Without subsidy, women would get 42% of male pension!

5 years less compounding in pension fund means women should get 65% of men’s pension.  Women live 20 years in retirement, men only 13, lowering women’s unsubsidized pension to 39% of male pension. (0.65 times 13/20). Even if women were retiring at the same age, they would get 65% of male pension, if paid according to insurance mathematics proportional to their input to the system and the expected payout. That is for women with equal salary as the men. If women earn less, and thus pay in less,  would further lower the expected payout, if normal insurance rules applied. The numbers might change a bit with more sophisticated math, but the differences are shocking, nevertheless.  Use your country’s life expectancy tables for 60 year old males and females, and years worked at age 60 or 65 by gender.  In countries where men retire at the same age as women, the differences get much smaller.

By this model, a woman with 55 years of age and 30 years of contributions, for example, might begin to receive retirement benefits. The same goes for other combinations, provided that the sum is 85. [55 + 30 in this example]
In the case of man, the age of 60 and 35 contribution, the employee could retire, for example. Also other combinations, keeping the sum of 95 years [ 60+35 in our example] 1

Men to subsidize women’s shorter work years and longer retirement years

Brazil now plans a capitalizing retirement fund for government officials.

"The biggest concern is the question of women. They contribute, but retire five years earlier. It is a capitalization fund, but they lose 35% to 37% in favor, because they would have five years unless the capitalization," admitted Gabas, who attended the lunch with the allied base.
But there is already agreement to another type of fund: The fund called survival. Would allocate a small percentage of the contribution to a special reserve, for cases in which living retired more years than the average time period for which stipulated and contribute.  2

The only solution is for men to pay more. Nobody even considers to require women to work equally long as men, in order to justly equitably earn their own retirement benefits.

Another fund should be created to benefit women and federal police. The text states that both categories retire with 5 year less minimum contribution. "They are still entitled to retirement, but would have five years less capitalized and thus would have a big loss," said Gabas. The government’s contribution to this second fund is not yet clear, according to Vaccarezza. 3

Women retire earlier, contribute less and live much longer. In Brazil and world wide.

They don’t even mention that women live about 4-7 years longer, thus exacerbating the financial advantages women have over men. You can see from the graphic that in most countries in the world, women retire at least 3 years earlier.

The difference between the survival rates of men and women remains large: while girls born in 2010 they hope to live 77.32 years, the rate among boys is 69.73 years, due mainly violent deaths such as accidents traffic accidents and homicide. [...]

At age 22, the chance of a man dying was 4.5 times higher than that of a woman, considering last year’s data. According to year 2000 rates, the probability of male death at the same age was four times higher than for a female. (O Globo, Friday, December 02, 2011)

There is no logical reason why women should retire earlier then men. It seems to stem from a historical artifact, that wives are 3-5 years younger then husbands. So in order to enjoy retirement together, the different retirement age was introduced. (anyone has better sources then hearsay for this explanation?)

Of course, only Human-Stupidity would would propose women to work 5 years longer, to finance the retired husband. So a woman could make up for the years she took off work during childbearing age. Women should retire 5 years LATER then men.

Only Human-Stupidity dares to say the mathematical and sociological truth: women should retire LATER then men, because

1. women have better health,
2. women survive to much older age,
3. women take more years off work, and
4. women contribute less years to retirement.

Then they would get equal number of years of pension benefit and equal number of financial contribution to the pension fund as men. Equal rights and equal obligations.

• Against feminist entitlement bias: Gender equality requires women to retire older then men to have equal duration of retirement and years worked

Retirement benefits are unsustainable, world-wide

On top of the gender bias in favor of women, the entire retirement system is flawed and bankrupt, like in most of the world. Too few young workers work for too many old pensioners.

The graphic here shows how 100 Japanese workers historically had to support 20 retirees, now about 150, and this will increase to 350!

