Greek Bail-outs, Australian Courts: Long Road Back From Crisis Of 2008 …

• December 13th, 2012
• Posted by EUEditor

  In one more urgent act in the long climb out of the global financial crisis, European Union Finance Ministers were this week, 13.12.12, endorsing another instalment of debt relief for Greece.

Relief of another kind for investors caught in the crash has been provided by the Australian Federal Court, penalising an American financial ratings agency, for its endorsement of unsound debt packages.

GREECE: TRYING TO BUY IT BACK

Greek governments have been facing down angry and desperate public revulsion, to get down spending on services, and get in revenue, as a condition for successive relief packages since the first days of crisis in 2008.

The country remains heavily loaded-down, owing €280 billion (A$346.6-billion; xe.com, 13.12.12), just under 137% of Gross Domestic product; but is working now towards a target of 124-28% by 2020.

This week the EU, together with the International Monetary Fund and European Central Bank, were offering to provide €34-billion (A$42-billion) in back-up finance for government borrowing, against a condition that the government would ease pressure from private financial markets, by buying back €31.9-billion (A$39.5-billion) in its own bonds. In the event, it once again came in somewhat below target, paying  more for the bonds than foreshadowed, but was getting a “P-minus“ – being allowed to pass.

AUSTRALIA: RELIEF FOR DOWN-HOME BORROWERS

Another set of institutions that suffered heavily in the crisis, municipal councils in Australian towns and cities, were getting much better recompense, following the court ruling last month (5.11.12), against Standard and Poor’s.

Federal Court Justice Jayne Jagot found that the ratings agency had engaged in negligent conduct, when it allocated a AAA rating to a product provided by the ABN Amro Bank.

Twelve  municipal councils in New South Wales paid A$16-million for the financial asset, which was worthless two years later – an outcome causing a huge contraction of services from roads maintenance to pools or parkways.

The Sydney judge ruled that the investment packages were “grotesquely complicated” and the allocation  of a AAA rating “misleading”, saying that a reasonably competent ratings agency could not have provided that level of endorsement.

Other factors that emerged in the case: Standard and Poor’s used data provided by the bank itself, which could have been found to be inaccurate, on adequate checking.

Costs and damages awarded to the 12 Councils are expected to get them a pay-out of A$30-million; by no means the kind of money to save the economy of the Greek nation, but in Australia, enough for them to promise some much-need building, cleaning and maintenance work around the towns, after Christmas.

GLOBAL IMPACT AGAINST RATINGS AGENCIES?

The court ruling, subject to appeal, stands to have global impacts, where it may inform other actions against the ratings agencies; a “way in” to get litigation going, and obtain damages.

These firms were doing heavy business in the “easy money” days that led up to the world crisis, pushing their own resources and ability to make adequate assessments.

In a feature of the international finance business being condemned these days within its own commentariat, they would be paid by the sellers of the financial products they were tasked to assess and recommend, or otherwise – as against being paid by the investors.

Legal redress may still elude investors in the United States. Corporations there are held to have the characteristics of private persons, and so the agencies, as such, have applied a defence that in making their judgments known, they were exercising an inviolable right of free speech.

See also, EUAustralia Online:

“Ratings hit against Euro states”, 16.1.12; “Times of risk …”, 9.8.11; “Unease over economy”, 19.1.08.

“Athens – new government’s plan on debt”, 7.7.12; “Greece: Government must argue with the ‘Troika’”, 7.7.12.

Reference

Finance News Network, Sydney, “IMF Australia wins fight against SandP”, 5.11.12. http://www.finnewsnetwork.com.au/archives/finance_news_network22129.html, (13.12.12).

Jessica Irvine, “Brought to heel over dud advice”, Courier Mail, Brisbane, 7.11.12, pp 26-7.

Leanne Mezrani, “Poor rating could trigger lawsuits worldwide”, Lawyers’ Weekly, Sydney, 6.11.12. http://www.lawyersweekly.com.au/news/poor-rating-could-trigger-lawsuits-worldwide, (13.12.12).

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