David Einhorn: Big Banks Pickpocket Pension Funds

David Einhorn was the guest on Bloomberg’s “In The Loop” program last Friday for two hours. Most of what he said about the European debt crisis, Apple (AAPL), St. Joe Company (JOE) and the gold market was covered by the media. But his remarks about the rating agencies were overlooked. He essentially said the credit rating agencies’ inaptitude facilitates big banks to pickpocket passive pension funds by front-running them or dumping their bad bonds on them. That’s why big banks want the rating agencies to stay. Here is what Einhorn said:

GREENLIGHT CAPITAL David Einhorn

“There are a bunch of high profile investors, bond investors who said ‘look we don’t rely on credit ratings for what we are doing, but those pension funds and stuff like that they need these credit ratings to protect themselves’. But the fact of the matter is it’s those people who say that they are not relying on credit ratings who are most depended on the credit rating system. Because what they do is they look at the credit ratings, they compare that to their own analysis, and they are looking for inefficiencies. And they know how the people who depend on credit ratings are going to behave. So, essentially by analyzing the credit better, they know how the other market participants are going to behave and essentially they pickpocket these passive pension funds both coming and going.”

Warren Buffett owns a bunch of Moody’s (MCO) shares and he has been dumping them for the past year and a half.  Insider Monkey, your source for free insider trading data, agrees with David Einhorn. For instance, all three major credit rating agencies rate Turkey’s credit rating below investment grade. S&P rates Turkey as BB+, the same credit rating as Greece. Turkey however, never defaulted in her 87 year history, has one of the lowest debt/GDP ratios in Europe (around 40%), and has one of the lowest budget deficits (around 3%). CDS properly rates Turkey’s credit rating as AA (derived from the spreads). But according to credit rating agencies, Turkey’s credit rating is BELOW investment grade. Those are the same credit rating agencies that rate Spain, Portugal, Italy, and Russia several levels above Turkey. If a country is going to default, it’s not going to be Turkey. Even doomsayer Nouriel Roubini doesn’t include Turkey among his predictions of countries that may default.

So, yes, credit rating agencies are ridiculously incapable of providing unbiased and accurate ratings. They do more harm than good.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!