Way back when, I mentioned there was a surprise coming S&P’s way. Since it is now out there officially, I can discuss it publicly.

After the brouhaha with McGraw Hill began, I was contacted by numerous people — mostly readers emailing words of support. But a few West Coast lawyer types seemed to be asking lots of questions, and revealing little.

I poked around with some law firms in California, and started to pick up the rumor that California Public Employees’ Retirement System (CALPERS) was going to drop the bomb on S&P, Moody’s and Fitch. No one would say anything on the record, but it was clear that litigation was being considered as an option against the Ratings Agencies.

Here is the money quote:

The AAA ratings given by the agencies “proved to be wildly inaccurate and unreasonably high,” according to the suit, which also said that the methods used by the rating agencies to assess these packages of securities “were seriously flawed in conception and incompetently applied…”

“The ratings agencies no longer played a passive role but would help the arrangers structure their deals so that they could rate them as highly as possible,” according to the Calpers suit.

Now, here comes the fun part: Calpers doesn’t give a rat’s ass about the money. Sure, the financial instruments at hand (Cheyne Finance, Stanfield Victoria Funding and Sigma Finance) have  defaulted on their payment obligations. The losses to Calpers are ~!$1 billion.

But that’s not what’s going on here: These Left Coasters want their pound of flesh. They don’t care for the Ratings Agency folks, and consider them a blight on the investment landscape.

The goal of the litigation (as I see it) isn’t to make the rating agencies pay a financial penalty; rather, it is to publicly try them just as the regulatory rules are being rewritten. I also predict that CALPERS is going to attempt to not just win, but humiliate these agencies, call them out in the most embarrassing way possible, trash the senior executives, and make things very uncomfortable in general for these firms.

They don’t want them to merely suffer — they want to destroy their unique position as an Oligopoly, to remove them from having a special status under the SEC rules.

In these sorts of litigations, plaintiff can be very often bought off cheaply. In this case, that won’t happen. An offer a few million dollars — or a few 100 million — won’t tempt them into taking the money and going away. They have as much money as they need to finance this litigation to the long, drawn out, bitter end.

If I was a Rating Agency lawyer, I would be very, very nervous . . .

Some of the additional details:

- Conflicts of interest by the rating agencies are rife. They are paid by the companies issuing the securities — an arrangement that prevents the agencies from issuing negative ratings;

- Structured investment vehicles generated lucrative fees for rating agencies, above and beyond normal fees. They were paid as consultants who helped structure the deals — not as neutral 3rd parties. The fees ranged from $300,000 to $500,000 and up to $1 million for each deal;

-These fees were in addition to revenue generated by the agencies for their more traditional work of issuing credit ratings;

-By actively creating these instruments, CALPERS owed a different duty of care as an underwriter, not merely a 3rd party firm protected by  1st Amendment Free Speech;

-By then rating them AAA, what the Ratings Agencies did amounted to Fraud.

>

Source:
Calpers Sues Over Ratings of Securities
LESLIE WAYNE
NYT, July 14, 2009

http://www.nytimes.com/2009/07/15/business/15calpers.html

Raters Sued by Calpers Over Losses
RICK BROOKS
WSJ, JULY 15, 2009, 8:38 A.M.

http://online.wsj.com/article/SB124763258772743653.html

Category: Bailouts, Credit, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

66 Responses to “Calpers: Rating Agencies to Blame for Huge Losses”

  1. The suit also contends that the ratings agencies continued to publicly promote structured investment vehicles even while beginning to downgrade them. Ten days after Moody’s had downgraded some securitized packages in 2007, it issued a report titled “Structured Investment Vehicles: An Oasis of Calm in the Subprime Maelstrom.”

  2. ben22 says:

    So, maybe there is a trade to be had with MCO on the short side given that the stock is up more than 46% for the year.

    While I am looking forward to the ratings agencies having to deal with this I don’t exactly feel bad or take the side of Calpers.

  3. Mannwich says:

    Lawsuits likely just getting started too. At least the big law firms will be busy again. The new economy = flipping mostly worthless stocks and houses to each other, and then suing each other. Sounds structurally sound to me.

  4. HCF says:

    Ratings agencies shouldn’t exist. A large pension fund like Calpers should have people actually doing research on stocks and bonds…. No wonder the state of CA is doing so fiscally well =)

    HCF

  5. dave says:

    It was fraud, pure and simple. They should be prosecuted to the fullest extent of the law.

