Jon Stewart dives into raterville

August 11, 2011

Jon Stewart’s Daily Show interview with Columbia law professor John Coffee is great. To have credit rating agencies discussed on a popular national comedy show is fantastic. The more the public knows about these powerful agencies, the better.

I generally agree with Professor Coffee but disagree with his statement that raters were the primary culprits in the financial crisis. The investment banks that created the subprime dreck and pimped the agencies to assign AAA ratings — they are the main culprits. Raters were just well-paid handmaidens to the banks which packaged mortgages. Banks also made the most profit from creating the crisis. He does identify investment banks as bad actors later in the video. Overall, an impressive performance by Professor Coffee.

I’ll write more about Professor Coffee and his adoption of my proposal for “equilivant disclosure” for bond issuers. This is the real solution to our credit rating problems. The lack of equal information flow to the ten SEC recognized raters is the true reason that S&P, Moody’s and Fitch control the ratings business.

Creative ideas for Medicare

Love this. It’s clipped straight from Ezra Klein at the Washington Post:

There are three simple things Medicare could do to cut costs, writes John Goodman:

“First, all over the country there are walk-in, free-standing emergency-care clinics that post prices and usually deliver high-quality care. Because these services arose for cash-paying patients outside of the health-insurance system, their prices are free-market prices…Medicare should allow enrollees to obtain care at almost all of these places, and it should pay the posted prices…

Second, Medicare should allow enrollees to take advantage of commercial telephone and email services. TelaDoc offers telephone consultations with physicians at a price that is probably lower than the same service delivered by a nurse at a walk-in clinic…

Finally, Medicare should encourage physicians to repackage and reprice their services in ways that are good for the doctor, good for the patient, and good for Medicare.”

Jefferson County deal almost done

Bloomberg reports that the creditors of troubled Jefferson County sewer debt are offering terms that should make country commissioners happy and seal a restructuring deal. All the parties seem to have brought concessions to the table. From Bloomberg:

Owners of Jefferson County, Alabama, sewer debt may offer to match or reduce three years of 8 percent annual sewer-fee increases in a county plan to restructure its bonds, said the court-appointed receiver managing the system.

Assured Guaranty Ltd. (AGO), a bond insurer that guarantees some of the $3.14 billion at stake, may back part of a new issue to help cut borrowing costs and meet the county’s rate target, the receiver, John Young, said yesterday in a telephone interview. Commissioners may get the offer this morning, he said.

Why not jail for Stifel bankers?

The SEC filed a complaint yesterday against Nicolaus & Co. and an executive alleging fraud in the sale of investments to Wisconsin school districts. The SEC is requesting that the parties “disgorge” ill-gotten gains and be barred from the securities markets. This hurts some, but hardly as much as the school districts were hurt for their losses. How come no criminal charges are being filed against these financial professionals who caused approximately $200 million in losses to the school districts? From the Bond Buyer:

The 44-page complaint alleging violations of federal securities laws was filed in the U.S. District Court for the Eastern District of Wisconsin in Milwaukee. It accuses Stifel and Noack, 48, who worked for Stifel from 2000 to 2007 and was co-head of the firm’s Milwaukee office, of defrauding the Kenosha Unified School District, the Kimberly Area School District, the Waukesha School District, the West Allis/West Milwaukee School District, and the Whitefish Bay School District.

The SEC is asking the court to impose civil penalties against the firm and Noack and require them to disgorge ill-gotten gains. It also wants the court to impose permanent injunctions against them to prohibit them from further violating or abiding and abetting violations of the securities laws. Stifel and Noack face three joint counts and each faces one additional count in the complaint.

Bonds to pass on to your grandchildren

Reuters reports that two issuers brought bonds with 100-year maturities to market to take advantage of very low yields. This might mark a fixed income market bottom. From Reuters:

Two issuers were in the market with 100-year bonds on Wednesday. University of Southern California has completed a US$300m offering of century bonds, and Mexico was out to reopen and double the size of the 100-year security it priced in October last year.

Both deals priced without a sizeable spread difference from typical 30-year money. Investors were generally happy to take on the longer maturity in exchange for more yield in a relatively safe credit.

@Twitter Talk

@RothReuters: Ouch! CalPERS has lost more than $18 billion (through Monday) since August sell-off began, LA Times reports……

@MuniNetGuide: Are GASB’s proposed changes to government pension reporting a result of all the recent headlines about public pensions?

@cspan: Checkout C-SPAN’s new Deficit Committee site, with video, news, & Twitter & Facebook comments from the members & public

+ Good Links

Stateline: Debt deal may not be as rough on states as initially feared

The Big Picture: The US Downgrade and the Muni Bond Market

Bloomberg: Investors in U.S. `Keep Their Heads’ After S&P Downgrades Municipal Bonds

Reuters: Some states, cities could face stress: Moody’s

Dayton Business Journal: Database: S&P ratings for all 50 states

Bond Buyer: Return of Triple-A Insurers Unlikely

Rodale: The European Fat Tax: Should We Try It?

Virginia Statehouse News: Virginia’s credit may hold out

PJ Tatler: Ever wonder why California is so broke?

City Journal: Savior of the Empire State

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