As Moody's openly sold its ratings to the highest bidder, revenues and share prices shot up.
Did they, or were they decieved? Peak oil is not an energy crisis. It is a liquid fuel crisis.
Mutual funds in the US can only hold "investment grade" debt securities. A downgrade below investment grade therefore forces a sell-off.
The illusion that there is such a thing as safe investments for widows and orphans to put their pensions is a convenient lie for the financial disservices industry.
Solidarity, dude. It means you get a decent state pension and don't have to gamble your savings chasing a return. En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
Pensions need not only be through a flat cash payment from the state, especially as the level will be shook by demographic changes. There's nothing wrong with saving money for your retirement in the stock market, as long as you start shifting over the stocks to bonds a decade or so before you're about to retire.
But anyway, let's keep the pension system discussion to another thread. Peak oil is not an energy crisis. It is a liquid fuel crisis.
There's nothing wrong with saving money for your retirement in the stock market, as long as you start shifting over the stocks to bonds a decade or so before you're about to retire.
It's not like I meant CDO's when I said bonds. Peak oil is not an energy crisis. It is a liquid fuel crisis.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
So you invest in corporate bonds that yield 5% and then wonder why 1/20 of them default on you any given year :P En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
If they didn't, people would always hold cash instead. Peak oil is not an energy crisis. It is a liquid fuel crisis.
Also, you have proven by example that the amount of information and sophistication necessary to do "safe bond investment" properly probably exceeds that of your average widow or orphan :P
I mean, it did exceed that of the average bond portfolio mutual fund manager, to judge by the fallout from the recent crisis... En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
And currently there is no firewall between investment credit and operating credit. Making such a firewall would probably go a long way towards making banking boring again. But that will be then, and this is now.
Starvid:
make sure the bonds are short term, so you have time to get out if the company/country that issued it starts looking shaky
And if everyone follows the same strategy, at the first sign of wobbliness on the part of the issuer there will be a sell-off and your bonds will lose more of their value. En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
So, instead of a lottery you pretty much guarantee yourself a constant default rate.
And if everyone follows the same strategy, at the first sign of wobbliness on the part of the issuer there will be a sell-off and your bonds will lose more of their value.
Not a problem if you have short term bonds and hold them to maturity.
And in a parallel comment you want to receive coupon payments from the bonds which, if they have maturities not exceeding a year, typically won't pay coupons. En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
It doesn't really matter if you recieve a coupon, or if you but the bond for less than you get back from the issuer, at least if the maturities are short (the bond fund I have has an average amturity of 0.15 years). Peak oil is not an energy crisis. It is a liquid fuel crisis.
an average amturity of 0.15 years
Modigliani-Miller theorem
The Modigliani-Miller theorem (of Franco Modigliani, Merton Miller) forms the basis for modern thinking on capital structure. The basic theorem states that, under a certain market price process (the classical random walk), in the absence of taxes, bankruptcy costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by how that firm is financed.[1] It does not matter if the firm's capital is raised by issuing stock or selling debt. It does not matter what the firm's dividend policy is. Therefore, the Modigliani-Miller theorem is also often called the capital structure irrelevance principle.
If FALSE then P
A lot of them are pensioners, or index fund holders, or mutual fund holders, or lots of other people who didn't really have any insight into the company, or even knew they had shares in the company.
There is nothing wrong with insolvent private pension funds that cannot be solved by better public pensions.
The fact that those taxes are currently collected by the stock exchange does not mean that they are not collected. It only means that the administrative overhead is greater, and introduces a couple of extra middlemen who have to get a cut.
But I have to finance the pensions with my taxes anyway.
No you don't, and with a system where everyone (forcibly) saves money for her own account, you do not have to deal with the intergenerational problems and imbalances arising from a change in the age structure.
No pension fund stockpiles wheat in big silos in the harbour for distribution to retirees. What they stockpile is claims over value. The goods still have to be produced when those claims over value are to be redeemed. Whether those goods are claimed as profits for a pension fund portfolio or as taxes for the government makes little difference to the person who produces them, except inasmuch as government pensions have considerably lower overhead costs.
Also, they're not white and not rich.
Apart from that - yes.
A veritable Ponzi scheme of gulls.
People wanted to be deceived. Both the mutual fund managers and the widows and orphans did.
However, the time had come, as in all periods of speculation, when men sought not to be persuaded of the reality of things but to find excuses for escaping into the wide new world of fantasy.
- Galbraith, The Great Crash of 1929 If you only spend 20 minutes of the rest of your life on economics, go spend them here.
Credit-rating firms' shares plunge on subprime-related court ruling | Money & Company | Los Angeles Times
Investors who believe that major credit-rating firms should be held responsible for their disastrously optimistic ratings of subprime-mortgage bonds have won at least an interim victory. U.S. District Judge Shira Scheindlin in New York ruled late Wednesday that Moody's Investors Service and Standard & Poor's can't invoke the 1st Amendment to hide from subprime-related legal challenges. The decision triggered heavy selling of shares of Moody's parent Moody's Corp. and S&P parent McGraw-Hill Cos. on Thursday. Moody's slid $1.84, or 7%, to $24.26. McGraw-Hill's shares tumbled $3.30, or 10.2%, to $29.01.
Investors who believe that major credit-rating firms should be held responsible for their disastrously optimistic ratings of subprime-mortgage bonds have won at least an interim victory.
U.S. District Judge Shira Scheindlin in New York ruled late Wednesday that Moody's Investors Service and Standard & Poor's can't invoke the 1st Amendment to hide from subprime-related legal challenges.
The decision triggered heavy selling of shares of Moody's parent Moody's Corp. and S&P parent McGraw-Hill Cos. on Thursday. Moody's slid $1.84, or 7%, to $24.26. McGraw-Hill's shares tumbled $3.30, or 10.2%, to $29.01.
(seen in the Salon) En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
It would be very interesting to see someone sue e.g. JP Morgan on the basis that Morgan bankers knew that both that the ratings companies were not producing ratings based on anything and that the insurance companies were engaged in high risk business and neglected to warn bond issuers of these risks.