  6. Mannwich says:

    Is it not clear to any half-witted person at this point that these ratings agencies (as currently constructed) should no longer exist, but many should also be in prison? What’s amazing to me at this point is basically nobody has been held accountable for this fiasco so that we can truly fix the mess and move onto a sustainable recovery (whatever it looks like, this isn’t it).

  7. Pat G. says:

    Good for Calpers!! And I like the idea that they are taking the rating agencies behind the woodshed on principle. We need a lot more of that!!

  8. Stillaway says:

    re: Hang the Bastards

    A few will swing, but not in sufficient quantity to discourage others from future naughty behavior.
    Avarice trumps even Lust in its power.

  9. Stillaway says:

    Ask any Congressman.

  10. philipat says:

    That’s the best news this year. It needs something like this because the Agencies have deep pockets and lots of clout in DC. Their lobbyists have been able to keep them well below the radar screen so far.

    Might CALPERS also consider having a go at Goldman for selling packed cr*p whilst simultaneously shorting and CDS’ing the same stuff?

  11. JohnnyVee says:

    Embarrassing and humiliating to rating agencies = embarrassing and humiliating to gov’t regulators.

    Wherever there is tragedy in the world (and there is money to be had), there is a lawyer there to help.

  12. packman says:

    Here’s a question from someone who’s fairly green on the subject of ratings agencies. It seems like they’re all lumped together as a single entity (“The Ratings Agencies”), as if they don’t attempt to differentiate themselves somehow. Is that really true?

    Theoretically – a ratings agency could, in the long run, gain a huge competitive advantage by being “wise” in remaining truly at arms length, and gaining a better high-level picture of the economic system. Such an agency would have of course rated these securities lower during the peak of the bubble – knowing the danger signs, and not being as subject to these conflicts of interest.

    Such an agency, one would think, would now be in very high demand – because (theoretically) anyone basing their investments on these ratings would seek out the most accurate rating, and this agency would have been proven the best.

    So my main questions are:

    - Does such an agency exist?

    - If not, why not?

  13. packman says:

    A third question:

    - If such an agency exists – are they now getting screwed by being lumped in with the others?

  14. philipat says:

    @packman

    ‘Such an agency, one would think, would now be in very high demand – because (theoretically) anyone basing their investments on these ratings would seek out the most accurate rating, and this agency would have been proven the best.’

    By whom? Remember that the whole system is corrupt to the core. The folks paying for the ratings are the ones being rated. Nice!

  15. jpm says:

    They don’t want them to merely suffer — they want to destroy their unique position as an Oligopoly, to remove them from having a special status under the SEC rules.

    To which I say: Hooray!

    If I was a Rating Agency lawyer, I would be very, very nervous . . .

    Nope, you’d be happy as a clam for all that future employment.

  16. Mannwich says:

    @packman: I may be wrong but I think there are some smaller agencies out there that do a pretty decent job. The key is how they are paid. If they are paid by the very entities they’re paid to rate, there’s no way to avoid being biased in their favor. Whomever pays them is their master. Until they are paid by the very investors who are buying this paper, then nothing will change. They’re a joke and most people know it. The fact that CALPERS didn’t know that is a bit absurd, IMO.

  17. riley says:

    The rating agencies committed fraud, those responsible should be prosecuted and the rating agency oligopoly position and special status under the SEC rules should be repealed. But people who live in glass houses should be careful about what they expose. Are we to believe that Calpers is such an unsophisticated investor that they did not understand these securities? That they only bought them because they were AAA rated? The real reason behind this suit seems to be CYA. Was the Calpers investment committee negligent in their fiduciary duties? Did they not know million dollar homes in Calif. were being purchased by people with a $100,000 income? What else has Calpers invested in that they don’t understand?

    “If I was a Rating Agency lawyer, I would be very, very nervous . . .”

    If I were a Calpers board member, I would also be very, very nervous…

  18. Jeff,

    w/this: “Is it not clear to any half-witted person at this point that these ratings agencies (as currently constructed) should no longer exist, but many should also be in prison? What’s amazing to me at this point is basically nobody has been held accountable for this fiasco so that we can truly fix the mess and move onto a sustainable recovery (whatever it looks like, this isn’t it).”

    To me CALPERS, et al., should put together an Info-mercial — explaining the merits, as they see it, of their Case, and lay bear, from their POV, the culpability of the NRSROs — for the ‘half-witted’.

