Is Standard & Poor’s really going to fight the NSW councils to the death? The ten-week court case is done, and $10 million is dusted on lawyers, perhaps even twice that between the five parties and their armoury of silks and solicitors. Now, with closing submissions set down for a two-week hearing from March 19, S&P has a dilemma. To settle or not to settle, that is the question. The twelve councils bought a bunch of “Rembrandt” toxic structured-finance products in 2007. They tanked 90 per cent in six months and now the councils are suing investment bank ABN Amro for making the Rembrandts, Local Government Financial Services (LGFS) for selling them and S&P for appending their once-hallowed AAA credit rating. For S&P, this is the first legal assault in the world to proceed to trial. A retinue of claims has been filed against all the credit rating agencies in the US, yet they are mostly bogged down in procedural issues. So the world is watching closely how they play this one. In complex corporate litigation like this, the outcome can be a roll of the dice. Even so, a successful defence seems an outside shot. Unreasonable rating Looking at the closing submissions which have now been filed with the Federal Court, the councils contend that S&P failed to exercise reasonable care and had “no reasonable grounds” for its...Read More
Author: Michael West
If a good poacher makes a good gamekeeper, then the big game of white-collar crime are about to drop like flies. As reported in the Herald, Greg Medcraft, the latest chairman of the Australian Securities and Investments Commission, previously ran the securitisation business for French bank Societe Generale in New York. It is this division of SocGen that is now being pursued in court by the US Federal Housing Agency over allegations it was negligent, did poor due diligence and seriously misled the American loan providers Fannie Mae and Freddie Mac. For those not au fait with securitisation, it is the practice of bundling up debts into a financial product, a product then sold to investors; it was these products that were widely believed to have caused the financial crisis. But Greg Medcraft is no subsistence poacher swinging a machete and a knobstick. Rather, he is globally one of the big-game hunters of the credit-derivatives market. He even acknowledges this poacher-turned-gamekeeper syndrome as one of his attributes for the role as regulator. ”I understand business, I understand markets. I’m really well equipped for this,” he said when he got the job at ASIC. And it should be said that he could do no worse than his predecessors in any event. When it comes to ASIC and the fight against corporate crime, he is, to borrow the language of the big...Read More
THE party rolls on. Just one year after the collapse of Lehman Brothers, and the most tumultuous days in the markets since the Great Depression, the bonuses are back, the debts have shifted from private to public sectors, and little seems to have changed. The locusts, you might say, have simply swarmed to another paddock. In Australia, despite being underpinned by the taxpayer through assorted guarantees and protections, bankers awarded themselves pay rises last year in the order of 6 per cent. Markets have recovered in inspiring fashion since their nadir of early March yet, in some asset classes, decades of wealth have been wiped out thanks to the exotic products concocted by fee-hungry financial engineers. And let’s not forget the leveraged products and awry advice which led to the demise of Storm Financial Group and its ilk. The global financial crisis has turned economics on its head. Economists didn’t see it coming and, amid the rancour, Nobel Prize winners Joseph Stiglitz and Paul Krugman have called for an overhaul of the ”dismal science” as it is known. Over the weekend, Stiglitz questioned the GDP ”fetish”, saying the obsession with this benchmark ignored critical issues such as the environment, the quality of production and leverage. It was the latter which brought the crisis on, and which has quickly increased – at the household level at least – since the...Read More
New Michael West Podcast
Created by PodcastOne, this 3 part series looks into how Australia has gone from one of the cheapest countries in the world for energy to one of the most expensive, and reveals just what has happened with our gas and electricity supply and why we are on the verge of an energy crisis.
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