Eu Warns Credit Rating Agencies

[Guest sillybear2]

i know but there are some supporters of marx who are saying look he forecast this

I would say John Law has one over on Marx, he predates him, and not only did he theorise the enviable outcome of fiat money systems he produced a graphic illustration by bankrupting France, thus leading to the loss of her North American colonies.

Hah, only just noticed your avatar

Edited May 5, 2010 by sillybear2

[lowrentyieldmakessense(honest!)]

I get the distinct feeling the rating agencies are definitely on the inside of Wall Street and are part of the rounding up of speculators to force a particular investment to do what they want.

You know as soon as the rating agencies say they believe that Greece may not be able to pay its debts - that debt becomes immediately unpayable as rates rise.

They were very prompt about this. Too prompt. Indeed they knew a backstop was shortly going to be under discussion.

In contrast, how long did it take them to downgrade Wall Street's own debts and companies? They didn't downgrade the bond insurers for months despite what everyone knew.

No, I think they are corrupt to the core and they need to be tackled.

And of course governments should not rate their own debt. Perhaps agencies independent of government? Basically where humans are involved, there is no hope really.

scrap the agencies

[indirectapproach]

I think that if the governments want nice ratings from the agencies the governments need to start buying the ratings.

He who pays the piper and all that ....

[Guest sillybear2]

scrap the agencies

Shoot the weathermen whilst you're at it, both are simply paid to provide a considered opinion.

The rating agencies allow us to run 12% deficits the same way Experian's credit rating may allow you to personally borrow £50k in unsecured credit, however it doesn't mean it's a good idea or that you should do it, that applies to both the borrower and lender. People don't need licence to make stupid decisions, markets do that anyway, then later they find someone to blame for their own ill-judged actions.

Edited May 5, 2010 by sillybear2

[TGP]

This is another one of those threads where I can't see the connect between the lead article and what everyones saying...

The OP says...

1) Rules are being implemented to force ratings agencies to make their calculations transparent.

Surely. No-one on here can possibly say thats a bad thing ? In the future not only will you be able to see the AAA rating, you'll ALSO be able to see the sums ! Surely that makes things like the CDO scandal less likely. Everyone will have an opporuntity to see if they are corrupt, or if they're making it up as they go along.

2) The EU govty. is considering creating it's own rating agency.

Here, who cares ? Either they are as accurate (or better) than the current agencies.... or they aren't.... the govt. can't force any private enterprise to use their figures so the new govt. run rating agency will stand or fall upon it's accuracy in relation to the private companies.

If anything, this should ensure at least one agency isn't 100% dependent on Wall St fees to keep going.... and should act as an indepedent check on the powre of the private ratings companies.

How any of this is "the beginning of the end" or in any way proves the Marxist "Crash of all Crashes" is inevitable is beyond me. It remainds me of nothing so much as US evangelicals predicting the "End of Days" as some event causes them to believe another "sign" has happenned.

Finally, as an aside, SSL said something to the effect that "Ratings Agencies are pointless". They aren't.

The problem with everyone doing their own research is that it is economically inefficient..... lets say we have 1m investors.... and the appropriate research takes a day for any one company.

Then we can save 999,999 man days but ONE company doing that research and sharing it's results as a rating. Muliply that accross thousands of investments and you are talking 10's of billions of man days saved.

Now, of course anyone can replicate this personally if they wish..... but the idea of a ratings agency is not useless, it SHOULD (provided it was done professionally) be a great boon to markets. The main issue is that they were not done professionally, and were in fact "captured" by the people issuing the investments.

How rating agencies SHOULD work is by keeping their results under wraps.... and charging a fee for access to their ratings. This would ensure their incentives were to do so as accurately as possible. They are not built on this model, and it is the fact that the people creating the investments that pay for the ratings that caused all the CDO trouble (and may, potentially, be causing them to rate govt. bonds when and how the hedgies would like them rated.... hence the calls for full transparency).

Yours,

TGP

[interestrateripoff]

This is another one of those threads where I can't see the connect between the lead article and what everyones saying...

"If you look at Greece, for example, I was quite surprised by the quite rapid deterioration in rating."

Ratings agency Standard & Poor's downgraded Greek debt to "junk", leaving it effectively cut off from the financial markets.

The three big agencies - Standard & Poor's, Moody's and Fitch - occupy a position of power at the heart of global finance.

