Eu Warns Credit Rating Agencies

[TGP]

It clearly will if they pass laws forcing companies under their jurisdiction to follow these ratings which is inevitable if everyone ignores them.

I am not sure how much clearer i can make it

Which is why I pointed out that my analysis only works if they don't so this....

Which I can defend by pointing out

a) No-one is saying they will do this and

If this was the end game.... why the need for the ratings agency ? Why not just specify in legislation that they must hold X amount of national bonds, regardless of rating..... or that the ECB will accept them as collateral regardless of rating (as they are doing in the greek instance).

c) This wouldn't help anyone..... Because specifying that they are AAA will not affect the fact that the price of the bonds reflects what people "really" believe they are worth. They might specify you have to use their govt. ratings, but companies would know that country is "really" CCC (because of the other agencies) even though it is rated AAA by the govt. and so decline to buy (say) Greek bonds for their AAA requirements and by US bonds instead.

I.e..... there will remain hundereds of AAA rated investments (by both the govt. and private figures)..... If the govt. takes a dozen that the private companies rate as CCC and say they are AAA and that the govt. rating is the only one that leagally matters.... this will NOT affect the fact that the market treats them as CCC, because all the AAA investors will instead by the AAA bonds they need from the "privately rated AAA" countries, and the Greek bond price would still reflect CCC spreads even though it is "officially" AAA.

Even though they COULD specify that it's legally rated AAA, no-one would actually buy them for their AAA requirements. They'd buy "true" AAA bonds for that.

The whole idea that this is the end game is purest bullsh*t. This isn;t the idea of the govt. agency.... it couldn't work like this.

Yours,

TGP

[MississippiJohnHurt]

The whole idea that this is the end game is purest bullsh*t. This isn;t the idea of the govt. agency.... it couldn't work like this.

What myself (and I think others on this thread) were getting at is that we are very quickly approaching the point of no return, and those in power are sitting there worrying about how best to shoot the messenger. This is what makes it obvious to some of us that this is going to end messily. You know: Nero, Rome, Fire (etc)

[Georgia O'Keeffe]

Which is why I pointed out that my analysis only works if they don't so this....

Which I can defend by pointing out

a) No-one is saying they will do this and

If this was the end game.... why the need for the ratings agency ? Why not just specify in legislation that they must hold X amount of national bonds, regardless of rating..... or that the ECB will accept them as collateral regardless of rating (as they are doing in the greek instance).

c) This wouldn't help anyone..... Because specifying that they are AAA will not affect the fact that the price of the bonds reflects what people "really" believe they are worth. They might specify you have to use their govt. ratings, but companies would know that country is "really" CCC (because of the other agencies) even though it is rated AAA by the govt. and so decline to buy (say) Greek bonds for their AAA requirements and by US bonds instead.

I.e..... there will remain hundereds of AAA rated investments (by both the govt. and private figures)..... If the govt. takes a dozen that the private companies rate as CCC and say they are AAA and that the govt. rating is the only one that leagally matters.... this will NOT affect the fact that the market treats them as CCC, because all the AAA investors will instead by the AAA bonds they need from the "privately rated AAA" countries, and the Greek bond price would still reflect CCC spreads even though it is "officially" AAA.

Even though they COULD specify that it's legally rated AAA, no-one would actually buy them for their AAA requirements. They'd buy "true" AAA bonds for that.

The whole idea that this is the end game is purest bullsh*t. This isn;t the idea of the govt. agency.... it couldn't work like this.

Yours,

TGP

i am not sure who stated anything about an end game, not i. Im pretty sure the world isnt ending

Clearly you have no idea when it comes to actions and results, the inevitable result of implementing such an agency which would work while the sun shines is that once it stops working or is negative to the detriment of the govt it will lie.

At that point the legislation is inevitable, as night follows day.

There is 100% historical reality backing this up regarding govt actions. From zero AD

Whilst it wont help anyone , clearly it helps the govt delay the inevitable a bit longer.

Im not sure how anyone can argue this point given govt actions over the last 3-4 years or even decades in Japans case, they simply refuse to act rationally and accept the pain drawing it out until such a time they cant, ultimately inflicting far greater pain than needed originally.