The Fund provides a secure retirement for 25 years, but for cases where the person lives longer a mutual fund will be created to finance such cases. 15% monthly (7.5% by government and 7.5% by the government employees)[...], 0.42% would go to the general fund. The current Social Security has a deficit, for 2011 projected at R$ 57 billion. Today there are approximately 950,000 retirees to 1.1 million active government employees. For the system to support itself, the ideal would be a ratio of four active servants (which contribute at a rate of 11%) for each retiree.

Brazilian Public Servant Retirement Fund Discussion | O Globo (google translation) | (portuguese)

O Pension Payouts of the Ten Largest Economies – CNBC

26 Sep 2011 – Publicly financed retirement, or pension benefits, vary widely across the world. But as the U.S. and Europe consider fiscal austerity measures to …

The European Divide

In Northern Europe, culture, quite aside from the law, supplies a sin and guilt control mechanism. We have set rules for moral and ethical behaviour which we expect everyone to adhere to. The core value of a need to achieve is a stimulus for entrepreneurship and economic development. It is our psychological mainspring. Governments build their policies around this fundamental core value which affects the entire socio-cultural system. The Swedes ‘carry Luther on their shoulders’ and believe they need to do a good day’s work before they can partake in any reward – as do all the Nordic countries.  Success equals personal achievement, the drive to get things done, and accumulating capital to gain status and wealth.

In Southern Europe, shame tends to be the control mechanism, with one’s relationship to other people and to the group determining acceptable behaviour.  Ethics is more related to the situation and who is involved, so ‘rules’ as we perceive them are often ‘broken’. Style is everything; manliness (machismo) counts and should be displayed; dignity and honour must be maintained.  The Cultural Value of “The Public Man” is the desire to be someone rather than do something.Success equals social power; being someone personally important, being surrounded by people who look up to you and are dependent on you.

Just across the Channel and beyond, being who you are counts for more than what you have achieved; security comes not from individual effort but from reciprocal relationships which mould your expectations of lifestyle and your place in society.  Friendships are formal and a great amount of time is given to nurturing these.   Large, extended families, including distant blood relatives and close family friends, are the norm which have strong emotional ties, giving a powerful commitment to family rather than the rest of the world. Taxi drivers and hotel receptionists often try and impress upon us, the foreigner, how well connected they are to give themselves status.

In cultures like these, WORK per sé holds little value and is to be avoided if possible.Developing friends and connections is THE form of capital investment – not ‘personal development’ as we know it in the UK.  The genteel pursuit of leisure gives status – not the image of industriousness and efficiency as in the North.  3

Different Ethics, incompatible financial and economic attitudes

The Southern European countries have a different pay and work ethic then Northern European countries. Southern Europeans strike more for wage increases, for lower work hours and earlier retirement. They use more borrowed money, like there is no tomorrow, for instant gratification.  Maybe it makes the Southerners  happier and more humane then the Northern European work animals. The northern countries have more self discipline, work ethic, self sacrifice.

Historically, before the Euro, the southern European currencies regularly suffered devaluations to re-instate an equilibrium.  Now putting these countries into one currency simply leads to Southern Europe having too high salaries, too high cost, and being too uncompetitive. These are not the countries where all citizens voluntarily lower salaries, and happily increase work hours and retirement age.

Spain Labor Market Incompatible With Euro

Well, reading thru Op-Ed pieces in the New York Times I came across a short piece by U Maryland economist Gayle Allard who explains a core problem with Spain’s economy as a member of the Euro: The country needs periodic bouts of inflation to undo the distortions caused by very powerful unions. This makes Spain’s entry into the euro zone an act of enormous political folly for all involved.

While it was doing its fiscal homework, however, Spain overlooked a key requirement for the currency area: staying competitive without a national exchange rate. Spanish labor costs chronically rise much faster than productivity.

Spain needs bouts of inflation as long as collective bargaining remains highly politicized. A country that needs periodic bouts of inflation should not share a currency with Germany. One doesn’t need to be a rocket scientist running complex computer models to figure that out.

