Concerning credit rating agencies I would like to provide a testimony from holders of defaulted sovereign bonds whose issuers inexplicably remain rated “investment grade”.

Although credit rating agencies (CRAs) are only one of the flawed links in the chain leading from unpaid mortgages to credit crunch and worldwide market turmoil, their role proves essential because they are supposed to be the gate-keepers in whose opinions market participants and individual investors must ultimately be able to place their trust.

If there is only one issue to be fixed it is the issue of trust; that is what new regulation on both sides of the Atlantic is about and that is where it is failing miserably.

How will trust in the gate-keepers ever be restored if while claiming to have resolved the conflicts of interests embedded in their business models and rating processes the CRAs remain in denial of the massive and notorious unresolved defaults of sovereign issuers whom they continue to rate “investment grade” in the face of their own self-imposed methodologies which claim to place willingness to pay first and foremost among their rating criteria?

The Russian Federation’s “investment grade” ratings wilfully ignore:

• Russia’s proven absence of willingness to pay.
• The falsity of the accounts of the Russian Federation which do not mention – therefore conceal – the rights of hundreds of thousands of private bondholders, which remain valid as per three consecutive findings of France’s highest administrative court the Conseil d’Etat in 2003 and 2004.
• Litigation risk on claims conservatively estimated to be worth well in excess of €100 billion.

Until the existence of holders of defaulted bonds issued by “investment grade” rated sovereigns is acknowledged and they are satisfied, credit ratings will remain openly tainted with conflict of interest issues.

CRAs are supposed to protect investors, yet investors are the one category of interested – yet neglected – parties whose relevant, precise and verifiable input, such as proof of an unresolved default, can be ignored by the CRAs, who are under no obligation to justify such decisions.

That is why two European groups of defaulted bondholders, including our own AFIPER, officially petitioned the European Parliament in June of this year. And that is why a third one has wrote to G20 participants and 200 Members of the European Parilament one month ago.

The case of the Russian Federation is not unique. I know that a similar situation exists where American holders of defaulted Chinese bonds are concerned and I believe they have been very active in both Houses in Washington, with a view to obtaining formal recognition of the default of the People’s Republic of China.

Resolving these matters will not bring an end to the credit crunch; but trust will not be restored until CRAs stop rating notorious defaults as investment grade.

Eric SANITAS,
President of Afiper-Association fédérative internationale des porteurs d’emprunts russes.
http://www.afiper.org

In fact I can’t help feeling the Banking and Finance Industry has been playing ‘loose, hard and fast’ because of all this guaranteed income (as a result of interest-based loans), since even if they suffer losses, they’ve always got more guaranteed interest-income coming through.

Once this curse [of interest-based loans and guaranteed income] has been completely abolished, God-Willing we should see a more mature global Banking and Finance system that takes MANAGED risk, with rules and regulations, exit-strategies etc etc in place BEFORE they start trading

I can’t help feeling putting the rules and regulations back into place is a little like “closing the stable door after the horse has bolted”…perhaps more drastic action is needed to save the global economy…something like…interest-free banking.

Interest-Free banking is a strange beast…few people really understand it. However there’s very little to understand, just three rules:

1. Rental-Mortgages: For homes purchases, every house has a market value AND and rental value (which is annually reviewed). The bank purchases a maximum of 85%, the mortgagee funding the rest. After that the mortgagee pays 85% of the rent. So a house worth $100,000 with a rental value of $8000/year, the Bank procures $85,000 with the rest paid for the by the mortgagee. The mortgagee then pays $8000*85%/12 = $567 per month rent.

