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Transcript from the Interview with Zack Miller
This award goes to Moody’s, Standard & Poor’s and Fitch Ratings, the three credit rating agencies whose incompetence contributed to one of the greatest destructions of wealth and confidence in the global financial system ever, and helped precipitate the financial crisis of 2008.
The greed and incompetence of the credit ratings agencies is now well-known. I first described this and their conflict-of-interest addled ratings process in Myth #13: “It’s Best to Follow Expert Advice” of my book Jackass Investing: Don’t do it. Profit from it. You can read the full text of that chapter here: Myth #13. (The chapter also weaves in interesting references to stock market gurus, financial analysts, ways that rats outsmart humans, and the Apollo moon landings.)
But now it becomes apparent that the greed and incompetence of the ratings agencies were built on a foundation of corruption. The disturbing case of corruption was reported in a 78-page “comment” made by William J. Harrington, an 11-year employee and Senior Vice President of Moody’s, one of the big three ratings agencies. The story was reported by Henry Blodgett here: http://www.businessinsider.com/moodys-analyst-conflicts-corruption-and-greed-2011-8. (And Blodgett certainly knows corruption and conflicts-of-interest. He was sanctioned for putting public buy ratings on stocks that his employer was underwriting, when he personally believed them to be “dogs.”)
Harrington wrote that – surprise – Moody’s often gave out ratings that its clients wanted, against the private conclusions of its analysts; and that Moody’s product managers, those who were responsible for growing business and keeping clients happy, also voted on ratings decisions. You can read Harrington’s comments in their entirety here: http://www.sec.gov/comments/s7-18-11/s71811-33.pdf.
It would have been justification enough to issue this award on the basis of greed and incompetence alone, the charge of corruption makes Moody’s more worthy yet.
A Jackass Investing “Poor-folio Award” goes to…
European Securities and Markets Authority
Last Thursday, August 11th, four European countries banned or restricted short-selling in stocks. The bans were imposed in reaction to the sizable stock market losses recently suffered across global markets. This is a political move, not a logical financial one, and history shows it will be counter-productive.
In my book Jackass Investing: Don’t do it. Profit from it., I discuss the attempts that have been made by governments over the centuries to manipulate markets by banning the short-selling of stocks. They do not work. The most recent widespread ban of short-selling – that imposed during the financial crisis in 2008 – resulted in losses in the banned stocks that exceeded the losses on stocks for which short-selling remained permissible. The chapter in which this is covered, “Myth #10: Short Selling is Destabilizing and Risky,” can be read here in its entirety: Myth #10.
The reason short-selling bans are counter-productive is simple: free markets hate inconsistency. Knee-jerk rule changes wreak havoc on investor confidence. What greater statement is there to show a lack of confidence in the markets than to restrict people from selling stocks! Kenneth S. Rogoff, a professor of economics at Harvard states the issue clearly, “The short-sale ban really smacks of desperation.”
Because of their panic in the face of adversity, their lack of confidence in free markets and their signal of desperation to financial market participants, I’m awarding this Jackass Investing “Poor-folio Award” to the “European Securities and Markets Association.” Congratulations!
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The Jackass Investing Poor-folio Awards are given out to those who sink below the crowd by taking actions that contribute to the creation of “Poor-folios.” For more information about Jackass Investing and how to avoid a Poor-folio and create “Free Lunch” portfolios that earn greater returns with less risk, go to www.JackassInvesting.com.