No state and city bailout in USA and Switzerland. No major transfer Unions

In the USA, cities and states are totally responsible for their budget and will not be bailed out by other government entities. If there is a disequilibrium, citizens always have the option to migrate to other states. A single language and culture in the US is helpful.  Switzerland is similar, no bailouts.

In the alternative model to a German-style transfer union, ordinary people have to shoulder most of the adjustment burden. In the United States, for example, workers are much more willing to move to other states for better-paying jobs than in Europe, although this is also greatly facilitated by the fact that the whole country speaks the same language.

As a result, economic imbalances are reduced relatively quickly within the US, thus limiting the need for intervention by the federal government. There are, of course, federal taxes and targeted regional aid programs coming from Washington. The large-scale social welfare programs for retired people (Medicare) and the poor (Medicaid) also help to soften economic tensions. But there is no such thing as a redistribution of wealth based on the German model of financial transfers among states. Oxford-based economist Clemens Fuest explains the system by referring to what he calls the typically American "aversion to government."

The notion that individual states could attempt to pass on their unsustainable mountains of debt to the community, as is the case in Europe, is also unthinkable in the United States. In the last 170 years, federal and state governments have only assumed the debts of cities and other municipalities in exceptional cases, as a study by US economist Robert Inman concludes. In 1997, the US government rescued the over-indebted capital Washington from bankruptcy, and since 2002, the New Jersey state government has been helping out the cash-strapped port city of Camden.

Otherwise, a strict ban on government being held liable for others’ debt applies in the United States, not unlike the corresponding clause in the EU’s Maastricht Treaty. In the United States, state and local governments that cannot manage their money effectively cannot expect financial support from Washington or a state capital. When the cash-strapped state of Minnesota became insolvent a few weeks ago, no bailout fund was established to save it. Instead, the state government closed many government agencies, shut down many public works projects and sent two-thirds of government workers on unpaid vacations. USA

EU bailout in violation of no-bailout clause

Now in violation of the European Union’s no-bailout clause, countries get bailed out. Indiscipline gets rewarded.

In Germany, there is a crime called "Insolvenzverschleppung" (failure to file bankruptcy) that increases losses more then necessary). So Greece and other countries can continue the party a little more, while Germany and other countries take responsibility for the debt. In the very long run this could bankrupt even Germany, if they are responsible for everyone else’s debt. This way a Greek and Portuguese crisis finally becomes a Euro crisis, bankrupting Europe as a whole.

This is similar to the tragedy of the commons. Or if you give your kids an unlimited cell phone, but you pay the bill. Why would they suffer inconveniences and restrict their phone usage?

Of course, this is aggravated by the fact that even Germany does not obey the EU clauses of maximum 60% GDP debt and 3% GDB yearly deficit. Even Germany and the US borrow like there is no tomorrow, with no intent to ever pay back the debt at due date. The entire borrowing culture, welfare and retirement benefit industries are problematic in themselves.

And now the EU wants to set up new rules and agreements. The same EU who blatantly ignored the earlier rules and agreements. In exchange for money for Greece, the Northerners want to force the happy-go-lucky southern countries to become disciplined and hard working like Germans. This leads to riots, strikes and mayhem. Greeks don’t want to live and work like Germans. And Germans don’t want work even harder to pay debt of the Greek who have more vacation, retire earlier, and have higher salaries. And Greek vacation hotels priced themselves out of the market. A devaluation would fill the nice Greek islands with tourists immediately.

It would have been better had the old European governments left the old currencies and installed a non-profit currency exchange and currency future trading institution. They would try to keep exchange rates constant, but not at all cost.  The same rules and same currency with different character and attitudes, this does not work.

We don’t want no transfer union. Tight-fisted Germans resent paying for profligate Greeks, Irish and others

There is more than a grain of truth in this. Germans were loth to give up the D-mark in 1999 and have never warmed to the euro. In 2008, some 56% of Germans wanted the mark back, according to Allensbach, a pollster. Despite the panic about Greece, that share was down to 47% in April, but only a third of Germans had “great faith” in the euro. Mrs Merkel, whose coalition government has so far disappointed voters, wins plaudits when she takes a tough line against errant euro members and scorn when she seems soft. Her Christian Democrats fear that a demagogic D-mark party might emerge to steal votes.