2. Shared-Risk Investment. Instead of securing bank loans to fund investments, investors invest at least 15% into an investment, the bank investing the rest, with profit/loss shared out at the level reflecting investment. Deposit and other savers accounts would similarly have to be replaced with Shared-Risk Investment Accounts

3. Inter-Bank borrowing…well either:
a. they borrow at zero percent interest
b. they accept if they can’t afford to finance themselves, they’ll just have to stop operating and pack up the business

and that’s it! And no, this isn’t something I’ve cudgeled up…its the basis of…Islamic Finance and Banking, though I fear to use the word ‘Islamic’ knowing full-well how those mass-murdering Texan thugs in the White-House have twisted it out of shape in order to justify their own agenda. Though having brought up the issue of the Texan-Thugs, I have an interesting theory as follow:

After the collapse of the Cold War, no-one wanted US Military Hardware and Software anymore, resulting in a collapse of the Southern Industries (at one point Banks didn’t even care about the interest on the loans used by the afftected Southern Companies…they just wanted their loans back). So these Southerners thought and thought, and eventually came up with a ‘brilliant idea’. Since:

1. They hated Islam with a vengeance (classic Islamaphobes)
2. Many Muslim Lands had Natural Resources (eg oil) they could use to get out of financial turmoil and rebuild the Southern Economies

why not manufacture a ‘War on Terror’ to justify smashing Muslim Lands and stealing their natural wealth (under the guise of ‘hunting down the terrorists’)? I would also argue that MOST wars over the past 3000 years have occured because the aggressing-nation couldn’t afford to pay the interest on loans they had secured, so ‘looked abroad’ for alternative sources of income. I would equally argue that the major beneficieries of Islamically-unlawful industries eg Pornography, Prostitution, Alcohol etc etc are People and Institutes looking for ‘guaranteed income’ to fund their interest-based loans.

Oh and whilst I’m still on the subject of Islam, I fully support amputating the right hand of thiefs…people like:

1. those b*stards at Enron who had wealth but just wanted more and more
2. I suspect the people who supported the removal of the rules and regulations that ultimately lead to the Banking Crash (and the meltdown shouldn’t be underestimated [1]) knew exactly what they were doing and the consequences…but they did it anyway because they also wanted more and more wealth…

though I would prefer public crucifixion for both sets of b*stards

References:

1. http://www.newsweek.com/id/172647/page/1

If you dump the rules and regulations aimed at protecting the system [1] then ANYTHING can happen…as the last few months will testify.

References:

1. http://www.mail.com/layoutengine.aspx?page=Article.aspx&articlepath=APNews\General-Business\20081201\Meltdown-Ignored-Warnings.xml&cat=money&subcat=business&pageid=2

I tried and tried to get my Senator who sits on the Bank and Finance Committee to send the names of these persons to the IRS. If the reported income on the tax return is less than the amount stated on the mortgage applicaion, those people should be seriously investigated.

Pressure to achieve, to be better than those around you starts early in childhood by parents and is institutionally reinforced in school, by peers and via TV shows and advertising. As we grow older, the pressure only intensifies. The ever growing number of unemployed can only make this pressure worse in this dog eats cat world. An old adage says that “What goes around, comes around”, yet I have encountered many people who have treated others poorly, acted out of greed and so forth but have never paid a price for their behavior.

A couple of recent related news stories:
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Survey: Student cheating common in high schools
Sunday, November 30, 2008 | 10:25 PM

A new survey has found high levels of stealing and cheating among American high school students.

An ethics organization called the Josephson Institute surveyed nearly 30,000 students from 100 schools across the country.

The survey found that 30 percent of high school students have stolen from a store in the past year.

Sixty-four percent said they had cheated on a test. Some of those students admitted to cheating multiple times.

Link
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WSJ
NOVEMBER 24, 2008
UBS Clients Seek Amnesty on U.S. Taxes

Wealthy clients of Swiss bank UBS AG are coming forward to make amends with tax authorities, a sign U.S. efforts to battle offshore tax evasion and dent Switzerland’s bank secrecy are having the desired effect.

Moved to take action after a former UBS private banker was indicted and spilled valuable secrets, the UBS clients are hiring tax lawyers and pursuing amnesty through an Internal Revenue Service voluntary disclosure program. The program allows U.S. citizens to avoid criminal prosecution if they acknowledge evasion and agree to pay taxes and penalties.

The clients’ actions are a boon for the IRS, which lacks …

Link