Being Moody Doesn’t Always Pay

Questionable financial protagonist Moody’s is once again in the cross-hairs, only this time, the antagonist comes with an Italian name, Michele Ruggiero. The conflict? Market manipulation.

In spring of this year, Greece’s economy hit rock bottom, striking fear in the hearts of euro investors who were primed to react irrationally at the slightest news of doom.

Enter Moody’s, international rating agency giant.

On 6 May 2010 at 11:15am, Moody’s circulated a report that rated the Italian banking and economic systems to be “at risk”. In a matter of hours the value of the Italian financial market turned into a figurative picture of a Christmas tree after New Years: thrown to the sidewalk with only a few remnants of cheap tinsel hanging off a deadened pine needle. Unlike the unfortunate tree however, the walk of shame only lasted for one day. Prime minister and part-time political scandal spotlight-stealer Silvio Berlusconi, who interestingly holds the opinion for rating agencies that much of the Italian public holds of him – lost credibility – came to the rescue, stating that the “Italian public accounts are solid [and] the country is not at risk”. Other powerful figures in politics, finance and the banking industry also intervened to debunk Moody’s claims and sustain that Italy was not at risk of default. Fitch, another international rating agency, affirmed the same and the next day Moody’s decided to change its position.

Nevertheless, the misleading information and resulting freefall, however brief, prompted the main consumer associations of Adusbef and Federconsumatori to file a complaint with the prosecutor’s office of Trani. Carlo Maria Capristo, head of the office, passed the case to Michele Ruggiero, the deputy public prosecutor who was already investigating charges against American Express regarding a fraud scandal involving revolving credit cards. Ruggiero was also part of the prosecution team investigating allegations of pressure from Berlusconi on Agcom, the Italian Communications Authority, to shut down Annozero, a political talk show whose guests frequently roast the prime minister.

At the center of the market rigging investigation is Ross Abercromby, the senior analyst who backed the statements made by Moody’s in its report. Abercromby has been issued a cautionary warrant by the prosecutor’s office of Treni; charges include manipulation of the finance market and disclosure of false information, among others. The prosecution is looking for evidence that Moody’s engaged in market rigging at the cost of investors by issuing the detrimental report that resulted in a severe alteration in the value of Italian securities. If found guilty, Moody’s could be forced to make retribution payments.

This is not the first time Moody’s has come under scrutiny. The first drama happened in 1976 when Moody’s dropped the rating of NYC MAC bonds from A to B after the state of New York had issued a moratorium on payment of principal for city notes that were outstanding, causing a huge drop in the sale of bonds and prompting allegations against Moody’s of political bias as reasons for the rating drop. In 2007 Moody’s, along with Standard and Poor’s and Fitch, came under fire for failing to predict the housing bubble crash, allowing the bubble to grow to the size it did and failing to properly adjust its ratings until the last minute when it was already too late for many investors. In April of this year Moody’s was issued a subpoena from the Financial Crisis Inquiry Commission for its role in assigning misleading credit ratings for toxic assets, which ultimately helped to contribute to the financial crisis of 2008.

Whether or not Moody’s did intentionally manipulate the market or whether they simply made an overly negative judgment call remains to be seen. Italy, like the rest of the world, has had its struggles since the 2008 global financial disaster. It has certainly seemed to hold its own in comparison to Greece, Portugal and Ireland as of late, although last month, Citi economist Willem Buiter cited his pessimism for the future of Italy’s risk ratings as a result of continued political instability and high debt levels. The recent Parisian-worthy mob riot in Piazza del Popolo in Rome after Berlusconi won the confidence vote by 314 to 311, in addition to the many student riots (see photos) that have taken place throughout Italy in response to University reforms, can attest to a severely divided government and angry citizens, two things that can certainly give investors reason to shudder.

Nevertheless, risk or no risk, one thing is sure; Italy will not be devaluated without a fight!

Nina Michael is in her junior year in the BS in Business program at CUNY School of Professional Studies. Nina has been all over the world and loves traveling; she currently  lives between Italy and New York where she works as a professional English teacher and translator. She loves languages, food, coffee, wine and a good book; she is also a first-rate bartender.

An Italian Tea Party

Sometime last year, David Mazzerelli, a 28 year-old advertising executive from Prato, Italy, developed something that makes liberals on this side of the pond cringe; a fascination for Sarah Palin’s Tea Party Ideology.