German behaviour is guided by more than petty politics. In adopting the euro the Germans thought they were joining a condominium, in which every member would keep order on their own property, and not a messy commune. Now the crisis threatens that understanding. The Greek bail-out and the €750 billion ($980 billion) war chest created in May to defend the euro look to many Germans like a violation of the “no-bail-out clause” in the Maastricht treaty that created the euro. The government insists it is not, because the aid is voluntary and temporary. The constitutional court is evaluating this claim. The proposed successor, a permanent facility plus procedures to impose losses on creditors of insolvent countries, needs a treaty revision to pass constitutional muster.

The official start of the European transfer union

The possibility of financing through the EFSF reduces the pressure for countries to eliminate deficits and reduce government debts. Why introduce harsh austerity measures, reform labor markets and privatize the public sector if there are loans available from the EFSF at ridiculously low interest rates? If you want to win elections, you should not reform but spend. Only through deficit spending one can maintain the artificially high living standards in the periphery. Indeed, debts are still on the rise. Deficits are huge and far from being eliminated. Most probably, Greece, Ireland, Portugal and soon Spain, Italy and even Belgium will borrow exclusively from the EFSF. To be effective, the size of the EFSF will have to be extended. The main guarantor will be Germany. Considering peripheral funding needs, a report fromBernstein calculates:

As the guarantees of the periphery including Italy are worthless, the guarantee Germany would have to provide rises to €790bn or 32% of GDP.

If France is downgraded, the German share increases to €1.385 trillion —56% of GDP.

The transfer union implies a transfer of power to the European Commission. We get ever closer to a European superstate. Incentives to reduce deficits will be reduced both in the periphery and in the core. Germans will start to resist cuts in public spending. Why save if the savings flow to the periphery? Instead of reducing German pensions to guarantee Greek pensions, German voters will push for more public spending. To pay for welfare states and transfers, more taxes (maybe a European tax) and money production will become necessary. The centralization of power allows for harmonization of regulations and taxes. Once tax competition ends, there will be a tendency towards ever higher taxes. With the transfers, the power of Brussels will continue to rise. There seems to be only one bold, albeit costly way, to stop the process towards a EUSSR: withdrawal from the transfer union. With an exit from the Euro, Germany could bring down the whole Euro project and save Europe.

In the USA, from the period of dot com bust, till date, the political class and their henchmen in the Fed, have created bubble after bubble by borrowing and injecting liquidity in the system. There was no job growth, no real income growth, only an illusion of prosperity, created by simply inflating asset prices. Stock markets went up and up, house prices went higher forever, fooling the mass that they are far wealthier and they need not save or produce anything. Only one country in the western world has bucked this trend. That country is Germany. But there also they were fooled by megalomaniac politicians, notable among them Mr. Helmut Kohl. Helmut Kohl, a post world war 2 politician, who grew up in the guilt of wars, wanted to become a world statesman and thus pushed for the creation of a unified Europe and Euro. While Euro has helped German export machinery to a great extent, it has also tied Germany to other profligate countries in Europe and its periphery that do not have the fiscal or work ethics of Germany.  2

Tyler Cowen Asks If Euro End Is Near

I am seeing reports of 7.7 on the Italian ten-year bond, over eight percent on the two-year bond, 6.5 percent on the six-month note, and so on.  Here is one account.

South America has similar problems. Argentina went into total recession by pegging their Peso to the US dollar.  Argentina also defaulted on debt and still is part of the international community. Argentina and Brazil got ruined when interests rose sharply a few decades ago. Nothing new under the sun.

Banks have to pay for their risks. And as long as countries can borrow money, they have to be solely responsible for their decisions, and for the interest the market requires of them.

Article 103 says  that: the Union shall not be liable for or assume the commitments of central governments.

