Holding Accountable: Big 3 Credit Rating Agencies.

An Italian prosecutor has done what US prosecutors should have done long ago. The financial meltdown and credit crisis gridlock of 2008 brought the criminal role played by banks, particularly investments banks, under severe scrutiny. Though nobody in the banking sector got punished over what was whitewashed as systemic failure. Once system is at fault, that means everybody is to be blamed, then obviously it means that nobody is at fault. Everyone is treated as an equal participant in a game, even when that participation is patently and hugely unequal, and where the outcomes too are disproportionately unequal. While the ordinary citizens suffered, the executives at the banks walked away with handsome payouts for their contribution in bringing the system to a grinding halt.
But in all this imbroglio, the credit rating agencies got away unscathed with their reputations still intact. The big three, –S & PFitch– Moody-, who had gold plated the ratings of Collaterized Debt Obligations [CDO] and such other exotic financial instruments to highest grade are still in business, though those very instruments were shown to be worse than junk. Either it was a matter of Credit Rating Collusion [CRC], a crime worse than even Insider Trading, which too involves breach of trust, or sheer lack of Competence.  Their crime was worse because in insider trading someone derives personal benefit or helps someone to derive such benefit based on confidential information he came to possess in trusteeship. But CRC is downright cheating and fraud by someone, who in fact is trusted to deliver quality information on credit worthiness of companies, institutions or financial instruments. CRC destroys the very foundation of trust.   Either way they deserved to be skewered. Yet the Big-3 continue to play havoc with national economies across the globe with their threats of or actual Credit Ratings Downgrades. They are law unto to themselves, who even sovereign governments reputedly fear. Except in case of sovereign ratings, these agencies are paid by the very companies or institutions they rate. Can one have a better example of conflict of interests?
At last their role is coming in for judicial scrutiny at an Italian town of Trani for their meddlesome Sovereign Ratings. Earlier this month, S & P lost a case in Australia: ^^S&P’s rating of AAA of the Rembrandt 2006-2 and 2006-3 CPDO notes was misleading and deceptive and involved the publication of information or statements false in material particulars, and otherwise involved negligent misrepresentations to the class of potential investors in Australia….S&P’s AAA rating of constant proportion debt obligation notes created by banking giant ABN AMRO and sold to the councils of 13 Australian towns, had been misleading and deceptive….Within months of the councils buying the CPDOs, the notes defaulted….S&P, ABN AMRO and LGFS to each pay one-third of the small mostly mining and farming councils’ losses plus interest^^. Dozens of such cases have been brought against these rating agencies, but few have been pursued with the required rigour. Case in Italy would be the first for sovereign ratings.
Michele Ruggiero investigated the rating agencies for 2 years before pressing charges: ^^Italian prosecutors on Monday requested that officials at ratings agencies Fitch and Standard & Poor’s – including London-based staff – stand trial on charges of market rigging connected to their downgrading of Italy.  Prosecutors in the southern town of Trani alleged that five S&P officials had deliberately supplied markets with tendentious and distorted information about the reliability of Italian credit and initiatives taken by the Italian government to restore and relaunch the economy. The agency, the prosecutors added, helped discourage the purchase of Italian public debt and thus drive down its value^^. In the course of investigations, the prosecutors had interviewed ^^Mario Draghi, who was governor of the Italian central bank at the time and now heads the European Central Bank. Draghi told investigators that ratings agencies were highly lacking^^. 
The trial is seen as symbolic by some, but the Italian consumer groups are taking it very seriously: ^^Italy’s Association for Clients of Banking and Financial Services (Adusbef), which formulated the original accusations, is planning a class action lawsuit against the agencies together with another consumer group, Federconsumatori. The damages estimated by the consumers groups are €120 billion – the equivalent of the austerity packages Italy adopted after investor confidence started spiralling down and borrowing costs shot up^^. Even if a fraction of that amount is assessed by the judges as to damages to be made good by the agencies, it would put this self serving cabal out of business. Reportedly, FBI has accessed the 8000 page report by the Trani prosecutors for its own investigations. US should be acutely interested as it is facing a credit rating downgrade over its unmanageable [?] fiscal cliff. May be in this instance deservedly so. 
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: