain sports franchises. But the deals that were used to persuade taxpayers to finance their construction have in many cases backfired, the result of overly optimistic revenue assumptions and the recession.

These stadia were sold to taxpayers as an economic savior. Companies won’t relocate their headquarters to a town that doesn’t have a great social life, citizens were told. We have to have a sports franchise or people won’t set up shop here. As Dr. Phil would say, “How’s that working for you?” Not very well, it seems.

It will come as no surprise to readers of stadium bond analyses by S&P over the 1990s that the chickens are coming home to roost in cities that cut sweetheart deals to keep pro sports teams in town by paying for stadia that the teams demanded.

S&P took a high profile at the time, making its analysts available to comment on muni sports bond issues, and they all but predicted the current collapse of municipal sports bond issues – but then the media access was cut off by worried S&P execs who, apparently getting heat from municipal clients about the negative assessments of bond issues for sports teams, wanted to keep rating the deals (and presumably getting the fees for those deals).

In S&P’s estimation at the time, football stadiums generate little incidental revenue for towns other than hot dog and beer sales, since there are only 8 or 9 games a year. Baseball is only marginally better, even though there are about 70 games.

Cities shouted down critics of these sub-prime financial deals for years, branding them anti-business and traitors to the sports fans.

Now cities and their taxpayers are surprised that they are stuck with all the debt and the teams don't care?

In case you don’t understand how tone deaf sports teams can be, remember that the Philadelphia Eagles players just gave Michael Vick an award for “courage.”

Huffington Post: Barney Frank Vs. The Credit Raters (VIDEO)

steve@lubetkin.net (steve@lubetkin.net) — Sat, 19 Dec 2009 12:40:46 PST

On Friday, the Huffington Post reported that

After deftly dodging federal regulation for years, the nation's top credit rating companies now must get past the formidable Barney Frank.

Cluelessness must come with getting big bonuses

steve@lubetkin.net (steve@lubetkin.net) — Tue, 15 Dec 2009 17:58:14 PST

I’m sitting here both appalled and outraged at what is either utter disrespect shown to the President by the heads of Morgan Stanley, Goldman Sachs, and Citibank -- or total cluelessness by these guys about how to get around in life.

They are so unwilling to give up any of their entitlements – like flying EVERYWHERE -- that they don’t even realize that flying from New York to Washington is one of the biggest time-sucks in the universe of which they claim to be Masters.

You probably know that they missed a meeting at the White House because their commercial flight from New York was delayed by fog.

The amazing thing is that Andrew Ross Sorkin, the chief mergers and acquisitions reporter of the New York Times, was the only media person who called them out on their inability to think outside the aviation box.

Andrew Ross Sorkin

Sorkin is the author of the best-seller, Too Big to Fail, which chronicles the financial collapse of the past year and a half.

[Amazon Associates Link below]

Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System---and Themselves

In his December 15 DealBook column, “Putting Obama on Hold, in a Hint of Who’s Boss,” Sorkin noted that

President Obama didn’t exactly look thrilled as he stared at the Polycom speakerphone in front of him.

Can you blame him?

Imagine what Obama must have been thinking.

“Excuse me? Flying to Washington from New York?”

I had the same reaction when I first started working on Wall Street in 1991 and someone was arranging to fly to Washington for a hearing.

Look, it takes longer to get driven by car service or limo to any airport in the New York metropolitan area and go through airport security, land at Washington’s Reagan Airport, get a cab, and get to the White House than it does to hop on an Amtrak Acela train at Penn Station, and arrive a couple of hours later ten minutes from the White House.

For God’s sake, you could even walk from Union Station in Washington if you wanted to!

And Sorkin picked up on this fine point of transportation logistics in his column.

If the meeting were really that important to Mr. Blankfein, Mr. Mack and Mr. Parsons, they would have found a way to get there.

They would have left the night before, or they would have flown out at the crack of dawn, or better yet, taken Amtrak (I called customer service, and the Acela was running only a couple of minutes late).

But the heads of three of the largest financial institutions in the world don’t even think about some other way of getting there.

They are so wedded to their power tools, like private limos, private jets (although they left them home this time and were trying to fly commercial), that they just don’t know how to exist without them.

And that goes straight to the heart of Wall Street’s continued problem.

The people who run the institutions – and almost ran the economy into the ground – simply don’t know any other way to behave except as if they are more privileged, more entitled, somehow better than the rest of us.

I remember an interview some years ago with Graham Claytor, the legendary railroad man who had retired from Norfolk Southern and took on the challenge of running Amtrak.

He decreed that Amtrak executives should take the train if Amtrak had service to a destination they wanted to reach, even to the West Coast.

One vice president, unhappy at not being able to fly, confided to the reporter that he secretly paid out of his own pocket for a YMCA membership in Chicago so he could shower after an overnight train ride.

“Anybody who needs a shower every day, it’s too god-damned bad,” Claytor thundered when he heard that. “He shouldn’t work for the railroad!”

President Obama needs to tell these bankers to hit the showers.

Investors: News Releases - The McGraw-Hill Companies

steve@lubetkin.net (steve@lubetkin.net) — Tue, 13 Oct 2009 17:21:47 PDT

Investors: News Releases - The McGraw-Hill Companies

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