This article was specially written to leave ensure no EU country would be saved by the EU if it doesn’t respect the Union’s economic rules. And that’s precisely the case in Greece.  ‘No Bailout’ Clause? The EU’s Greek Rescue Problems

 

Literature

• No to transfer Union, for a stable currency (German) is a great 90 page article explaining the entire situation very concisely. Unfortunately in German. Nein zur Transfer Union Web Site
• Germany is the real winner in a transfer union | Financial Times. We at Human Stupidity disagree ….
• A European transfer union. How large, how powerful, how expensive?
• The Eurozone is already a transfer union

Designing a Transfer Union to Save the Euro

The example of the states of the former East Germany, however, shows that a political union can sometimes even amplify existing economic imbalances. Instead of seeking a way out of their economic crisis, some poverty-stricken regions might prefer to become permanent subsidy recipients. [...]

Italy and Belgium were already divided economies when they had their own currencies. But the tensions have only increased since the euro was introduced. In Belgium, the struggle over the capital Brussels is the only thing preventing the two mutually antagonistic parts of the country from splitting apart. And in Italy, where the right-wing Northern League defends northern Italian interests, a party representing the south has also now been formed. It sees its main objective in liberating the poorer parts of the country from "northern Italian oppression."

The American System of Individual Responsibility

What Europe can learn from the experiences of other currency areas is obvious. A viable transfer union for the euro zone cannot be modeled after the systems of centralist countries like France or Sweden, warns Berlin-based economist Henrik Enderlein. The right model for the continent, says Enderlein, is a "competitive federalism" resembling the systems in Switzerland and the United States. The individual states are largely autonomous in making decisions on income and expenditures, while low federal taxes and a central unemployment insurance provide for a minimum of financial equalization.

Most of all, however, the individual states remain responsible for their debts. Those that mismanage their finances must face the consequences, including higher taxes and the possibility of bankruptcy, by themselves.

Help from the community can only be provided if it is tied to strict conditions and is monitored by a nongovernmental organization like the IMF. Countries that can no longer service their loans must turn over their national sovereignty to a European austerity commissioner — or file for bankruptcy. The German system of redistribution of income among federal, state and local governments is "not a model for Europe," says economist Enderlein.

The bail out favors banks, who earn high risk premiums on interest, while the government assumes risk and buys bad credit. All this in violation of the EU no bailout clause. And giving financial incentive for risky behavior by banks.

Greece should have been allowed to go bankrupt. That is market economy. Let someone else buy the failed banks and continue running them. Let the bank managers be arrested for doing unsound business. The bank must not loan money that can not be repaid.

• Additionally, every nation in the world, including Germany and the USA, have too high a debt.
• And that a system based on compounded interest can not work in the long run ( 1 cent with 4% interest yield in 2000 years  $0.01 * 1.04^2000=  1.16594643150219980412675240849 e+32=  $ 1165946431502199804126752408490

One should start asking questions why countries can not be run without resorting to debt.

Human-Stupidity is just giving food for thoughts. We are just pointing to the stupidity that might ruin entire populations.

World currencies, country finances, world economy is seriously stupid, based on stupid belief, based on greed of banks, politicians, and yes, the normal citizen who wants his benefits now, on loaned money.

Countries should repay loaned money in times of strong economy. Not increase loans more and more. That is Keynesian economics.

Spiegel Online International: Top Economist on the Euro Crisis; ‘
The German Government Will Pay Up’, June 27, 2011

In a SPIEGEL interview, leading German economist Stefan Homburg argues that euro-zone members should not bail out Greece, discusses who is making a profit from the crisis and explains why he himself is buying Greek bonds. "I believe in the boundless stupidity of the German government," he says.