Critics of the rating agencies point out that they are so powerful that their judgements become self-fulfilling prophecies.

How can anyone be seriously surprised by Greece's rating cut? The country was fiscally bankrupt before it joined the Euro and was a basket case economy. The rating agencies gave it a false credit rating to sell it's bonds with.

Transparency is all well and good but that won't happen as the rating agencies would never be able to explain why Greece got such a high rating in the first place.

[Guest sillybear2]

How rating agencies SHOULD work is by keeping their results under wraps.... and charging a fee for access to their ratings. This would ensure their incentives were to do so as accurately as possible. They are not built on this model, and it is the fact that the people creating the investments that pay for the ratings that caused all the CDO trouble (and may, potentially, be causing them to rate govt. bonds when and how the hedgies would like them rated.... hence the calls for full transparency).

You do have to pay for detailed reports and research, however it's hard to hide basic ratings, people need only look at market spreads to judge the implied risk of any bond.

[TGP]

How can anyone be seriously surprised by Greece's rating cut? The country was fiscally bankrupt before it joined the Euro and was a basket case economy. The rating agencies gave it a false credit rating to sell it's bonds with.

Transparency is all well and good but that won't happen as the rating agencies would never be able to explain why Greece got such a high rating in the first place.

He wasn't surprised bvy the rating.... but by the "fast deterioration".

"If you look at Greece, for example, I was quite surprised by the quite rapid deterioration in rating."

If Greece was so obviously bankrupt... why did they have an AAA in the first place ? Surely that should have been downgraded YEARS ago. You know, when they looked "not bankrupt" but looked "iffy" why didn't they go to AA+ then, still years ago ? When they looked "slightly more iffty, but still not bankrupt" why didn't they go to AA ?

As it was they went from AAA.... to BBB+.... in a few weeks. And then months later from BBB+ to Junk in a matter of days. If ratings agencies were doing their job properly that should NEVER happen. Investments shouldn't go through a dozen rating levels overnight.

He's RIGHT to say the speed of the deterioration is suspicious. It STINKS of someone bribing the raters to hold it high (so they can load up on shorts) and drop it like a stone on signal (so they can collect).

Countries SHOULD NOT go from AAA to Junk overnight (or at least shouldn't do so without a nuclear bomb going off or some such catastrophic and unforseen event). All the data was there for years, why wern't they downgraded earlier ? Why didn't their rating progressively and gradually follow their situation over months/years rather than go from "Top o' the pile" to "bottom o' the pile" almost overnight ?

If we could SEE their sums we might know.... thats what the transparency rules are about. Maybe it's all innocent, and we'd see it right there in their sums. "Oh yeah, once that information was known and this ... that totally changed the deal"

But maybe it isn't, and right now it looks fishy and no-one knows how they decided to do it.

Yours,

TGP

[TGP]

You do have to pay for detailed reports and research, however it's hard to hide basic ratings, people need only look at market spreads to judge the implied risk of any bond.

Fine, I don't care how they do it....

The principle is ALL their revenue MUST come from users of ratings for them to be free of incentive to cheat.

As it is MOST of their revenue currently comes from the people being RATED and other sources. That gives them incentive to dick with ratings to please those people.

If you can't do this......Transparency will help...... and Hvaing a Ratings agency whose operating costs come from an outside wall st source (in this case govt.) would help.... so I can understand why they are trying to do both of the above.

Yours,

TGP

[Guest sillybear2]

He wasn't surprised bvy the rating.... but by the "fast deterioration".

"If you look at Greece, for example, I was quite surprised by the quite rapid deterioration in rating."

If Greece was so obviously bankrupt... why did they have an AAA in the first place ? Surely that should have been downgraded YEARS ago. You know, when they looked "not bankrupt" but looked "iffy" why didn't they go to AA+ then, still years ago ? When they looked "slightly more iffty, but still not bankrupt" why didn't they go to AA ?

It wasn't that rapid, it's was a steady slide into bankruptcy with plenty of warnings but people only really wake up and notice when things hit crisis point. I don't think they were ever AAA and they started downgrading them ages ago, look at the date of this article :-

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4242070/Greek-crisis-deepens-as-SandP-downgrades-sovereign-debt.html

And also this article, the German public were the best ratings agency out there :-

http://www.telegraph.co.uk/finance/economics/2791587/Support-for-euro-in-doubt-as-Germans-reject-Latin-bloc-notes.html

The crunch point hit when the fraud and the full extent of their cooking the books was revealed, people can only judge stuff on public information and if governments chose to lie about their official statistics then they can hardly complain about the fallout when the truth is finally revealed. Remember ratings are forward looking, and Greece just continued to take the piss with its deficits until it was forced to change course, same with the UK and every other addict.