Inspired by the cries for lower taxes and less government, Mazzerelli had an epiphany; within a year, Tea Party Italia was born.

There are some substantial differences between the US Tea Party movement and that of Italy. For starters, the US tea partiers consider themselves conservatives while Italian tea partiers consider themselves liberals. Secondly, Mazzerelli’s Tea Party actually faintly resembles what one might expect a 1776-American-Revolution-Tea-Party-inspired movement to embody.

While he may have been inspired by Sarah Palin and her devotees, Mazzerelli certainly follows a different path of action. US tea partiers, aside from complaining about taxes and pontificating as to the damaging effects of the involvement of government in just about anything, like to skirt the edge of relevance by taking up issues such as abortion, gay rights, evolution, creationism and other such issues that are hardly germane to any economic related issue. Italian Tea Partiers on the other hand, restrict themselves to issues of the state. Mazzerelli says; “Before everything we refrain from taking positions on ethical, moral and religious themes. We’re interested in economic themes: less taxes, less public spending and less government.”

In a country that actually does have reality-fueled reasons for feeling skittish about skewed governmental priorities, schoolyard-like ethical mud-throwing takes a back burner with the Italian Tea Party on issues that surprisingly made it into the 21^st century. Frankly, who needs Christine O’Donnell when you’ve got Pope Benedict XVI? The chances that he knows what’s in the first amendment might actually be greater.

Mazzerelli asserts that Italian tea partiers work together despite moral or ethical differences to focus on what the real issues are; “We have those that are pro-choice and those that are pro-life, those that are for the war in Iraq and those that are against it, but what unites us is the battle to have less government and more liberty.”

What the Italian Tea Party does not have are big names followed by throngs of people infatuated with conservative ideals that have nothing to do with the current state of affairs in the economy. In this respect, they have far surpassed the American Tea Party in terms of honest approbation, and relevancy. Furthermore, they have no plans for governmental affairs, nor do they seek affiliation with any party or any political figure; they are simply “by the people, for the people”, sending a message to the Italian government that Italy needs a change.

The Italian media has not dished out to the Italian Tea Party the same incessant limelight that the American Tea Party has gorged itself on, certainly no one has paid 2000 euros to see David Mazzerelli speak and so far, there has been no Italian Glenn Beck prototype spewing out melodramatic soliloquies on national television. In fact, Italian tea partiers consist mostly of educated young people, organizing meetings and protests that address the two issues that they stand for; less government, lower taxes.

Considering these two issues, which party has more reason to howl? I often suspect that many Americans simply cannot fathom how much they take for granted in the world. For the sake of time and space, I’ve erased the comparisons that I previously slathered across two pages of Microsoft’s cyber office monopoly. Let’s compare the bare minimum. [The following figures are taken from the CIA world factbook,
http://www.worldwide-tax.com
,
http://www.taxrates.cc
].

Imagine you make $50,000 dollars a year in the United States, what would your income tax rate be? Well, if you were filing as single or married and filing separately, it would be 25%, if married and filing jointly it would be 15%. What about in Italy? The current equivalent of $50,000 in euros is  38,162, which brings a standard tax rate of 38% whether single or married. By the way, the average GDP per capita in Italy is $29,000 (which would be  22,135 and taxed at 27%); in the US it’s $46,000 (with the same tax rate as $50,000). Click on the links above for further information or to compare corporate tax rates.

What about government spending? In 2009, US revenues were $2.104 trillion and expenditures were $3.52 trillion while public debt accounted for 53.5% of GDP; this is in a country with a population of 310,232,863 mind you, and a labor force of 154.2 million. In Italy, a country the size of California with a population of 58,090,681 and a labor force of 25 million, revenues totaled $987 billion in 2009 while expenditures were $1.099 trillion and public debt accounted for 115.8% of the GDP.

Before you accuse me of running a preferred narrative, let me digress: Yes, economies are bad all over the world. Yes we are all in a recession. But whilst republicans and democrats throw ostentatious stones at each other, O’Donnell and Palin ironically campaign for Intelligent design, and Berlusconi declares “Hey at least I’m not gay!” on national television, the world is once again manifesting those fun little side effects of human society that occur when the going gets tough: pissed off groups of people that demand change, some more relevant than others.