    Past that, to me, CALPERS, et al., should sue the NRSROs, if only for, mere, tactical reasons, b/c they, actually, should be sued for ‘breach of fiduciary responsibility’–to begin with..

    though, it wouldn’t surprise me if ‘kickbacks’, and ‘collusion’ could, also, be proven..

    As well, I’m sure a firm, like Thor’s, would be happy to assist in the Production of, said, Infomercial, at, near, cost..

  19. VennData says:

    BR’s speculations about Calpers and the rating agencies are spot on. Furthermore these oligopolies are an anachronism. They take the “free” out of free market by charging the issuers they rate… it’s simply a form of payola.

    Calpers is big enough so that the agencies make their processes less efficient.

    If you, as an investor, can’t evaluate this or that small time muni bond so be it. What are you doing investing in them? only because some rating agencies says it’s OK, it’s circular and needs to end.

    Get the ratings agencies out of the way and let investors decide. The free market will find a way to get capital to issuers that need it. Let it happen.

  20. Mannwich says:

    @Hoffer: Totally agree. Why would CALPERS even rely on anything these agencies put out? They knew/know full well that most it is garbage, and highly questionable, at best. This is just more of the Keystone Cops routine by all entities who were responsible for this mess. Everyone pointing the finger at everyone else. That may be our new Past-time.

  21. packman says:

    @philipat

    So you’re saying there’s absolutely no performance-driven decisions being made? Perhaps. But I guess my question then would be – digging deeper – why?

    It seems like any somewhat-honest investment house would specifically seek out agencies that are *not* corrupt, e.g. have these conflicts of interest. It seems like perhaps there is something preventing them from doing so – e.g. maybe some government mandate that only one of the big three are allowed to be used, or something like that. That’s pretty much what I’m asking – what specific rules are in place that cause such a totally-corrupt system to exist, instead of a truly free-market rating system which would, in the long run, punish and/or avoid such corruption?

  22. tdotz says:

    Barry, please clarify: “-By actively creating these instruments, CALPERS owed a different duty of care as an underwriter, not merely a 3rd party firm protected by 1st Amendment Free Speech;” Did you mean Ratings Agencies were “actively creating?” I hadn’t heard of CALPERS creating investments, just a purchaser of them.

  23. uno says:

    FWIW, caveat emptor, etc., etc…but my fractal analytics say ‘sell’ right now.

  24. Mannwich says:

    There are going to be a lot of Naked Emperors before this mess is completely over. But will anyone care outside of TBP and other blogs like this one? I doubt it, unless enough people lose their way of life.

  25. jpm says:

    If I were a Calpers board member, I would also be very, very nervous…

    Nonsense. THat’s why D&O insurance exists.
    Those guys are immune from their own corruptness.

  26. packman says:

    P.S. one answer I guess is this special “SEC status” that’s mentioned – something I didn’t realize, and certainly seems to be a government-based trigger for corruption right there.

  27. Transor Z says:

    No prisoners.

  28. Thor says:

    @Manny – “But will anyone care outside of TBP and other blogs like this one? ”

    That’s a very good question, I’m going to have to agree with you here. I’m starting to wonder what it’s going to take to make the bulk of the population wake up and pay attention – or are we in a collective coma for good?

  29. cvienne says:

    @Thor

    we’re in a collective coma for good…

  30. uno says:

    @MEH: My stop set at S&P 930. Target: undefined.

  31. Mannwich says:

    @cvienne & Thor: Until masses of people lose their final “safety net” (e.g. access to credit cards) to buy food and other essentials, we’re in a coma but that could turn more quickly than people think.

  32. constantnormal says:

    hmmm … assume that the ratings agencies just want this to “go away” … they plead guilty, and are slapped with treble damages amounting to about a billion dollars each. Can they take this size of a hit to their balance sheets?

  33. Mannwich says:

    @cvienne & Thor: One thing I should point out – I do think that more people than we think are paying attention, but just choose to focus on the things over which they have some perceived control. Had a great talk with my in-laws a couple of weeks ago, and they are as aware as anyone, but their feeling is that they can barely get their own direct neighborhood and communities to change their ways for the better (and they are VERY involved), so how can they get their arms around The Big Picture when that is far more complicated, a far bigger beast, if you will. They make a very good point, so I think many deep down have a sinking feeling about all this, but merely choose to focus on the things they can control every day. Of course, all that would likely change if enough people lost access to the daily life essentials.

