Monday, September 9, 2013


Johann Wagener 9-9-13

A crime is committed. Premeditated at that. The long arm of the law reaches out and snaps up the perp. Punishment is meted out. And there's a sigh of relief. Justice has prevailed!

Our jails and prisons are stuffed to the roof tops with those who dared to break the laws of this land and committing such horrific acts as possessing a bag of marijuana, or robbing a 7/11 of $200.00. Hey! Our streets are much safer is the argument we here from those who run the system.

Yet, when it comes to imposing the same rules on people like JP Morgan or S&P (?) Oh! Wait a second. These are not people, their corporations! This begs the question. Are these corporations on auto-pilot? Are they robotic-like super computers that create the policies? Who operates these corporations? Who are the decision makers? Who profits from the crimes they commit? What role do these overpaid "talented" CEO's or CFO's who like to brag about how important they are play in all this?

Chances are we'll never know because, when it comes to this elite gang of criminals they are beyond the reach of the not-long-enough arm of the law. The best our law enforcers can do is to accuse, charge, and sometimes convict (they usually just take the money and settle) notarized paper documents containing nothing more than legal jargon describing a business entity, acting as if these "corporations" are people. It's so common place even the news media headlines herald things like "JP MORGAN CHASE PLEADS GUILTY." Oh! I just remembered! The US Supreme Court decreed that corporations are indeed people! How silly of me to assume otherwise since those people in the long black robes (who probably own a few shares in these corporations) are much wiser than I am.

So, here's another example of how absurd, corrupt, and insane our justice system is;

S&P raises desperate defense against government lawsuit

The government's lawsuit against S&P has its flaws. Its deterrent value is questionable: As we pointed out when it was filed, it doesn't name any individual defendants although all this chicanery plainly reflected policies put in place and enforced by actual human beings. The feds probably won't obtain $5 billion in recovery, even if the matter goes to trial, but even a judgment at that level is money S&P's parent, McGraw-Hill, can afford.

S&P essentially argues that no one should have taken its ratings seriously in the first place. Its ratings, it says, "are not indicators of investment merit, are not recommendations to buy, sell or hold any security, and should not be relied upon as investment advice."

That flies in the face of what ratings firms are actually supposed to do. They're in business to provide investment advice. If you're an investor aiming to buy credit instruments, the No. 1 question you have is: How creditworthy are they? That's the question that firms like S&P exist to answer.

So if not that, then what did S&P do for its money? Its lawyers don't say, but followers of the investment game know the answer. The firm provided cover. No securities trader would be fired for taking the plunge on a mortgage-backed security, no matter how dubious, if it bore the seal of approval of S&P (or its rival credit rating firms, Moody's and Fitch).

The ratings S&P claims are meaningless, by the way, didn't come cheap: S&P charged up to $750,000 to rate a single tranche, or portion, of a basket of mortgage-backed securities known as a collateralized debt obligation. The firm collected more than $1 billion in revenue from investment banks and other issuers for all sort of mortgage securities from 2005 through 2007, the period during which the federal government says it kited its ratings sky-high.

Traders were absolved of performing their own due diligence to see if monstrously bad home loans were hidden within these securities; they assumed S&P did it for them. The government alleges that S&P did, in fact, know as early as 2005 that default rates on the underlying loans were soaring, but it put off downgrading the securities because it feared that taking such a negative outlook would hurt its market share in the mortgage bond rating business. Nobody loves a spoilsport — and nobody pays top dollar to get a negative credit rating, either.