So what will become of these tea parties? Nothing, we might argue, and we may be right. Nevertheless, the Italian spawn of the American headline grabbers certainly make the latter seem like much ado about nothing.

Nina Michael is in her junior year in the BS in Business program at CUNY School of Professional Studies. Nina has been all over the world and loves traveling; she currently  lives between Italy and New York where she works as a professional English teacher and translator. She loves languages, food, coffee, wine and a good book; she is also a first-rate bartender.

A Lesson in the Life of a Vampire Squid

It’s 2 o’clock in the afternoon in Piazza Duomo where I sit listlessly procrastinating at an outdoor café, consuming large quantities of coffee and toying around with my first 21^st century phone (yes, I finally caved). Time stands in the corner glaring at me while I play spider solitaire, on the difficult level, and watch tourists and locals interfacing like two galaxies colliding in a far part of some star-trek worthy universe. I figure people-watching whilst sipping a caffe should somehow conform to my current studies of the modern history of the world and perhaps somehow metaphorically illustrate the random walk theory of the securities market.

For the record, trying to win at difficult level spider solitaire is like trying to catch a cab on Saturday night anywhere below 42^nd street! Either that or Apple’s rigged the game for failure as part of its plan for world domination.

I’m pushing the limit of dilatory procedural tactics now but the obesity-sized portion of homework that looms over my head isn’t helping.

I shouldn’t complain, I’ve just read a delightful exposé from Rolling Stone magazine for my corporate finance class entitled “The Great Big American Bubble Machine”, written by Matt Taibbi. The article fashionably annihilates corporate finance succubus Goldman Sachs for its vast portfolio of sleazy underwriting, sneaky short sales and graceful spinning shenanigans.

While any piece of writing can be exaggerated, I tend to have very few doubts as to the legitimacy of this article in particular, although I’m sure Goldman Sachs, whose company motto is “long-term greedy”, was not the only factor contributing to the tech, oil and housing bubbles. That aside, there has been a wealth of articles lately chastising Goldman Sachs for its naughty behavior.

In Taibbi’s synopsis, Goldman stands accused of not only contributing to various financial bubbles, but of having a direct hand in their intentional creation. Goldman’s out of control, leverage-based investment techniques back in the 20s (Goldman backing Goldman backing Goldman) helped contribute to the crash of the Great Depression. During the tech bubble, Goldman engaged in serious “spinning”, or corporate bribery, for underwriting deals. They further engaged in “laddering”, or tampering with IPO share prices. Robert Rubin, former Goldman CEO was acting as Treasury Secretary in the nineties when all of this was taking place; in fact, he is responsible for much of the dis-regulation that allowed the housing bubble to inflate to the size it did. In the mid-nineties, the Commodity Futures Trading Commission suggested tight regulation of CDOs and Credit Swaps, a move drastically opposed by Rubin, who eventually persuaded Congress to listen to his side; the Commodity Futures Modernization Act was passed shortly thereafter, leaving firms free to trade default swaps.

The best part of all of this however, is all-American corporate luminary Henry Paulson, notoriously well-known for his controversial government bailouts in 2008. Paulson had been in charge when Rubin was Treasury Secretary; he was the one who took Goldman Sacks public in 1999. During the housing bubble, Paulson had taken Rubin’s place in the White House and Lloyd Blankfein was Goldman’s acting CEO. When Goldman blatantly engaged in short-selling its own securities, or betting against its own mortgage bundles, no one cried security fraud. Instead, our favorite financial behemoth made sure (allegedly, though not that much) that AIG got the bailout, from which they received 13 billion, while their biggest competitor, Lehman Brothers filed for bankruptcy.

Another article from the New York Times cited phone and schedule records affirming that Paulson spoke with Goldman CEO Lloyd Blankfein 26 times between 2007 and 2008 prior to receiving the ethics waiver from the government allowing him to be involved in  “conflict of interest” affairs, or contact with his former firm. Furthermore, between 16-21 Sept 2008, there were 24 phone conversations between Paulson and Blankfein, more than there were between Paulson and AIG; hey, they were probably discussing the weather.