The way you think govts are inclined not to act for their own benefit over the short term at the detriment to the long term and will not act ludicrously when desperate makes me wonder why any states have collapsed throughout history

You seem to have the opinion that it is different now, people/govts are smarter and the past can no longer happen. It is exactly because of this misplaced complacency that collapses ultimately do happen when this level of complacency is prevelant, it is cause and effect

Edited May 5, 2010 by Tamara De Lempicka

[porca misèria]

Don't the UK government force pension funds to hold a proportion of 'safe' (AAA) assets, which recently has increased (the proportion that is), and of which includes government bonds, where a huge amount are currently being sold.

More transparency yes. But I don't doubt for a minute the UK government, and other countries, would do everything in their power to prevent them losing AAA status.

Yep. That's why our deficit is absolutely necessary. Without it there'd be a huge surplus of money chasing a limited pool of, erm, government debt, and in all the more trouble when a government like Greece goes bust. The outcome would be ever-falling yields on eligible debt, and they'd almost certainly be negative by now. Classic bubble.

But it's OK. Our debt will valiantly rise to meet the needs of all these pensioners

Until

[TGP]

i am not sure who stated anything about an end game, not i. Im pretty sure the world isnt ending

Clearly you have no idea when it comes to actions and results, the inevitable result of implementing such an agency which would work while the sun shines is that once it stops working or is negative to the detriment of the govt it will lie.

Fine, and the moment it starts doing so it removes itself as entirely irrelevent.

There is no point having a ratings agency that everyone knows is directed to lie... because no-one will take any heed of it's ratings !

I am well aware of govt's propensity to lie concenring figures.... so is the market..... if they do so not even the most simple-minded investor will read their ratings.

At that point the legislation is inevitable, as night follows day

Whilst it wont help anyone , clearly it helps the govt delay the inevitable a bit longer.

How ?

You are a fund manager. You need to buy $1m of AAA bonds tommorrow.

The offers are

US AAA rated by private and govt. agencies alike.

Germany AAA rated by private and govt. agencies alike.

Greece AAA rated by the govt. CCC rated by everyone else.

Which do you pick to invest your AAA money in ?

It doesn't make any difference to the choice you'd make if the govt. rates them AAA does it.

You "know" what the true rating is even if the govt. is lying. How would their "lie" affect your choice in any way ? You go out and buy the German AAA bonds, whether the govt. specifies that their rating is the only one that legally matters or not.

Im not sure how anyone can argue this point given govt actions over the last 3-4 years or even decades in Japans case, they simply refuse to act rationally and except the pain drawing it out until such a time they cant

But this wouldn;t "draw out" anything. If they lie, it has no effect.

Hell, for the first 3-5 years even if they were telling the truth I'd expect it to have no real effect. In order for their rating agecy to have ANY market influence at all it MUST provide more accurate figures AND BE SEEN TO DO SO CONSISTENTLY. If it doesn't, it will be ignored.

The way you think govts are inclined not to act for their own benefit over the short term at the detriment to the long term and will not act ludicrously when desperate makes me wonder why any states have collapsed throughout history

OI !!!

AGAIN.... this analysis is ENTIRELY AGNOSTIC over whether you trust govt. or not. The point is simply that.... if you are right and they lie, there will be no effect. If I am right, and they tell the truth (in this instance at least), it can only have a positive effect.

It is as if you said "Horse A will lose, of course it will." And I said "Well, there is a not negligable chance it could win"........ and THEN we were both offered a bet that returned our stake if it lost, and gave us 2:1 if it won.

It doesn't matter what either of our positions are, it's a free bet. We should BOTH take it.

In this the market ties the EU's hands completely. They can lie, and the market ensures they have no effect...... or they can tell the truth, and have an effect of providing more honest ratings.

But they can't do anything else. They CAN'T falsely inflate the worth of their bonds by lying. The other ratings agencies will still be there pointing out the "true" value of those bonds.

It's either provide more honest ratings, or provide nothing at all..... because the market WILL NOT take notice of dishonest ratings.

They can lie all they want, and it won't move the markets an inch. The only way they can move them is in telling the truth (and only then if the ratings agencies are diddling their figures..... and only then after a good 4-5 years or more in which the govt. figures outperformed the private companies consistently as regards accuracy).

Yours,

TGP

[Georgia O'Keeffe]

Fine, and the moment it starts doing so it removes itself as entirely irrelevent.

There is no point having a ratings agency that everyone knows is directed to lie... because no-one will take any heed of it's ratings !

