Take me out to the (fixed)ball game

    Imagine a world series which was fixed. Not by the players  ("say it ain't so, Joe") but- much more efficiently-  by the umpires.

    Which is what was happening in the run up to the Financial Crisis.

    That's the conclusion to be drawn from the $1.5 Billion Standard& Poor's settlement.

    Back to and including Adam Smith economists have known and taught that  business executives are so unlikely to tell the truth, the whole truth and nothing etc.that there had to be some independent expert checking on them. So companies have to have their annual financial statements reviewed and approved (or criticized ) by  independent auditors.(To  persuade us to trust the financial statements  which they have approved , auditors dress like Herbert  Hoover ,express themselves in constipated clauses and generally look like Very  Serious People). 

    To have someone watching the watchmen the SEC .issues rulings from time to time prescribing how  auditors rule in the case of certain ambiguous situations.

    That might seem like enough review of the reviewers to guarantee that a company that announces a million dollar profit , had first actually earned a million dollars..And mostly no other arbitrator is needed

    .With one major exception.

    When companies attempt to get money  by selling shares or issuing bonds ,not only must they publish financial statement which have been approved by auditors acting under the gimlet stare of the SEC. In addition a  "rating agency" must review the Propag..........Prospectus  which supposedly allows Alan Investor to make a rational decision as to whether he wants to buy those shares or bonds.

    So now comes on to the scene Standard & Poors -mostly- or perhaps Moodys' or Fitch.And it gives a sort of  Goodhousekeeping Seal of Approval ,in the form of a "rating" which could be anything as good as AAA  or as bad as C. An AAA. or AA or just A means that those smart folks at S&P have really looked at all the information in the Prospectus ,believe it is believable and you could advise  great aunt Nellie to buy some.

    Or alternately  S&P's  "Rating" could be BBB -it's not a sure thing but there's a chance you'// get your money back. Or going down to a B (why should you?)or even worse some sort of C (kiss your investment goodbye).

    Ok with that explanation of who does what to whom now we learn that S&P is going to pay a $billion and a half because some of those "ratings" were lies.

    Ten minutes ago we recalled that Adam Smith said you can't trust Bob Businessman to always tell the truth. . And because of that some very straightlaced  people like Audrey Auditor looks over the shoulders of Bob Businessman and "certifies" whether the day-in- , day out results are really believable. And finally comes Standard & Poors and assigns a rating on  a Spectrum from AAA ( a sure thing) down to B(boy you like to take chances)or even C (kiss that investment good bye).

    And now that "final reviewer" S&P is going to pay a $Billion and a half) because its ratings were wrong: deliberate lies that helped sell C type "junk" bonds as if they were A quality.. .

    Strike three.

    Comments

    And a home run for Flavius. Love the Herbert Hoover image.


    I hereby render unto Flavius the Dayly Blog of the Day, given to all of him from all of me.

    hahahahahaha

    We humans need some sort of supervision. hahahahah

     


    Audrey Auditor is hot.


    Richard this brings back memories.

    I saw this group while visiting the Mayo.


    As I often do I treated the matter with  tongue in cheek- which I can easily imagine is considered pretty tiresome. But when even the rating agencies start  exploiting their  reputation for competence and objectivity to make a buck it's an ominous indication for the future of capitalism..Too bad.   . 


    It is amazing.  Hi, I'm S&P (or Moody's) and I rate debt on behalf of the investment community! Who pays me?  Not the investors. The debt issuers.  Of course, I have to defend my credibility somewhat, but I am still, in fact, rating my customers.

    Oh, I have an idea.  Say you want to issue a AAA rated Mortgage backed bond?  Complex stuff, we know.  What mix will win you the highest rating?  Our consulting arm can tell you. Hire our consultants, do what they say and let us rate the bond!

    This is, of course, nothing like the relationship that the accountancy/consultants had with Enron.  Nothing like it at all!


    This is an example of 'free markets' in action:

    -) no overpaid slovenly liberal government over regulating agency to slow down business

    -) no job killing taxes to produce the ratings or burden job creators

    -) Wall Street debt bundlers got what they paid for, and then some: Marketplace Magic

    -) C bond buyers got better returns, or thought they would, at lower price: Marketplace Magic

    -) the penalties were chicken feed compared to what was swindled in the deals

    -) the Fed trillion dollar taxpayer rescue comes in to bail them all out

    -) the GOP voted back into power with Wall Street backing (Koch etc) and the GOP manages to kill off new Wall Street regulations passed by Obama and the Democrats, US Marketplace Magic Election/Campaign Style.


    Wait just one goddamn minute now!

    Are you saying my America does not work?

    That sounds like a communism.

    Now I'm not saying you are a communism, but....

    hahahahah


    A bigger question, on football game fixing.

    Was deflategate a First Amendment issue?

    Speech is hot air, and the Supremes say money is speech and it's Constitutionally protected.

    Footballs are full of air and make money.  A two-for.

    Do NFL rules regulating the amount of air in footballs violate, in the same way, unconstitutional rules about the amount of money put into campaigns? This could be a h--u--g--e SCOTUS case....!


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