You're probably going to be surprised that I take this position, but that's ok -- I'm known for calling them as I see 'em, and this is no exception.
The uproar is over S&P asserting a "puffery" defense to fraud claims by the government in relationship to its ratings.
The problem with the outrage is that it's directed in the wrong place -- S&P is right.
Now, lawyers defending the company against the Justice Department's recent civil lawsuit say that statements about independence and objectivity are "puffery" and were never meant to be taken at face value by investors.
You don't watch TV, do you?
"Time to get in the game!" -- local commercial on TV by Realtors.
"It's a great time to buy a car!" -- statement made by every car dealer, ever, anywhere.
"This is the best cellphone eva!" -- Apple.
"Siri knows" -- ibid.
And on and on and on.
Nowhere have you ever heard:
"It's a terrible time to buy condos; that $200,000 price is at least 50% overinflated and your operating costs are ridiculous with maintenance and common area expenses." -- Never said by a Realtor, ever, anywhere.
So why is S&P different from anyone else? Of course they are going to represent that they're great people in their public statements and advertising. Of course they're going to sell themselves.
But unless you have a material, knowing misrepresentation of fact made by them and relied upon by others then their "general" statements of "integrity" and "business reputation" are in fact puffery.
So where's the fraud?
That's simple: It's in the government that has put forward laws and regulations demanding that various entities only buy things rated by firms that have an inherent conflict of interest.
The Government knew damn well that its demand through these regulations were predicated on a fraudulent premise.
In other words it is the government that has defrauded people by elevating commercial puffery to statements of fact, not S&P.
If you want to hang someone for what happened start with your Congressman.
Banks are leaving the panel that sets ISDAFix, the benchmark for the $379 trillion swaps market, as regulators probe suspected manipulation of the rate.
HSBC Holdings Plc (HSBA), Europe’s largest bank by assets, and Japan’s Mizuho Financial Group (8411) stopped contributing to the ISDAFix dollar rate between November and January, and haven’t been replaced, documents on the International Swaps and Derivatives Association’s website show. The industry group didn’t give any reason for the lenders’ departure.
There's no reason for banks to rig such a market, right? I mean, it's only the size of the global economy 100x or so over in notional value, with literal billions riding on a single basis point.
The CFTC is probing whether ICAP brokers delayed updating rate-swaps prices on the so-called 19901 screen, which displays swaps prices, after they facilitated a trade between banks, according to one person familiar with the matter and a former broker in ICAP’s Jersey City rate-swaps group who both asked not to be identified because of the investigation.
Yeah, nothing like holding back a price for profit.
This sort of crap, incidentally, is why allowing "bespoke" execution of these things is an outrage. We're talking about contracts where the solvency of the side that's short (and thus may have to pay) is open to question yet unable to be proved up since there are no public posted margins (where everyone can see them -- or your failure to deliver them) and the size of the transactions dwarf the economy of the nation in which you operate.
I have long held that there is only one way to stop the BS that goes on these markets, and that's by forcing all derivative contracts onto public exchanges where bid, offer and trade prices are independently posted as the transaction takes place, visible to everyone, and in addition public compliance with published and known margin requirements can be ascertained.
That would put an instant stop to the games.
But those games make banks billions at the expense of their customers every single year. There is no argument in terms of market fairness or anything else for that matter, other than the game of "screw you" that banks run on their customers and hiding the true state of a financial firm's balance sheet, that can be raised for not forcing all of these contracts onto public exchanges.
What we need to see, in addition to public exchanges for these (and all other) contracts, is this:
I know, Bernie Sanders is a socialist.
Call him what you want, he has a nice, single-subject, simple bill.
It reads 30 lines.
It achieves exactly one goal.
And it does so with surgical precision.
I like it and support it.
To address the concept of ‘‘Too Big To Fail’’ with respect to certain financial entities.
1 Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
3 SECTION 1. SHORT TITLE.
4 This Act may be cited as the ‘‘Too Big to Fail, Too
5 Big to Exist Act’’.
6 SEC. 2. REPORT TO CONGRESS ON INSTITUTIONS THAT
7 ARE TOO BIG TO FAIL.
8 Notwithstanding any other provision of law, not later
9 than 90 days after the date of enactment of this Act, the
10 Secretary of the Treasury shall submit to Congress a list 2
1 of all commercial banks, investment banks, hedge funds,
2 and insurance companies that the Secretary believes are
3 too big to fail, which shall include, but is not limited to,
4 any United States bank holding companies that have been
5 identified as systemically important banks by the Finan-
6 cial Stability Board (in this Act referred to as the ‘‘Too
7 Big to Fail List’’).
8 SEC. 3. BREAKING-UP TOO BIG TO FAIL INSTITUTIONS.
9 Notwithstanding any other provision of law, begin-
10 ning 1 year after the date of enactment of this Act, the
11 Secretary of the Treasury shall break up entities included
12 on the Too Big To Fail List, so that their failure would
13 no longer cause a catastrophic effect on the United States
14 or global economy without a taxpayer bailout.
15 SEC. 4. DEFINITION.
16 For purposes of this Act, the term ‘‘Too Big to Fail’’
17 means any entity that has grown so large that its failure
18 would have a catastrophic effect on the stability of either
19 the financial system or the United States economy without
20 substantial Government assistance.
My evidence is here:
Note who it's from, their position and the letterhead. There's only one question: Is the letter real or is it a spoof? Note that the question that led to it is real, as it was published in the FT.
More the point, if this sort of nonsense continues to go unpunished and the acts stand, we do know that Cypriot politicians did rule out confiscation of deposits shortly before they did so, and you continue believe a word that comes out of Bernanke's mouth -- or that of the FDIC, OTS, OCC or any other US Federal regulatory agency on a similar matter the case is closed.
YOU ARE A FOOL AND WILL SOON BE BROKE
As word spread through Cyprus about the proposed bailout, citizens began lining up at banks to withdraw their money, and many banks closed. Though they’ve rejected the latest version of the bailout, the Cypriot Parliament will debate the proposal with the particular aim of protecting smaller depositors from having to pay the tax. Meanwhile, a scheduled bank holiday was extended from Monday through Wednesday.
All of this has nevertheless led to speculation about whether a similar situation could befall Americans. If American banks were in trouble, could they impose a tax on depositors? More importantly, if everyone rushed to take their money out of the bank in order to avoid the tax, would banks and ATMs shut down, as many have in Cyprus?
According to the Federal Depository Insurance Corporation, your money is safe and you shouldn’t worry.
There is an identical deposit insurance system in Cyprus and, for that matter, in the rest of the Euro Zone with a €100,000 limit. They will not pay on this, nor will the FDIC if it happens here, because it is not a "loss", it is a tax.
The FDIC does not protect you from taxation just as the EU's deposit insurance doesn't.
The Cypriot deposit insurance claim is just a strong as our FDIC claims are!
You let this door be opened when you permitted Obamacare to be passed and then you have continued to sit back when California recently retroactively imposed a tax on business sales going back four years.
This is the same thing folks. Your money can and will be stolen in this fashion if the government decides to do it, and the FDIC will pay you exactly nothing. The only thing standing between your money and this sort of theft is an act of Congress which they could (and will, if they choose to) pass in the middle of the night, buried in the 2,213nd page of some unrelated bill.
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