  34. DeDude says:

    These rating agencies not only have to be run into bancrupcy. They have to then be tarred feathered and run out of town. They were one big fraudfulent scheme to allow GS and their friends to rob investors and hard working people of their retirement funds. And lets not stay with just prosecuting to the fullest extend of the law, these bastards used their money to write the law.

  35. Transor Z says:

    They were one big fraudfulent scheme to allow GS and their friends to rob investors and hard working people of their retirement funds.

    I can almost imagine the lightbulb appearing over your head after you posted that sentence. Hold that thought, amigo. :)

    I was actually getting a little aroused earlier thinking about the discovery that will be done here . . . and where it will lead.

  36. DeD,

    isn’t that the Truth of it~

    Ramp n’ Crash v.2.0, the old Game still works like a charm..

    though, w/this: “They were one big fraudfulent scheme to allow GS and their friends to rob investors and hard working people …”

    this: “their friends”, remember that that includes The Federal Reserve, w/o whom, Ramp n’ Crash would have never made off its designer’s desktop..

  37. DeDude says:

    It’s highly inefficient for thousands of small investment funds to each do their own evaluations of a security. So yes we do need these rating agencies. However, their incentives have to be aligned with the investors. So I think they by law need to be required to have their own skin in the game. Combine rating and insurance of securities into a single entity.

  38. Transor Z says:

    @Manny:

    Liked the story about the in-laws. Reminds me of my wife. I posted a little exchange between her and I over the weekend. I was blathering on over lunch, all proud of myself for learning a few things about program trading and how the argument in favor of it is it’s more efficient by changing the old 12.5 c spread into a few pennies blah blah blah. Not sure what my point was, beyond “Man impress woman with good know things.”

    And she floors me by shrugging it all off and saying it just sounds like the vig you pay a bookie.

    Some people are just street smart and have the tools they need to figure out the angles when it’s time to focus on those things and analyze. It’s good having folks like your in-laws and my wife around to remind us that there are a lot of people out there who are aware — but maybe don’t get as worked up over things they can’t control. ;)

  39. jankynoname says:

    I’m sure CalPERS is in it for the money. This will be just like the AOL Time Warner litigation. Except I’m gonna predict that the rating agencies will prevail here… they’ve got the efficient markets theory on their side to help wipe out most of the damages concerns. I’ll check back in 3 yrs…

  40. The Curmudgeon says:

    Here’s how it works:

    Calpers can only buy a security with a top rating. The ratings agencies have been blessed by the government to issue ratings on securities, and for those that get the top ratings, it allows entities like Calpers to invest. Thus the incentive is strong for Calpers to look no further than the ratings agencies to decide on an investment AND to buy whatever AAA security is out there that gets the biggest return.

    Thus enter the financial alchemists to turn high risk securities into AAA while still retaining the return owing to the underlying risks. The ratings agency get intimately involved with the creation of such securities, helping along the issuers in order that the issuers can get at the big pool of money that is otherwise supposed to be invested conservatively. Then Calpers gets to “invest” in this AAA rated security, supposedly just a notch in risk below a risk-free security like US Treasuries, that anyways carries a much higher return, which to any risk manager that is more than, say, post-pubescent, ought to immediately send up huge red flags. The rule of history is that high rewards do not come without high risk, but the idea is–don’t worry–things are different this time. We really can turn lead into gold. Hubris knows no bounds.

    Now, Calpers would be foolish not to invest, and more foolish still to try and uncover the true risk embedded in the financial alchemist’s models. The ratings agencies get paid for rating the security as if they didn’t help create it, and Lehman or Bear Stearns or Morgan Stanley or Goldman, et al. get to slough off on Calpers the risk that their models are full of bullshit. Calpers’ managers happily go along because as long as the investment has the government-sanctioned imprimateur of legitimacy afforded to the ratings agencies, it is in the clear.

    Thus, as usual, the central culprit is government malfeasance. The government made Calpers rely on the ratings done by the ratings agency in deciding on its investments, yet the government never stopped to check whether the ratings agencies might be a bit conflicted. Calpers should be suing the feds.

  41. Thor says:

    Manny – agree with you again, I think that the pain the average citizen has felt so far isn’t anywhere near what we’re going to need to collectively feel to make real social and behavioral changes. It’s one thing to take away people’s ability to buy a bunch of fancy toys they never really needed, it’s quite another to start taking away their ability to actually take care of their family. We saw a sea change in behavior during the Depression because so many people in this country actually went hungry – my grandparents knew, at a very base level, what it was like to go without. I fear that until we see that kind of pain again, we’re very likely just going to have a .com bust Part II here.