More related articles

• ‘Clinging to the Euro Will Only Prolong the Agony’
• Time for Plan B: How the Euro Became Europe’s Greatest Threat
• Bad for Business: Euro Crisis Has Decimated Greek Private Sector

All quotes from :
Spiegel Online International: Top Economist on the Euro Crisis; ‘The German Government Will Pay Up’, June 27, 2011

In a market economy, even in the case of a plumber whose customers don’t pay their bills, it’s never a question of getting creditors "involved" (in helping to deal with a bankruptcy). Instead, when push comes to shove, it is creditors, and creditors alone, who have to write off their loans. Only then do they have an incentive to carefully choose who they lend money to. A market economy with no personal liability cannot function. The government bailout initiatives create misdirected incentives that continuously exacerbate the problems on the financial markets.

I wouldn’t call it a strategy. First, states bailed out their banks, now states themselves are being bailed out. But there is no next level to fall back on beyond this bailout. The bailout packages have merely exacerbated the crisis. Last year, if we had adhered to the Lisbon Treaty, which prohibits assistance payments, Greece would have restructured its debt, just as Uruguay, Argentina, Russia and other countries have done over the past 15 years …

Many politicians have also come to the realization that the path that we are on ultimately leads to national defaults and currency reforms. This process is already irreversible, but nobody wants to say it out loud and go down in history as the one who triggered the explosion. So we leave the bankruptcy to subsequent German governments and, in the meantime, throw good money after bad. Sooner or later, this much is certain, the system will be blown apart by political and economic factors. And, unfortunately, there is a great danger that, when this happens, it is not only the euro that will fall apart, but also the entire EU.

After the Greek bonds have been paid back at full value, the gamblers will turn to the next candidate, such as Portugal. If creditors suffered losses in Greece, however, they would renounce this business model. In this sense, the rescue measures are exacerbating the problem

Many politicians have also come to the realization that the path that we are on ultimately leads to national defaults and currency reforms. This process is already irreversible, but nobody wants to say it out loud and go down in history as the one who triggered the explosion. So we leave the bankruptcy to subsequent German governments and, in the meantime, throw good money after bad. Sooner or later, this much is certain, the system will be blown apart by political and economic factors. And, unfortunately, there is a great danger that, when this happens, it is not only the euro that will fall apart, but also the entire EU.

• Fighting (for?) Europe: How European Elites Lost a Generation (06/23/2011)
• Opinion: Save the Euro! (06/23/2011)
• Opinion: If the Euro Fails, Germany Will Be Responsible (06/22/2011)
• Confidence Vote in Greece: Papandreou Allowed to Continue from Frying Pan to Fire (06/22/2011)
• Greece and the Euro Crisis: Europe’s Dangerous Leap of Faith (06/21/2011)
• Time for Plan B: How the Euro Became Europe’s Greatest Threat (06/20/2011)
• Spreading Like Wildfire: A Chronicle of the Euro Crisis (06/20/2011)
• The World from Berlin: ‘Heart of the Euro Problem Is Europe’s Indecision’ (06/20/2011)

Financial crooks brought down the world’s economy — but the feds are doing more to protect them than to prosecute them [...]

The rest of them, all of them, got off. Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted.

The immorality of Wall Street

Human-Stupidity was wondering long ago why Rating institutes’ AAA ratings for junk (causal for world economic collapse) went unpunished. Not only is the financial sector one big behemoth that profits from unproductive gambling in financial markets, The financial sector fraudulently rigs the game, gains immorally high commissions and ruins the world economy, banks, and entire countries like Ireland and Iceland.

When caught red handed, executives at Goldman Sachs, unaware that their own memos and emails had leaked, blatantly denied their wrong-doings under oath. What are the conclusions?

We need true morality in big world-moving issues.

1. We need morality in economy and business. Maybe a Western Confucianism.
2. Profit should come from production, not from financial gambling and fraud
3. Big fraudsters need to face punishment.
4. Or maybe the lesson is: Destroy your tracks. Don’t send and keep incriminating emails. When planning to con your own customers, don’t discuss it in writing

Our moral philosophers, religions, churches fail, philosophizing about silly issues like:
birth control, the beginning & end of life, sex & possession of child porn

Our churches, moral apostles and philosophers fail miserably. Entire countries get plundered, the world economy gets shattered, currencies are a house of cards waiting to collapse under collective debt. Banks make immoral profits from the world’s miseries. Our moral guides and philosophers are caught up in silly issues like

• abortion, immorality of birth control,
• when does life start, and
• forcing people to die miserable deaths, preventing people from choosing a dignified death,
•  teenage sexuality, doctor playing children and 
• all of Interpol focuses on child porn witch hunts imprisoning loners who possess 0′s and 1′s on their hard disks that constitute child pornography.