I am well aware of govt's propensity to lie concenring figures.... so is the market..... if they do so not even the most simple-minded investor will read their ratings.

How ?

You are a fund manager. You need to buy $1m of AAA bonds tommorrow.

The offers are

US AAA rated by private and govt. agencies alike.

Germany AAA rated by private and govt. agencies alike.

Greece AAA rated by the govt. CCC rated by everyone else.

Which do you pick to invest your AAA money in ?

It doesn't make any difference to the choice you'd make if the govt. rates them AAA does it.

You "know" what the true rating is even if the govt. is lying. How would their "lie" affect your choice in any way ? You go out and buy the German AAA bonds, whether the govt. specifies that their rating is the only one that legally matters or not.

But this wouldn;t "draw out" anything. If they lie, it has no effect.

Hell, for the first 3-5 years even if they were telling the truth I'd expect it to have no real effect. In order for their rating agecy to have ANY market influence at all it MUST provide more accurate figures AND BE SEEN TO DO SO CONSISTENTLY. If it doesn't, it will be ignored.

OI !!!

AGAIN.... this analysis is ENTIRELY AGNOSTIC over whether you trust govt. or not. The point is simply that.... if you are right and they lie, there will be no effect. If I am right, and they tell the truth (in this instance at least), it can only have a positive effect.

It is as if you said "Horse A will lose, of course it will." And I said "Well, there is a not negligable chance it could win"........ and THEN we were both offered a bet that returned our stake if it lost, and gave us 2:1 if it won.

It doesn't matter what either of our positions are, it's a free bet. We should BOTH take it.

In this the market ties the EU's hands completely. They can lie, and the market ensures they have no effect...... or they can tell the truth, and have an effect of providing more honest ratings.

But they can't do anything else. They CAN'T falsely inflate the worth of their bonds by lying. The other ratings agencies will still be there pointing out the "true" value of those bonds.

It's either provide more honest ratings, or provide nothing at all..... because the market WILL NOT take notice of dishonest ratings.

They can lie all they want, and it won't move the markets an inch. The only way they can move them is in telling the truth (and only then if the ratings agencies are diddling their figures..... and only then after a good 4-5 years or more in which the govt. figures outperformed the private companies consistently as regards accuracy).

Yours,

TGP

This is circular

Govt agency rates correctly, people follow it - We both agree

This ultimately leads to at some point Govt agency needing to lie when it becomes detrimental

You say at that point they are ignored

I say at that point it is inevitable Law is introduced so they cannot be ignored, there is no precedant for any govts not to act in this way

Which is what makes it pointless implementing it in the first place,

Edited May 5, 2010 by Tamara De Lempicka

[TGP]

This is circular

Govt agency rates correctly, people follow it - We both agree

This ultimately leads to at some point Govt agency needing to lie when it becomes detrimental

You say at that point they are ignored

I say at that point it is inevitable Law is introduced so they cannot be ignored, there is no precedant for any govts not to act in this way

OK.... but there is no law they can introduce that means you can't ignore them (if it's based on the ratings) !!!!

None.

Take greek debt today. Lets say they had set this up in the past.

If they specified that "Greek is AAA today, and you have to use our ratings and not anyone elses" the spread on greek debt wouldn;t budge an inch. People would STILL buy other AAA's over greek bonds exactly as they do today.

The only law that COULD make a difference is "You all have to buy $xm in Greek debt today", but they can do that with or without their own rating agency.

What law COULD they pass, involving the rating agency, that would force people to buy greek debt today ? They couldn't. You can't legislate "believe our lie" people won't whatever the legislation.

Which is what makes it pointless implementing it in the first place,

Only if you can give me a law (involving the ratins agency) that would make people buy greek debt at AAA today.

As long as there are other agencies.... and as long as there is other AAA debt they could buy.... then people will ignore a govt. commandment that CCC is AAA and continue to buy debt that EVERYONE rates as AAA.

Any law commanding differently could be done with or without the ratings agency.

Yours,

TGP

[indirectapproach]

I wonder if the EU have realised that by putting pressure on the ratings agencies the EU helps the UK.

The agencies will be feeling this heat and as such less inclined to downgrade the UK and face the ruffled feathers this will cause and a potential contraction in fees from UK institutions hurt by such a downgrade.

The EU, "there when 'eu need 'em".