Here’s the Real Deal on the Credit Rating Situation in Chicago

The people who set the ratings that activate the ratings-triggers, (Moody’s) in any given credit default swap, direct bank loan, letter of credit, standby bond purchase agreement and/or line of credit held by any given bondholder, (JP Morgan Chase, Barclays and Wells Fargo.) are not only not independent arbiters of value but are in fact agents of said JP Morgan Chase, Barclays and Wells Fargo.

They are giving opinions on the City of Chicago’s credit rating that "pull" those ratings-triggers and allows those banks and wealthy individuals the option to walk away with $2.2 billion dollars of our money. The key word here being “option” they don’t HAVE to take all of this money from us and do real damage to the City of Chicago, they just WANT to do so. Sociopaths gotta get their inflict pain on the innocent on or they lose their reason for living… which in this case is making profit.

Said profit comes at the expense of the City of Chicago’s treasury, the taxpayers whose money is in those coffers and the capacity of the City of Chicago to meet its promises to civil servants and live up to is social service obligations to the citizens of Chicago. By the way paying pensions and providing public services are the core responsibilities of government. That our Mayor is apparently not interested in these things should not be lost on you.

At this point you can stop reading and start engaging the proper amount of guerilla warfare to stop this from happening but if you do read further you will get a recap of what’s happening and the sweetest of all pay offs… the answer to this question. Are the banks and their agents just ripping us off?

Remember Why This is Happening

Last week we explained that the reason you, I, the “lost generation” that Mayor Emanuel mentioned in his inauguration speech and everyone who will not be invited to Davos or the White House for tea and consultation is about to lose $2.2 billion dollars is that Moody’s dropped our credit rating. When this happened it pulled a set of “rating-triggers” that give the bondholders the option to take a huge chunk of cash out of the City’s coffers.

The “reason” Moody’s downgraded our bonds, the structure of our pensions funds, is not exactly a salient reason to do what they did and the math/economic models they used are proprietary to Moody’s so none of us know how sound that model actually is. What we do know is that Moody’s has a track record of bad “guestimates” that should make us question them if they were to say the sky is blue. They have missed everything from ENRON to Mortgage Backed Securities fraud and I could on and on.

You know I will go at least this much on and on. The one time someone checked a rating’s agency’s math a two trillion dollar error wandered into view. Sure, that was S&P but here they are agreeing with Moody’s present math on their downgrade of our bonds… like they know what they are talking about. Let me remind you now that the ratings agency’s have also agreed that what they do is give opinions that are closer to say the NFL Power Rankings than the real divisional standings. They themselves say things like this in regards to their “excellent” work.

“Credit ratings are opinions about credit risk published by a rating agency. They express opinions about the ability and willingness of an issuer, such as a corporation, state or city government, to meet its financial obligations in accordance with the terms of those obligations.

Credit ratings are also opinions about the credit quality of an issue, such as a bond or other debt obligation, and the relative likelihood that it may default. Ratings should not be viewed as assurances of credit quality or exact measures of the likelihood of default. Rather, ratings denote a relative level of credit risk that reflects a rating agency’s carefully considered and analytically informed opinion as to the creditworthiness of an issuer or the credit quality of a particular debt.”

What they are telling you is that the actual performance of the teams on the field, is not what they are looking at. They are thinking about the game and setting odds just like Vegas bookies do on any game. So you should take anything a ratings agency says with Lot’s wife-sized pillar of salt. That we don't do so and that the Crack Chicago Stenography Corps doesn't seem interested in doing so either is a Nightmare on Elm Street kind of concern.

We need to drag that guy into the real world and put his slasher-butt down for the last damn time. In this case I'm talking about the rating's agency and how they are connected to the banks that are taking $2.2 billion dollars from us because they can?

What If Who Decides Who Gets the Money and Who Gets the Money are Kind of the Same People?

Last week we explained to you that Moody’s has admitted that they are no longer independent in any sense of the word. They are actually agents of the financial institutions that they are evaluating. Let that phrase settle on you.

Moody’s is an agent of Bank of America, Wells Fargo, Barclays and JP Morgan Chase banks and they are responsible for creating the conditions under which those banks can carry $2.2 billion dollars out of the City of Chicago’s treasury in huge burlap bags with little dollar signs written on the sides of them. Let me say that again, in English. According to a Harvard economic study, (Harvard by the by is hardly a bastion of radical economic firebrands.) a case can be made that the credit agencies are defacto agents of the banks whose securities they are rating.

So guess who is getting the lion’s share of OUR money based on the ratings of their paid agents... you guessed it, JP Morgan Chase, Barclays and Wells Fargo. At the very least we should erect a level five containment field between the credit rating agencies and the banks... but aren't bankers like sober guardians of the economic system? Would they engage in risky, crazy and possibly illegal behavior for a few dollars more?

Would Bankers Loot the City of Chicago and Destroy Its Long-Term Finances for Their Short Term Profit?

Okay, so there is a short answer that is in every textbook and is the gospel of every Masters of Business Administration program in America… No. No financial institution would ever do anything to endanger the long-term financial stability of the market to make short-term goals. Competition in the market is about making judicious choices based on sound and rational behavior and destroying the financial base of a major American city is an act of “creative destruction” that should be seen as madness.