  42. DeDude says:

    “Calpers should be suing the feds”

    Hmmm. Curmodgeon, just like the robbery victim should be suing the police for not having stopped the robber ?

    Though I do agree with your underlying conclusion that we need a lot more federal government regulation and oversight of the markets. The free markets obviously cannot handle all that freedom they were granted by the previous administraion.

  43. Mannwich says:

    Exactly Transor. Without these people in our lives to remind us these things, we could be living like the Una-Bomber. We are very lucky in that regard. Some people are smarter than we think. They just choose to focus on their families, friends, jobs and things they can control and are probably much happier for it. It’s not a bad thing to do at all. I’m thankful for having someone around to remind me of this every day and am having a pretty damn good summer regardless of this other crap that’s beyond our control. Green shoots for Mannwich.

  44. Thor says:

    Manny – you’re on a roll today :-) “Some people are smarter than we think. They just choose to focus on their families, friends, jobs and things they can control and are probably much happier for it.”

    This is one of the reasons I tend to get upset when I hear people make blanket statements about stupid Americans being more concerned with twittering and Brittney than with what’s going on with the economy or he government. Sure, I think that’s the case with quite a few people in this country, I mean come on, I live in Hollywood for Pete’s sake, I see that kind of hubris all the time. Many other people though, are very smart, but choose to focus their attention on different areas of their lives – their family, their friends, any number of things. Just because not everyone in the country is as attentive to the state of the nation as we are doesn’t mean they’re stupid or should be looked down upon.

    /rant off

  45. uno says:

    @MEH: “Pop”…and done for now. Quite the panic buying today. I call it laminar flow, in honor of both Mandelbrot and “The Predictors” by Thomas A. Bass.

    It was a nice run up, in any case.

  46. constantnormal says:

    @uno “…and done for now.”

    Really? Why would it not be continued tomorrow, and the next day, until enough money comes off the sidelines to merit turning things the other way?

    There are no underlying fundamentals to support this action (except perhaps the notion that prices will not go to zero), with economic activity at ridiculously low levels and stock prices reflecting a much higher level of economic activity that does not, and will not exist for quite some time to come.

    The markets are rigged, just as if the SEC were to impose a price floor under stocks the way that the Pakistanis did. And what happened in Pakistan when that occurred? Trading volumes went to zero.

  47. uno says:

    My approach is along the lines of bouncing off the guardrails…long or short, based on fractal signals. It was a nice run up from the S&P 880 levels, but this morning triggered a ‘sell’ signal. It subsequently broke, but again this is on laminar flow conditions (note the correlation of that label with the smoothness of today’s movement), which are not at all rare but also not common.

    I’ll be looking for the next ‘sell’ signal. Til then, my heels are a-coolin’. I see the markets as being ‘genetic’, and signals as being not far off from parables of cast seed.

    BTW, you’ll find the word “laminar” once in Mandelbrot’s “The (Mis)Behavior of Markets,” but you won’t find it at all in “The Predictors.” Since the successes of the latter are largely based on fluid dynamics, that’s a very conspicuous absence to my way of thinking.

    I would encourage you to relax and accept the markets as being what they are. Blue pills are not painless. Also see my earlier posts regarding fundamentals = funny mentals. It’s all in y(our) head.

    Good hunting.

  48. uno says:

    Parting thoughts:

    If fundamentals had anything to do with valuation, then the .com valuations would never have happened.

    There is no such thing as a valid price based on fundamentals, and, in any case, the markets are non-linear.

    Yes…that can be taken to mean “irrational”; witness any ‘bad’ news event…and then the markets go up.

    Actually, the less sense a move makes, the stronger it can be, as it elicits emotional (and unprofitable) human behavior when markets “make no sense.” Of course they don’t. They’re non-linear.

  49. willid3 says:

    well you know the banks did the same thing that CALPERS did. They depended on the ratings gang to do their job verifying the securities. that was the reason they exist. and it was why they have that special purpose. that they weren’t doing that was their choice (after all they could make more money that way, very efficient don’t do any work just ask what rating they want ). you wonder why there isn’t a third party that rates them, say the Treasury or some one else (since almost nobody else wont be corrupted in some way. not that the treasury wont as we have seen in the past)
    and this might be just the first suit. you would think the banks have light bulbs going in over their heads also. along with Fannie and Freddie too.
    so you could say that this entire debacle was almost all theirs.