Our religions and moralists are just as useless and damaging as banks.

The People vs. Goldman Sachs

A Senate committee has laid out the evidence. Now the Justice Department should bring criminal charges

They weren’t murderers or anything; they had merely stolen more money than most people can rationally conceive of, from their own customers, in a few blinks of an eye. But then they went one step further. They came to Washington, took an oath before Congress, and lied about it.

A legal system that allows the financial sector to make huge gains while producing nothing, or worse, destroying the productive economy.

Total dishonesty. Outright fraud. Impunity. Rating institutes that give AAA rating to junk and don’t get punished. Governments that bail out banks instead of letting them pay for their mistakes.

Government and nations borrowing like there is no tomorrow

Governments that borrow money like there is no tomorrow. Impossible to service in case of interest increase. Pretty impossible to ever pay back. Entire countries get bailed out with insane amounts of money. When will the USA default, or when will China throw its US bonds and currencies on the market?

The entire world economy, currencies, financial industry, are a house of cards and a huge risk. Everyone’s savings, security, future are at risk.

We ‘just want to call attention to the topic and encourage readers to put up links. We unfortunately don’t have time and qualification to do profound analyses.

Goldman Sachs’ lies and perjury

"Goldman’s CEO claimed the firm ‘didn’t have a massive short,’ when the opposite was true." First of all, in Goldman’s own internal memoranda, the bank calls its giant, $13 billion bet against mortgages "the big short." Second, by the time Sparks and Co. were unloading the Timberwolves of the world on their "unicorns" and "flying pigs" in the summer of 2007, Goldman’s mortgage department accounted for 54 percent of the bank’s risk. That means more than half of all the bank’s risk was wrapped up in its bet against the mortgage market — a "massive short" by any definition. The People vs. Goldman Sachs

When caught red handed, executives at Goldman Sachs, unaware that their own memos and emails had leaked, blatantly denied their wrong-doings under oath. We pointed out above that we need serious moral codes.

This issue is bigger than what Goldman executives did or did not say under oath. The Levin report catalogs dozens of instances of business practices that are objectively shocking, no matter how any high-priced lawyer chooses to interpret them: gambling billions on the misfortune of your own clients, gouging customers on prices millions of dollars at a time, keeping customers trapped in bad investments even as they begged the bank to sell, plus myriad deceptions of the "failure to disclose" variety, in which customers were pitched investment deals without ever being told they were designed to help Goldman "clean" its bad inventory. The People vs. Goldman Sachs

• This just postpones the problem of the huge debt which will come due at a later time.
• It also does not solve the structural problem, that countries with very different attitudes and politics are ties to one currency.
  • Did you know that in the rich productive countries of Europe, like Germany, salaries are lower, the retirement age is higher, Now try to tell a Greek or Portuguese worker to reduce his salary and retire 5 years later. This is why we have riots all over Europe.
  • So either break up the monetary Union to separate countries with different monetary situation
  • Or let the markets decide. Once a country defaults, the lenders will get the message that they should check how credit worthy a country is, before lending their money.
• Almost all countries in the world increase their debt every year. No payback schedule in sight. Only ever growing debt.  Critics think the debt of almost all countries in the world is unsustainable.

Weinberg said there is nothing on the table that can stop the euro zone falling into crisis.

“Not only is there no solution in hand, but there is no inkling that any idea on the table at this summit could plausibly avert a default on substantial portions of euro land’s sovereign debt,” he wrote.