But then there is the evidence that tells us that if you put any ten bankers in a room with a wallet full of money that is not theirs and they know they can take the money without suffering a penalty they are stealing that money. Let’s face it. The members of the financial sector have the ethical standards of a band of drunken raccoon. Here is a good place to point out that the banks and the credit rating agencies stand to make a lot of money by creating “volatility” in the municipal bond market.

Nothing creates more movement than junking bonds… well defaults on debt like say Detroit can also create a lot of movement in the market depending on the side bets a financial institution may have placed on any given credit default swap, direct bank loan, letter of credit, standby bond purchase agreement and/or line of credit. So we have a situation here where volatility could be written into any and/or all of the above as a way to make quick cash under proper conditions and the one thing we know about banks is that they are hording cash.

Remember how Wells Fargo is getting paid coming, (A year ago they sold almost $900 million in Chicago’s municipal bonds and that's a lot of fees.) and going (Now they are going to be a beneficiary of the $2.2 billion being given out.) They are indeed negotiating with city right now but doesn’t it have the feel of I don’t know… a straight up confidence game? It's just a thought and no one is accusing anyone of anything but it is something to consider.

Remember how Bank of America basically defrauded the Chicago Public Schools? Recall how Morgan Stanley maneuvered the city into a Parking Meter Deal that they knew was bad for the city’s long-term viability? This ought to make us mindful of the Gresham’s Dynamic, a point in any market or system where the environment becomes “criminogenic” because unethical, illicit and illegal behavior drives out ethical, transparent/trustworthy and legal behavior.

The Crazy Questions No Asks About This Money

Given all of the above and the huge amount of money on the table is it crazy to believe that the same financial industry that has been guilty of juking worldwide interest rates would engage in plundering Chicago as part of a not so well-hidden scheme to get at our pension funds? You understand how my level of trust with these people is somewhere between low and non-existent?

This is because past performance is the best predictor of future behavior. So since the Chicago Tribune and Sun-Times appear to be intent on badly covering our city’s financial situation we at the Tutorial have been thinking of ways that they could do better. I mean we need them to do better so we're trying to help here.

One, what exactly are the details of the financial agreements the City of Chicago has gotten us into? By that I mean what the embedded rating triggers in our various credit default swap, direct bank loan, letter of credit, standby bond purchase agreement and/or line of credit. We should now what it takes to make one of those deals go bad as in who has to do what bring on catastrophe and why would they be allowed to do.

Two, who is negotiating, managing or stands to profit from the various financial deals Chicago is involved in. Did/do they have conflicts of interest that prevent them from being zealous advocates for the city and people of Chicago? We are talking about both vast sums of money and the economic future of people not yet born. We should have absolute confidence that the people representing the City of Chicago are not more interested in the welfare of the huge bank sitting across from then than they are in the school children twenty years from now who will need them to do the right thing right now.

Three, how is it possible that City of Chicago’s new Chief Financial Officer Carole Brown can be a zealous advocate for the city when she was just a zealous advocate for the interests of Barclay’s Bank? Conflict of Interest seems like too small a phrase to encompass the position in which Ms. Browne sits. It seems like any number of pieces from full-time journalists on the role she played in negotiating, managing or activating Chicago’s present entanglement with Barclay’s Bank.

Three, what exactly is the “math” driving this downgrade of our bond rating. The rationale Moody’s is putting forward parallels that given by S&P when they downgraded America’s sovereign debt. Basically the City of Chicago needs to slash its pensions and make deep service cuts to keep the financial institutions happy at the expense of the real economy. The Crack Chicago Stenography Corps should be crawling all over the people at Moody’s about their math and their economic modeling… er opinions.

Four, wouldn’t it be awesome if our media decided to talk to a range of economic experts about solutions? We could actually become… dare I say it… A Dangerously Informed populace. They could spend time with economists from outfits like Economic Policy Institute, Center for Economic Policy and Research and the Roosevelt Institute for solutions because the ones from the Civic Federation, CME and the Chamber of Commerce have come up snake eyes for close to thirty years.

The answers to these four questions would be the kind of reporting that would make Upton Sinclair proud but our media is more along the lines of living up to the values of Walter Lippman.

For almost five years and more intensely for the last few months we have been told that Chicago's financial situation is on par with the Lost City of R'lyeh rising out of Lake Michigan and Cthulhu, the Great Old One waking up and eating everyone's sanity. The alarm bells being rung by the Chicago Tribune Editorial Board and the pack of corporate raiders over at the Civic Federation have been deafening but after all of that time you are probably JUST learning who stands to benefit from this $2.2 billion pay out and the dodgy details of why. Ask yourself a question… why the hell is that case?

IF the Chicago media insists on pretending to cover the “pension crisis”, which it’s not and conflate it with bond rating downgrades… which possibly it shouldn’t be tied to… they should at least be asking these four questions, deeply informing the public as to the answers, talking about possible public policy solutions because that’s what government does… public policy and being zealous advocates for the commons… which is why we have freedom of the press. But after four years of fuss you didn’t even know who was getting the money or why.

Don Washington is the Front Man for the Informational/Blog/Conspiracy the Mayoraltutorial.com, can be followed at This e-mail address is being protected from spambots. You need JavaScript enabled to view it is not afraid of ninja, cannot be killed by mortal means and wants you to Get Dangerously Informed.