Edited May 5, 2010 by sillybear2

[interestrateripoff]

He's RIGHT to say the speed of the deterioration is suspicious. It STINKS of someone bribing the raters to hold it high (so they can load up on shorts) and drop it like a stone on signal (so they can collect).

Countries SHOULD NOT go from AAA to Junk overnight (or at least shouldn't do so without a nuclear bomb going off or some such catastrophic and unforseen event). All the data was there for years, why wern't they downgraded earlier ? Why didn't their rating progressively and gradually follow their situation over months/years rather than go from "Top o' the pile" to "bottom o' the pile" almost overnight ?

The rating was fraudulent to begin with don't forget the Giant Squid helped the Greek govt hide debt off it's books.

As I said if you had transparency you would have to have honest ratings and that would be against govt interests.

The ratings weren't cut earlier because everyone likes living in cloud cuckoo land and don't forget the political mantra of short termism is best leave the mess for someone else to clear up as they won't be in charge when TSHTF.

[Bloo Loo]

gag the little boy who says the Emporer has no clothes.

[Smedge]

http://news.bbc.co.uk/1/hi/business/10097107.stm

Complete collapse is inevitable. Anything the banker/plutocrat PTB don't like they will just legislate out of existence.

The ratings agencies are part of a plutocracy themselves! Just one that pretends it's something to do with a free market - they're clearly biased, as evidenced by the reasons that TGP has already outlined. The idea of self-appointed, unaccountable bodies wielding huge power should, obviously, be a complete anathema to anyone who believes in free-market capitalism or libertarianism or any other variety of individualist we-hate-statists type philosophy.

[piece of paper]

I agree with Mr Barnier. What is the point of a super-state if its administrators don't have super powers.

Where would the Pig Aviation Authority be if its actions were constantly hampered by private external agencies asserting that pigs can't fly?

p-o-p

[Guest sillybear2]

The ratings agencies are part of a plutocracy themselves! Just one that pretends it's something to do with a free market - they're clearly biased, as evidenced by the reasons that TGP has already outlined. The idea of self-appointed, unaccountable bodies wielding huge power should, obviously, be a complete anathema to anyone who believes in free-market capitalism or libertarianism or any other variety of individualist we-hate-statists type philosophy.

Nobody forces you to listen to them, if you think they're wrong you can bet against them and make a fortune, plenty of people have done just that. Just because somebody labels something 'investment grade' doesn't mean you are forced to invest in it. Treat them the same way you treat meteorologists.

[Bloo Loo]

Nobody forces you to listen to them, if you think they're wrong you can bet against them and make a fortune, plenty of people have done just that. Just because somebody labels something 'investment grade' doesn't mean you are forced to invest in it. Treat them the same way you treat meteorologists.

except assoll coverers can hide behind the ratings...."ooh, they were AAA so we bought them" Its not our fault.

[interestrateripoff]

except assoll coverers can hide behind the ratings...."ooh, they were AAA so we bought them" Its not our fault.

You mean like those highly paid chaps in charge of our pension funds?

[Guest sillybear2]

except assoll coverers can hide behind the ratings...."ooh, they were AAA so we bought them" Its not our fault.

And plenty of pension funds didn't buy shitty CDO's because they were professionally managed by people who take into account various other factors, caveat emptor.

Plenty of idiots also piled into BTL because what they saw as authoritative idiots said things like "no more boom and bust". People are responsible for their own actions.

Edited May 5, 2010 by sillybear2

[Smedge]

Nobody forces you to listen to them, if you think they're wrong you can bet against them and make a fortune, plenty of people have done just that. Just because somebody labels something 'investment grade' doesn't mean you are forced to invest in it. Treat them the same way you treat meteorologists.

The danger is that so many people do listen to them, though, some financial instruments have reactions to ratings built-in, for instance. Also see bloo loo's answer. The ratings agencies have power, whether I have to listen to them or not.