  50. ab initio says:

    What is CALPERS culpability? After all they bought the securities – didn’t they do any due diligence themselves? I would have thought “buyer beware” would be something that all investors know about.

  51. [...] This is what I have been waiting for: [...]

  52. constantnormal says:

    @uno 3:46 pm

    “If fundamentals had anything to do with valuation, then the .com valuations would never have happened.”

    And if fundamentals had nothing to do with valuation, then the .com collapse would never have happened.

  53. constantnormal says:

    @ab initio

    – if you look back through this thread, I think you’ll see that CALPERS is constrained by law to only but AAA-rated securities. They are legally removed from the decision-making process to the extent that they can only work within the AAA-rated pool.

    I suspect that a LOT of similar funds — pension funds, mutual funds, annuities, insurance companies, etc are also legally constrained in a similar manner in an attempt to reduce the risk to the public.

    I further suspect that if the CALPERS suit looks like it’s gaining traction, there will be a flood of similar suits from all over.

    Personally, I hope the corrupt ratings agencies (whichever those might be) are bludgeoned out of existence.

  54. constantnormal says:

    “buy”, not “but”

  55. uno says:

    @CN: Touché. But the point remains that ‘fundamentals’ cannot be used for valuation or trading. In effect, and perhaps somewhat regrettably, they are arbitrary & groundless when it comes to equity valuation on an on-going basis. We all know the truism: “the market can remain irrational longer than you can remain solvent.”

    That being the case, some other metric needs to be applied in order to profit from the marketplace. From where I stand, that means fractals and fluid dynamics…though I repeat myself.

  56. [...] in Business, Daily life, Government at 2:19 pm by LeisureGuy What a delightful thing: Way back when, I mentioned there was a surprise coming S&P’s way. Since it is now out there [...]

  57. ab initio says:

    constantnormal – even if CALPERS was constrained to AAA securities – there were many securities in that AAA category. They made the BUY decision on these specific securities. And as a securities buyer they have a responsibility to do the proper due diligence.

    I am not absolving the ratings agencies from their ratings and their pay2play business model. BUT the ratings agencies did not force CALPERS to purchase these securities. They have to take responsibility for their own greed and the herd mentality of OPM fund managers.

    Its like J6P investor suing Morgan Stanley because the put a buy rating on an equity and then it went down. Its this mentality of suing others and all the tort lawsuits without accepting responsibility for ones own actions that has substantially increased friction in the US economic system.

  58. leftback says:

    Big steaks for the lawyers on both sides. Otherwise a complete waste of time.

  59. DeDude says:

    In a modern society you have to depend on the advice of professionals and/or government regulations to ensure that you make good decsisions. I cannot be expected to make good choices about what medicines to take for specific symptoms, so I go to a doctor and expect him to give me good advice. If he gives me the wrong medicine because of some kind of payolala with a medical company I would sue him. Would that be wrong? Should I take responsibility myself? how is that different from companies relying on advice of professionals?

  60. matt says:

    @lefty: Agreed. I would be very surprised if a lot of fantasy ratings were due to direct input from Federal or pseudo-Federal entities. How is it that Ambac and MBIA weren’t at least put on credit watch in 2007? It’s likely that some Federal official noted that a downgrade or perceived downgrade would be some kind of systemic risk, as the chain of guaranteed securities would have gone with them. Think of it as sort of a “You don’t want to downgrade those AAA subprimes. Life could become very unpleasant for you.”

    The complicity in the giant scam is wide and deep. Nothing will come of this.

  61. DeD,

    you go w/: “I cannot be expected to make good choices about what medicines to take for specific symptoms, so I go to a doctor and expect him to give me good advice.”

    could you explain Why you ‘cannot be expected to make good choices..’?

  62. PMcKim says:

    Another more cynical explanation? CALPERS is made of Cal State Unions that want to continue to be paid and need access to debt. California wants a better debt rating and these rating agencies want California and other states to lay off. Watch to see if the rating agencies raise their ratings on California and CALPERS majically drops their suits. this is all about leverage of a different kind.

  63. DeDude says:

    Mark E;

    The medical literature publish about 2000 research articles every day. It is so complicated to understand the full impact of all of those pieces of information that even the specialists who look at just their little corner of the information often cannot follow it all (therefore we get mistakes and malpractice lawsuits). It is unrealistic to expect that a person who did not go through medical school could follow all of these medical specialties sufficiently to make choices that many specialists have a hard time getting right.