Paul A Drockton M.A.
       Confessions of a Bond Rating Fraudster?
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Paul A Drockton M.A.
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Former Bond Rating Head Tells All:

"Ratings companies, whose scores have helped determine the cost of money for governments and businesses for more than a century, are no longer trusted by the world’s biggest investors, according to the former head of structured finance at Standard & Poor’s.

“They’re there because people have to have them, not because people believe in them,” David Jacob, who was fired from S&P in December, said in an interview at Bloomberg headquarters in New York. “Maybe retail investors do, that’s the unfortunate part, but I think institutional investors don’t.”

After helping ignite the worst financial crisis since the Great Depression by inflating grades on securities backed by subprime mortgages, the ratings firms’ reputations are being diminished further in the bond market. (Source)

I'd Like to Buy an AAA

"In 2007, the year before Jacob took over, S&P’s structured finance group took in $561 million in revenue, sometimes charging banks more than $1 million to rate a single offering, according to the Senate panel. About 90 percent of AAA securities backed by subprime mortgages from 2006 and 2007 were later cut to junk, or below Baa3 by Moody’s and lower than BBB- at S&P.

The credit crisis that followed still weighs on economic growth worldwide. Home prices in the U.S. are off 34 percent from their peak in July 2006, according to the S&P/Case-Shiller index. Governments were forced to bail out banks that faced $1.5 trillion in writedowns and losses.

Jacob joined S&P after managing commercial- and residential-mortgage bond groups at Nomura Holdings Inc. from 1993 to 2007. He said he sought to ensure that S&P analysts didn’t loosen standards at the request of bankers. The firm won less business in certain areas as a result." (Ibid)

Credit Default Swaps:

Credit Default Swaps are insurance policies taken out against corporate and government bonds. The higher the risk of default on a bond, the more expensive it is to insure. The holder of the Swap gets paid 100% of the face value if a bond issuer goes into default.

Before the crisis, swap investors were able to buy insurance against subprime mortgages at ridiculously cheap prices because of the AAA ratings. When those same bonds were cut to junk, the value of the swaps increased exponentially. When they went into default, the swap holders potentially made trillions, at the expense of your savings, insurance and retirement funds that sold the swap in the first place.

All Eyes on Romney:

Sankaty Advisors , the offshore Hedge Fund owned solely by Mitt Romney, invests heavily in Credit Default Swaps. In essence, betting against the very loans Romney and his Hedge Fund buddies helped to create. Because it is based in Bermuda, it is not subject to any reporting requirements in the United States. Romney has come under fire for not fully disclosing his overseas holdings on his tax retiurns.

He also refuses to release the past decade of returns. A great way to bet against America and keep the fact hidden from the American public.

"Named for a historic Massachusetts coastal lighthouse, Sankaty was part of a cluster of similarly named hedge funds run by Bain Capital, the private equity firm Romney founded and led until 1999. The offshore company was used in Bain's $1 billion takeover of Domino's Pizza and other multimillion-dollar investment deals more than a decade ago." (Source)


When companies or government agencies issue bonds, they pay a ratings agency to classify the bond's risk. The higher the rating, the lower the potential risk. High ratings mean lower interest payments for the bond issuer. The fact that Bond Ratings agencies get paid by the bond issuer for their ratings throws the whole system's credibility into question.

In other words, because the Credit Ratings Agency gets paid to rate a government or corporate bond by the bond issuer, there is a financial incentive to inflate the rating.

Inflated ratings are a boon to credit default swap buyers because they get to pay the lower cost for the swap. When the bond tanks, the credit default swap holder gets paid 100% of the bond's face value by the credit default swap issuer. 

The losers are retirement funds, insurance companies and others that rely on bond ratings agencies when investing in government or corporate debt. The real losers are the workers and retirees being filleted by those betting against their investment holdings.

Precious Metals:

Gold: Trading at $290 an ounce ten years ago. Now at $1586.00.  A profit of $1296 per ounce, or 446%

Silver: $4.27 an ounce ten years ago. Now trading at $27.38. A profit of $23.11 per ounce or 541%


Real wealth is flowing into gold and silver. Low prices and high demand are already causing shortages of some bullion products. The 1% are suppressing prices in the futures markets because they are buying every ounce of gold and silver they can get their hands on. You should do the same. Buy silver or gold by emailing me at  pdrockton@aol.com
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