S&P Says Its Claims to Honest Objectivity and Independence Were 'Puffery'

"There was a young man who had an aged father and mother who owned considerable property. The young man, being an only son, and believing that the old people had outlived their usefulness, killed them both. He was accused, tried and convicted of murder.

When the judge came to pass sentence upon him, he called on him to give any reason why the severest sentence should not be passed.  The young man promptly replied that he hoped the court would be lenient because he was an orphan."

Abraham Lincoln

Puffery, for those unacquainted with the technical term, is a euphemism concocted by the legal profession.  It means untruth in advertising.

"Puffery as a legal term refers to promotional statements and claims that express subjective rather than objective views, which no "reasonable person" would take literally. Puffery serves to "puff up" an exaggerated image of what is being described and is especially featured in testimonials."

It is one thing to apply it to some advert on television, that it is puffery to say that this person thinks our detergent cleans best. It may be quite another thing to state that when a firm claims to offer objective and honest advice, which is why the customer is buying it in the first place, that is mere 'puffery.'

When the truth becomes tortured enough, the rationalizations for failure and even deception become increasingly bizarre.

There is the CEO defense: I wasn't really involved in the things for which I received huge sums of money.

There is the bureaucratic defense: We didn't know because we didn't see it.

And now we have the ratings agency defense: It can't be fraud, because everyone knows we are not objective and independent, even though we say we are and sell our services based on that claim.

This isn't all that far from that venerable Wall Street defenses so often trotted out after a stock bubble and fraud collapses:  Well, no one made them give us their money and  Everyone was doing it and Everyone knows the game is rigged.

These are tales from the schoolyard.  This is the credibility trap.

WSJ
S&P Has Unusual Defense
By Jeanette Neumann
April 22, 2013, 3:00 p.m. ET

Standard & Poor's Ratings Services has long declared that its letter-grade ratings are independent and objective, part of a bid to allay concerns over its business model...

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...

The federal government says that the rating firm committed fraud when it allegedly misrepresented its ratings as independent and objective.

"Even if it's a viable legal argument, it's a pretty unattractive argument for S&P to be putting forward since they're basically in the business of charging clients for their reputation," said Samuel Buell, a law professor at Duke University and a former federal prosecutor. "What they're saying here is, 'When we're talking to investors about our own reputation, we're engaging in meaningless puffery.' "

Read the remarkable story here.

Goldman Closes Its Gold Short - Krugman Looks But Does Not See

As you may recall, Goldman's call to short gold set off the precipitous decline through long term support as paper gold was sold in size during the quiet trading hours.

And as gold fell through 1400 traders said Goldman was in the market buying physical bullion.

And now their short recommendation comes off.

That Goldman is called a Bank, with access to the Fed window, the subsidy of cheap government funding, and the protection of deposit insurance is a disgrace.

A footnote in history perhaps, but worth remembering.

"We have closed our recommendation to short COMEX Gold, as prices moved above the stop at $1,400/toz. We have exited the trade significantly below our original target of $1,450/toz, for a potential gain of 10.4%.

The move since initiation was surprisingly rapid, likely exacerbated by the break of well-flagged technical support levels.

Our bias is to expect further declines in gold prices on the combination of continued ETF outflows as conviction in holding gold continues to wane as well as our economists’ forecast for a reacceleration in US growth later this year."

The Land of the Blind

Paul Krugman said something absolutely remarkable today. Here is the quote:

"It’s true that few anticipated the severity of the 2008 crisis — but that wasn’t a deep failure of theory, it was a failure of observation. We actually had a pretty good understanding of bank runs; we just failed to notice that traditional banks were a much smaller share of the system than before, and that unregulated, unguaranteed shadow banks had become so important."

Paul Krugman, A Heart Breaking Work of Staggering Folly

Oh I see. You weren't wrong, you just weren't looking.

Are you kidding me?  Your theory is fine, but your excuse is that you do not understand the fundamental structure of the system at the core of your work, for which you feel free to make policy recommendations?   

So tell us,  what other things aren't you looking at in the real world these days? 

How about the widespread corruption in the banking and financial system, and the egregious manipulation in the markets?   Don't you think that bears on the nature of the prescriptions which the economists are dispensing?  

Economists are certainly the authors of 'heartbreaking works of staggering folly.'   And in addition quite a few of them seem to have an underdeveloped sense of irony.

 

Gold Daily and Silver Weekly Charts - Physical Buying in Asia - Irish Pension Accounts Get Cyprus'd

"If it's beautifully arranged on the plate, you know someone's fingers have been all over it."

Julia Child

Intraday commentary here.

Reggie Middleton warns that Irish Savers Have Just Been 'Cyprused'

"This is likely to be the biggest finacial story of the month, a story that's bigger than Cyprus, and a story that you're not going to see in American mainstream media - not by a long shot."

It looks likewith retirees with Approved Retirement Fund accounts at the bank are getting wiped out along with the senior bondholders.   Whatever is not covered by the 100,000 deposit guarantee is being 'bailed-in.'

With regard to the bullion market the Financial Times reports that:

"Asia is witnessing one of the strongest waves of physical gold buying in 30 years, with bargain hunters using the drop in prices to secure jewellery and gold bars."

As a reminder the 25th is a Comex option expiration.

GDP on Friday. Company earnings and revenue results on the stock market are tending to be disappointing especially on the revenue number.

SP 500 and NDX Futures Daily Charts