In my opinion, and based on principles learned in economics and investment classes taken this and last semester, financial firms seem to have become the biggest authorities on the allocation of assets in any given free-market country. This is not a bad thing if only the market could actually follow freshwater theories like the Efficient Market Hypothesis allowing stock prices to reflect all available, not to mention real, information regarding a company and its prospects. Unfortunately for calculus buffs, in the real world there exist companies like Goldman Sachs, who are also calculus buffs but armed with a “long-term greed” (i.e. short-term greed) motto; not to mention rash investors who never learned what logic meant, thus making a rational and efficient marketplace unlikely.

If you have any doubt about the irrationality of mankind, spend an hour people watching at the Duomo of Florence or at the leaning tower of Pisa.

I think I’ve got to side with Krugman on this one; saltwater pragmatists may just have it right!

Nina Michael is in her junior year in the BS in Business program at CUNY School of Professional Studies. Nina has been all over the world and loves traveling; she currently  lives between Italy and New York where she works as a professional English teacher and translator. She loves languages, food, coffee, wine and a good book; she is also a first-rate bartender.

Il Primo Tentativo

This morning my profoundly immoral pre-historic spawn of technology forgot to tortuously awaken me to a lovely September day in the birthplace of Leonardo Da Vinci; yes that nefarious base model Nokia deliberately set out to erroneously function causing me to arrive almost two hours late for work!

Don’t worry, my boss didn’t buy it either, but who wants to take the blame for failing to correctly set an alarm? For the record, I still blame the phone!

So here I am five hours later, heavily caffeinated and sitting in front of my laptop, thinking of what to write as a first blog entry for SPS’ new website, or ever for that matter. I suppose you’ve already surmised, aside from my passionate dislike of early morning wake-up sirens, that I live in Florence, Italy. I moved here from New York City in 2008, about the same time Lehman Brothers went the way of the Roman Empire. A year later I enrolled in SPS so that I could finish my degree more quickly while living abroad instead of losing half my credits by transferring to the local University.

In Italy, there is an old saying that goes “non si può avere la botte piena e la moglie ubriaca” – translation: You can’t have a full wine cask and a drunk wife [at the same time]. Basically, you can’t have your cake and eat it too; I like the Italian version better. Well, I think I’ve found a way around that ancient wisdom thanks to technology, which is not always dastardly, and I’ve now got both the full wine cask (living in Italy) and the drunk wife (finishing my degree with CUNY)!

Speaking of technology, after my dash to the bus this morning I happened to sit next to an elderly woman who was toying with her base model Nokia and desperately pressing buttons in search of some hidden truth. After I sat down she asked me if I could show her how to find the list of calls received. Despite my previous failure at setting an alarm, I succeeded. Reveling in my triumph of ancient technology, I was reminded of last semester’s e-commerce class where we discussed all the latest technological marvels in the world today and I seemed to be the only one with a phone from the technological dark ages; my friends in New York used to tell me that I ought to put it into a museum. Well maybe they were right, perhaps I ought to start toting about one of those smart phones. After all, a smart phone would never malfunction would it?

Notwithstanding my affinity towards simple cell phones, technology and the Internet have become a bigger part of my life since enrolling in the online program at SPS. My COM class from last semester together with the lack of a local school library helped me get a good grasp on Boolean searches and other information seeking techniques when researching. This kind of self-prodding online research has helped me to discover a wealth of information about technology, investments, accounting, business, Internet and E-commerce that I otherwise may not have unearthed. More importantly, it’s also helped me maintain a good GPA.

Online studying is a good experience to have if you can manage your time and keep that demon on your shoulder from convincing you to check your Facebook account every time you get the studying blues. While I do miss the personal touch of a real classroom, studying at SPS has been a rich and interesting experience so far and I tend to think that I may actually be learning more with the forced necessity of finding information from credible sources via the World Wide Web; perhaps technology does suit me after all.

To all those who read this, I hope my first attempt at a blog post hasn’t bored you out of your mind and I wish you luck in your online adventures with CUNY this semester.

Peace, prosperity and properly functioning alarms to all! Arrivederci!

Nina Michael is in her junior year in the BS in Business program at CUNY School of Professional Studies. Nina has been all over the world and loves traveling; she currently  lives between Italy and New York where she works as a professional English teacher and translator. She loves languages, food, coffee, wine and a good book; she is also a first-rate bartender.