Taibbi: The Last Mystery of the Financial Crisis

Again, how ironic that the truth is coming out, slowly, but certainly not in the mainstream media, which is covering itself in shame.

The financial crisis was not something that just happened. It was nothing like an act of God.

It was a despicable fraud perpetrated by the biggest Banks, and their enablers, over a long period of time.

And many are complicit in the coverup. It is the credibility trap.

The Last Mystery of the Financial Crisis
It's long been suspected that ratings agencies like Moody's and Standard & Poor's helped trigger the meltdown. A new trove of embarrassing documents shows how they did it
by Matt Taibbi
JUNE 19, 2013

What about the ratings agencies?

That's what "they" always say about the financial crisis and the teeming rat's nest of corruption it left behind. Everybody else got plenty of blame: the greed-fattened banks, the sleeping regulators, the unscrupulous mortgage hucksters like spray-tanned Countrywide ex-CEO Angelo Mozilo.

But what about the ratings agencies? Isn't it true that almost none of the fraud that's swallowed Wall Street in the past decade could have taken place without companies like Moody's and Standard & Poor's rubber-stamping it? Aren't they guilty, too?

Man, are they ever. And a lot more than even the least generous of us suspected.

Thanks to a mountain of evidence gathered for a pair of major lawsuits, documents that for the most part have never been seen by the general public, we now know that the nation's two top ratings companies, Moody's and S&P, have for many years been shameless tools for the banks, willing to give just about anything a high rating in exchange for cash.

In incriminating e-mail after incriminating e-mail, executives and analysts from these companies are caught admitting their entire business model is crooked.

"Lord help our fucking scam . . . this has to be the stupidest place I have worked at," writes one Standard & Poor's executive. "As you know, I had difficulties explaining 'HOW' we got to those numbers since there is no science behind it," confesses a high-ranking S&P analyst. "If we are just going to make it up in order to rate deals, then quants [quantitative analysts] are of precious little value," complains another senior S&P man. "Let's hope we are all wealthy and retired by the time this house of card[s] falters," ruminates one more.

Ratings agencies are the glue that ostensibly holds the entire financial industry together. These gigantic companies – also known as Nationally Recognized Statistical Rating Organizations, or NRSROs – have teams of examiners who analyze companies, cities, towns, countries, mortgage borrowers, anybody or anything that takes on debt or creates an investment vehicle.

Their primary function is to help define what's safe to buy, and what isn't. A triple-A rating is to the financial world what the USDA seal of approval is to a meat-eater, or virginity is to a Catholic. It's supposed to be sacrosanct, inviolable: According to Moody's own reports, AAA investments "should survive the equivalent of the U.S. Great Depression."

It's not a stretch to say the whole financial industry revolves around the compass point of the absolutely safe AAA rating. But the financial crisis happened because AAA ratings stopped being something that had to be earned and turned into something that could be paid for.

That this happened is even more amazing because these companies naturally have powerful leverage over their clients, as they are part of a quasi-protected industry that enjoys massive de facto state subsidies. Largely that's because government agencies like the Securities and Exchange Commission often force private companies to fulfill regulatory requirements by retaining or keeping in reserve certain fixed quantities of assets – bonds, securities, whatever – that have been rated highly by a "Nationally Recognized" ratings agency, like the "Big Three" of Moody's, S&P and Fitch. So while they're not quite part of the official regulatory infrastructure, they might as well be...

Read the rest of this article here.

US Equity Futures Intra-Day Look

Here is the picture in equities.

As for gold and silver, the selling of thousands of contracts in quiet hours with the intent of driving the price lower is obvious, and there for all to see.

Someone is trying to free up bullion from the ETFs. But someone, perhaps another related party, is also making a statement.

Gold Daily and Silver Weekly Charts - Pretty Much as Expected, With a Twist

"There is something on earth greater than arbitrary or despotic power. The lightning has its power, and the whirlwind has its power, and the earthquake has its power; but there is something among men more capable of shaking despotic thrones than lightning, whirlwind, or earthquake, and that is, the excited and aroused indignation of the whole civilized world."

Daniel Webster


"In the realm of economics, price controls are designed to constrain volatility on the grounds that stable prices are a good thing. But although these controls might work in some rare situations, the long-term effect of any such system is an eventual and extremely costly blowup whose cleanup costs can far exceed the benefits accrued.

The risks of a dictatorship, no matter how seemingly stable, are no different, in the long run, from those of an artificially controlled price."

Nassim Taleb, The Black Rose of Cairo, Foreign Affairs v.90 iss 3

In the best of times, the market is often a short term indicator of itself and its own internals, and little else.  Although it generally maintains some connection with the underlying reality of what it is intended to represent.  It is over the longer term that value is properly discovered and priced, if allowed to proceed without undue interference.

In times like these with genuine investors in short supply, and traders and automated programs gaming nearly everything based on internals, one has to be careful not to read too much into daily moves in market price.  That is a sad artifact of a poorly regulated market, and especially of one that is being manipulated by some temporary, albeit powerful, force.

There was nothing unexpected in what Bernanke or the Fed had said. What surprised me was the depth of the stock sell off AND the fact that while stocks were falling, VIX was falling as well. Although VIX did come back a bit into the close. Traders are certainly petrified aren't they. Not.

I hear a thin crowd turned up to hear Obama speak in Berlin today, as compared to the adoring masses that turned out for his last speech there. And that approval by the people of the Congress is hovering around 10 percent.

Is the bloom off the rose? O rose thou art sick.

Let's see what tomorrow brings. But there was nothing in what Bernanke said today that leads me to conclude that things are improving significantly in the economy AND the Fed will end its highly accommodative monetary posture anytime soon.    But I also doubt we will see efficient and honest markets in that time horizon either.

SP 500 and NDX Futures Daily Charts - VIX Sells Off With Stocks?

I thought it was kind of odd that as stocks were falling hard, so was the VIX, which is generally viewed as counter market 'insurance' to the downside.

NAV Premiums of Certain Precious Metal Trusts and Funds

As expected the FOMC did little more than jawbone with an 'improving outlook' but no taper.

The traders did a dipsy doodle on the futures, down and up, and now markets are waiting for Bernanke's press conference.

The 'Spicer family' of Central Funds of Canada continue to underperform.

Gold Daily and Silver Weekly Charts

The precious metals were hit on the first day of a two day FOMC meeting. How unusual. NOT.

Let's leave the speculation aside until Benny tells us what is on his mind in the announcement and his press conference afterwards.