Posted 5 years ago on Jan. 16, 2012, 2:35 p.m. EST by ohmygoodness
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What is this with rating agencies, is their purpose to cry wolf for the benefit of today’s carpetbaggers, or so it would seem. Their record is stunningly poor and they are equally culpable in the recent financial meltdown.
1) Insight: When ratings agencies judge the world :
excerpt “….Behind all too many of market moves in government debt of late has been a report from one of the major credit ratings agencies. S&P is the biggest and arguably the most influential, fast followed by Moody's Investor Service and then their smaller rival, Fitch Ratings. In national capitals, they are alternately vilified by politicians or held out as just arbiters for denouncing government profligacy.
Yet there is an overwhelming irony in their new-found prominence. These are the same firms that many blame as prime instigators of the 2007-2008 credit crisis for freely giving out top ratings to ultimately worthless structured mortgage products, allowing the credit bubble to form. Now they sit in judgment of the countries that had to ruin their public balance sheets to prevent financial collapse by saving the banks shattered by those bad instruments once blessed by the agencies.
"The ratings agencies failed the world economy in spades in the past," said Lord Peter Levene, chairman of the Lloyd's of London insurance market and a former senior adviser to the British finance ministry.
"Their track record has not exactly been stellar."…"
2) Prof Bill Black of University of Missouri – “….one must take the opposite of what the ratings’ agencies say and that is the truth … they should not be allowed to exist…”
3) Eurozone in new crisis as ratings agency downgrades nine countries last week
4) Standard & Poor's strips France of its AAA credit rating, rekindling fears in the markets over future of single currency last week
5) US loses AAA credit rating after S&P downgrade - sometime in August 2011
6) UK has not been downgraded, is the state of its economy that great, hhmm.. or perhaps the Bank of England is stronger than these agencies???
7) Germany calls for European rating agencies after S&P; downgrade
So what is all this hullaballoo with regards to these credit ratings' agencies?
For argument’s sake, let us assume these agencies have some “credibility” and they do downgrade most of the countries to junk status. Now all these countries will need to borrow against high interest rates (who benefits?? – ask the Central Bankers).
Let’s also say for argument’s sake that some Sovereign nations decide not to borrow but to print their own money against what they plan to collect in the next fiscal year, what could be the consequence?
a) They could recover from this crisis and allow the middle class to prosper OR
b) The too big to fail financial institutions will not allow this happen, after all these institutions are larger than all individual sovereign nations by a notable factor. http://www.youtube.com/watch?v=TdVc40Mc9cQ&feature=relmfu
Hence the million dollar question or should we not talk in small change and say the trillion dollar question for sovereign nations individually and collectively
1) Do they trust/need the credit rating agencies?
2) Will they continue to support debt money?
3) Will they break up the stranglehold of the large financial monopolies?
4) Will they continue to address this global problem of the mega financial institutions from a parochial standpoint or will they for once be ahead of the curve?
Musings on a Merry Monday.