“Lending money to already over-borrowed nations does not help or fix them. Also, no plan exists for strategies to cope with the fallout of a sovereign default should one occur,” Weinberg added.
Is Europe Slipping Towards Default?

Marc Faber: If The U.S. Was A Corporation, Its Credit Rating Would Be Junk (Video)

The entire world economy is driven by blindness and greed. Greed of corporate executives, of politicians, and yes, greed of the citizens who want their perks, high pay, and little work. Keep borrowing till the world financial system collapses. Keep bailing out to buy a bit more time, the delayed collapse will be even worse.

• Time for EU to wake up and embrace default
• Financial Chaos and Debt Default in the European Union
• Sovereign default | Wikipedia

The sheer fraud and greed of rating agency analysts and executives is staggering. That no one has gone to jail, and none of the agencies have been shut down is a travesty of justice on an infinitely larger scale than Bernie Madoff’s Ponzi scheme. Until depositors, bankers and investors regain confidence in the quality of ratings we rely upon to measure financial stability and creditworthiness, the tremors that underlie the credit crisis will drag on indefinitely.   [...]

The problem with the business of rating the issuers of securities, and rating the securities they issue – such as mortgage-backed securities and collateralized mortgage-backed obligations – is that the rating agencies are paid by the issuers to rate them. Objectivity aside, ratings firms are in business not to rate but to make money for themselves by rating issuers and their securities. It’s like all the contestants in the Miss World pageant paying the judges with country funds … who’s not going to be judged beautiful?

What was even more problematic in the scheme of the ratings business model was that analysts didn’t understand how to analyze and rate the very complex cash flow structures of these new collateralized mortgage-backed securities. Not wanting to lose business to their competitors, who were all in the same boat, they used the same rating model structures that they used to rate corporate bonds , though the two different securities had nothing in common.

It was like asking your local car mechanic to certify your Citation V jet – just before you take off for a transatlantic flight to London. God help you if there’s a problem.

And there were problems. Lots of them. According to a Feb. 15 “Review & Outlook” piece in The Wall Street Journal , Joseph Mason, professor of finance at Drexel University, studied collateralized debt obligations rated “Baa” by Moody’s and determined that they were 10 times more likely to default than equivalently rated corporate bonds. The article went on to say that an S&P spokesperson, when asked if they actually examined the underlying mortgages in the pools, answered: “We are not auditors; we are not accounting firms.”

source: http://www.marketoracle.co.uk/Article7853.html

Even the Congress was of the same opinion, but still the rating agencies are not punished, neither criminally or in civil court.

“The story of the credit rating agencies is a story of colossal failure,” according to Representative Henry Waxman (D-CA), chairman of the House Oversight and Government Reform Committee in a statement released on Wednesday.

Rep. Waxman’s committee is investigating the credit crisis and put much of the blame on those agencies such as Standard & Poor’s (S&P) and Moody’s for giving top ratings to securities backed by subprime mortgage loans.  The committee held the first of two days hearings on the crisis Wednesday titled “Credit Rating Agencies and the Financial Crisis.”  The second hearing on Thursday will deal with the role of federal regulators in the crisis.

According to Andrew Taylor, writing for the Associated Press, the committee released internal documents showing that executives of the rating agencies were “well aware that there was little basis for giving AAA ratings to thousands of increasingly complex mortgage-related securities but the companies often vouched for them anyway.”

The three biggest ratings agencies, S&P, Moody’s and Fitch, Inc.; made huge profits for giving top ratings to the securities.  The agencies apparently relied on ever increasing home prices for the confidence they placed in the mortgages.  Two of the agencies, S&P and Moody’s, have now downgraded thousands of their previous top ratings.

Rep. Waxman blamed the rating agencies and federal regulators for putting the entire financial system at risk and betraying the public trust.

Source:

http://www.mortgagenewsdaily.com/10232008_Ratings_Agencies_.asp

More information:

http://www.scribd.com/doc/16802834/Liability-of-the-Rating-Agencies-for-the-Current-Financial-Crisis