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Moody’s: You Can Count On Future Bailouts

Moody’s, is taking the recent financial crisis it may or may not have borne any responsibility for one respect.
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Ready for you to believe them again.

Depending on who you ask, ratings agencies were somewhere between completely at fault and totally innocent in the matter of the recent financial crisis, the argument for those on the former side going something like this: The three big raters would slap a triple-A rating on any pile of securitized garbage if you paid them enough, and then stupid investors relied on those ratings, which helped create a huge credit bubble, and the rest is history. To date, legally-speaking, this has only proven allegedly improper if you later downgraded the U.S. sovereign debt rating, but it’s a fun debate all the same.

Fast-forward to 2015: One of the big three, Moody’s, is taking the recent financial crisis it may or may not have borne any responsibility for seriously in one respect: It doesn’t believe that the government will really let several notable banks go belly-up, no matter what the FDIC guy says. And so it’s decided to take the government support it is presuming into account when rating those banks’ debt, which of course means higher ratings. And who doesn’t like a higher rating?

The ratings agency assumed that the bank subsidiaries of Wells Fargo & Co., Bank of New York Mellon Corp. and State Street Corp. would be less affected and record lower losses than other institutions in the event that the Federal Deposit Insurance Corporation put their holding companies into receivership.

That prompted Moody’s to upgrade its ratings for the deposits, bank-level senior debt and operating obligations of Wells Fargo and Bank of New York Mellon as well as the operating obligations of State Street Corp….

The moves mostly affect midsize and smaller banks. Moody’s said it hasn't yet finished its reviews Bank of America Corp, Citigroup Inc, J.P. Morgan Chase & Co, Morgan Stanley and Goldman Sachs Group, Inc. using this new methodology.

Moody’s Serves up Ratings Changes for Banks [WSJ]


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Moody's Attempts To Ruin Dick Handler's Good Time

Until recently, being chief executive officer of Jefferies was an exercise in getting shit on. As the man in charge for the last 13 years, Richard Handler has had to put up with a lot of hurtful remarks that, while nothing to the person tossing them off, undoubtedly stung quite badly. "Third-tier bank." Place "I wouldn't let my maid's kid work." "Poor man's Morgan Keegan." So you can imagine that after a string of victories over the last several months that included getting involved in the slaughterhouse business and paying all-cash bonuses unlike some people, Handler and Co. would be feeling pretty good about themselves and that after announcing to the world they were getting paid more this year than their counterparts at big kid banks, they'd be feeling REALLY good about themselves. That payday, however, did not go over well when input into Moody's proprietary just-make-it-up credit-rating model, and now Handler's plan to gather everyone up to watch as the board shoots his compensation out of a tee-shirt gun in hundred dollar bills is completely ruined.

This Is Really Only The "Second" Greek Bailout?

If you're into Greece you've probably already read all about it and if you're not I can't make you. But in brief: Greece is fixed and we will NEVER HEAR ABOUT ANY PROBLEMS EVER AGAIN. In less brief: (1) Some folks stayed up all night and produced a statement. (2) Greece's private creditors will be offered the long-anticipated opportunity to voluntarily exchange their old bonds for new bonds, which will for the most part be the same as the old bonds except for minor differences including but not limited to a greatly extended maturity (to 2042), a 53.5% reduced face amount, and a 3.6% blended interest rate. (3) If they don't voluntarily exchange, which they will because - hilariously - they've already taken accounting writedowns (and also because I guess it's better than a disorderly default), private holders will get CAC'ed, which may or may not be as bad as it sounds, but in any case at least CDS will pay out, unless it doesn't. (4) Also the public sector will do various helpful, confusing things. (5) In exchange for this, Greece will enact horrible austerity, and because no one believes that Greece will actually do that, there will be escrow accounts and what Reuters ominously calls "permanent surveillance by an increased European presence on the ground." (6) Everyone is pretty sure we'll be doing this again in six months and, look, just fair warning, I will not be writing about it then, because feh. We haven't had a serious international bankruptcy, which this pretty much is, since I started paying attention to the financial markets, two months ago, so I mostly think about insolvency from a US bankruptcy law perspective. One thing that happens in bankruptcy is that, like, really really roughly speaking, the creditors stop being creditors and become the owners. This isn't always the case but the basic playbook of US bankruptcy law is: