A RETURNING GIFT

I should really shout out a big "Thank you!"  to the former Janet Reno minder and present Attorney General of the United States, Eric Holder, for making bloggers' lives a good deal easier.  Just at a point in time when we were all craving material, this hack sends us manna from heaven: the indictment of Standard & Poors for their role in creating the financial collapse of 2008.

Now from time to time there have been some curious positions taken by this administration with which reasonable men can agree or disagree but for sheer head-scratching numbness, this one may be the best of all.  Five years after the event, after thousands of hours of discussion and debate, now comes the justice department with all the power and majesty of the The United States of America suing an individual entity for actions taken by it which another branch of the very same government STILL requires it to perform as a means by which said governments claims to be protecting the investing public.  Huh?  Furthermore, there were a couple of other guys involved in the same activity, namely Messrs. Moody's and Fitch.  They apparently remain pure as the driven snow.  Of course they didn't lower the credit rating of the U.S. at a very inappropriate time did they, which, whether connected or not, is about the worst kind of speculation to encourage within the financial markets.  I mean, if you can't trust Eric Holder, who can you trust?  Anyway, S & P has gone out and hired probably the single most connected guy in all of D.C. to defend them of the charges and all we can do is hope for a knock-down, drag-out trial which of course will never happen.  Too bad, something good might have come out of this.

The truly sad part of this entire side-show is the fact that the real issues will once again be swept under the rug and remain ready to leap out and attack us at another time.  The problem is not whether S & P were maleficent in their duties; the problem is why the hell do they and the others like them have these duties at all?  The answer of course is that are confirmed upon them by Congress supposedly on behalf of investors to provide competent advice as to the credit worthiness of investments which, in some cases, is mandatory on certain investors before any investment can be made.  In short, and we have said this before, Congress has created a cartel which has the effect of the removal of any chance of competition thereby stifling any hope of improved performance whereas at the same time removing all responsibility from the investor of making an intelligent decision on his own..."S & P said it was OK so I did it."

This is beyond stupid but the argument which will arise will be focused on how much new government oversight...i.e regulations...will be needed to "fix" the shortfalls in the system NOT whether the system should be canned, for you see for the latter to occur Congress would have to admit that it made a mistake and that aint gonna happen.  Of course one solution might be that S & P will be forced to battle so many private  lawsuits alleging the same cause of action from the lazy incompetents that simply were prepared to let someone else to the job for which they were being paid that they are forced out of business.  Such a confirmation is devoutly to be wished.

It is remarkable, however, how lazy and sloppy we have become in our thinking and how tolerant in our responses.  It has been suggested that we need the S & Ps of the world to perform the role spelled out for them because the business of finance has become so complex that one simply can't expect all the different types of investors to be aware of all of the different financial products of today and the risk which are associated with them.  Investment managers need help in this effort.  They need someone they can rely on to tell them what to do........Why?........If the investment managers didn't have the crutch of an S & P perhaps the products in which they are asked to invest wouldn't be quite so complex and opaque.  As a matter of fact, they damn sure wouldn't.  And, as an added benefit, some fool in Iceland wouldn't dream of doing the research on a package of home mortgages containing three different levels of investments in products he doesn't understand in a place he's never heard of much less visited.  The result?  Solvency all around.  My, now there's a unique concept.  Of course there might be a few summer homes on Ocean Road in Sagaponic that go begging, but I expect we can deal with that.

Anyway Mr. Holder, charge ahead.  We know you are just taking orders.  Besides, it makes a blogger's life a bit easier.  Sort of like having you're own little Standard & Poors.  Pay's lousy, though.

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It appears during my hiatus, it has been discovered that things may not be quite so good in Euroland as thought, and--are you ready for this--they may be some skullduggery in the Italian banking system.  Imagine.  We are going to get to the bottom of this, just you wait!!

BEFUDDLED AND BEWILDERED

Something called the Court for the European Free Trade Association ("EFTA"), headquartered in Luxembourg, sent down a ruling yesterday about which I can make neither hide nor hair and which has the capacity to cause a serious amount of confusion and difficulty for the Euros as they struggle to form a more perfect union--particularly in the financial sector.

You might remember...after all who could forget...that in 2008, the entire banking sector in Iceland ceased to exist which was the first chapter in the decline and collapse of Euroland which quickly followed.  In the midst of the carnage there was a bank named Landsbanki (sounds like something out of Gulliver's Travels) that had a subsidiary named Icesave whose purpose in life seemed to be attracting deposits through offices in the UK and the Netherlands by paying above market interest rates which, by the by, is never a good sign.  And so it came to pass that every bank in Iceland went bust, there were massive restructurings, depositors of Icesave had their deposits transferred to a newly formed bank and...oh wait a minute I left something out.  Only the deposits of Icelander were transferred; the deposits of the Brits and the Dutch weren't.  They were out to dry and on two separate occasions a referendum in Iceland prohibited the government from paying out the foreign depositors.

As you might imagine this did not go down well with the UK and Dutch governments who promptly grabbed everything they had of the parent and the subsidiary and paid out their citizens in full using those funds in addition to a substantial amount of taxpayer's money to do so.  Law suits sprang up like tulips in the spring and then came the decision of yesterday.

Despite the fact that the EFTA rule required that all depositors be given parri passu treatment (see where I'm going with this), the court decided that given the systemic nature nature of the crisis and taking into account that Iceland is a small nation, Iceland need not be forced to make immediate restitution and could deny rights granted to their own citizens to another class of depositors.  The legal basis?  I guess it must be "it pays to be small" because there's nothing else around to justify this.

New agreements within the EU have made it clear that deposits of member state banks are now guaranteed up to 100,000 Euros by the member state in whom the deposit-taking institution is registered but one really must ask how good or enforceable is this codification if a bunch of good souls sitting in Luxembourg can decide that it's just not fair that poor little Iceland (or Luxembourg) be treated in this manner.  Or to put it another way, who the hell would be dumb enough to place deposits cross-border which, in case you missed it, plays hell with the concept of no borders which the latest mob running the EU is trying to make reality, and does very little to help convince the Brits for whom finance is their lifeblood that they really want to be in this thing whole-hog.

As for me who toiled mightily in law school in the last century convinced that we should be a government of laws, not men, has to wonder if this "It makes me feel good" practice of jurisprudence might extend to the action against our friends the Argentines which is scheduled to be argued in front of the 2nd. Circuit in a few weeks.  Look, we either have laws or we don't.  We either have contracts that are enforced or we don't.  I'm all in favor of people paying the consequence for stupid decisions but when you play by what everyone believes the rules to be and are forced into losses because of mere whim, then we venture in uncharted waters which are perilous for all.  To it's credit, Iceland has always said that they intend to repay all deposits owed and continue to do so even having been given this gift, but the dead-beat Argentines will honor no such obligation having no honor whatsoever.  They should not be rewarded by some made-up rule of law.  The obligations of both nations were there for all to see and openly agreed.  Enforce them.