[nohpc]

http://news.bbc.co.uk/1/hi/business/10097107.stm

Complete collapse is inevitable. Anything the banker/plutocrat PTB don't like they will just legislate out of existence.

ahh I see.

All they had to do was create a new agency and rate Greeces debt as AAAAAAA ++++++++++++++++++

That would have solved the problem.

In other news Spanish Prime minister has said a bond strike on spain would be absolute madness.

Quick... upgrade Spanish Bonds to megasuper safe rating with the new company Eurolovewetellthetruthalways!

[bendy]

I fear you are right. At least I have my gold so I can cash in and party heard before we all get fried!

Haha hope you’ve got some of it in your gob, try and swap your nugget for one of my cans and you’ll be impolitely told where to go.

[moneyscam]

It wasn't that rapid, it's was a steady slide into bankruptcy with plenty of warnings but people only really wake up and notice when things hit crisis point. I don't think they were ever AAA and they started downgrading them ages ago, look at the date of this article :-

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4242070/Greek-crisis-deepens-as-SandP-downgrades-sovereign-debt.html

And also this article, the German public were the best ratings agency out there :-

http://www.telegraph.co.uk/finance/economics/2791587/Support-for-euro-in-doubt-as-Germans-reject-Latin-bloc-notes.html

The crunch point hit when the fraud and the full extent of their cooking the books was revealed, people can only judge stuff on public information and if governments chose to lie about their official statistics then they can hardly complain about the fallout when the truth is finally revealed. Remember ratings are forward looking, and Greece just continued to take the piss with its deficits until it was forced to change course, same with the UK and every other addict.

[/quote

Exactly, Greek spreads started blowing out when the it came out that the deficit was 4 times larger than previously reported in December. The idea that rating agencies lead the market is a joke, they are always a lagging indicator. Greek bonds rapidly deteriorated, the implied ratings spread meant that the agencies had to follow suit - it was the speed of the ever rising yields that generated the increasing amount of downgrades. The downgrades only added fuel to the fire as it created forced sellers who can only hold bonds above a certain rating.

The EU want their own rating agency so they can rate their own bonds as they see fit because they don't like their financial mismanagement being officially laid bare for all to see although in practice it's futile because the market has already spoken by that stage.

I'm no fan of the ratings agencies model either, but they are not all powerful as some seem to believe. They always lag the market.

[Guest sillybear2]

In other news, the truth hurts and addicts don't like facing up to reality.

[MississippiJohnHurt]

Yes, let's ban investors from using the wrong analyst! Anyway after what happened with structured debt, I'm surprised these particular analysts still exist, never mind still hold such sway. They are after all publicly traded companies , whose main asset is reputation [well.....aren't they ;]

Just reread the OP again - I had jokingly typed "perhaps the EU could rate its own members debt". And then realised that was exactly what was suggested.

Does anyone else like screaming, loudly, for a long time? The lack of clarity (or, to be less charitable, the total and utter contempt for the truth) is out of control.

Edited May 5, 2010 by FallingKnife

[TGP]

Yes, let's ban investors from using the wrong analyst! Anyway after what happened with structured debt, I'm surprised these particular analysts still exist, never mind still hold such sway. They are after all publicly traded companies , whose main asset is reputation [well.....aren't they ;]

Just reread the OP again - I had jokingly typed "perhaps the EU could rate its own members debt". And then realised that was exactly what was suggested.

Does anyone else like screaming, loudly, for a long time? The lack of clarity (or, to be less charitable, the total and utter contempt for the truth) is out of control.

Oi Vey,

But just what is wrong with the EU rating EU members debt (and other investment instruments) ?

If they dick with their own ratings or collosally screw them up in some manner .... no-one would listen to their rating agency. They would be ignored.

You don't HAVE to listen to ratings. Therefore any EU rater would have to be credible to have an influence. If it were not credible (if it kept all EU debt as AAA no matter what) no one would listen to their AAA ratings !!! They wouldn;t be worth the paper they were printed on.

All such an EU ratings agency COULD do is keep the private ratings agencies in line with reality, if they give credible ratings. Providing it was credible the private companies couldn't falsely inflate/deflate ratings at the behest of their wall st customers as there would be an independent agency pointing out they had no clothes on !!

As such... an EU ratings agency could do no harm (false ratings would be ignored)..... and might do a bit of good (good ratings would force the private agencies to stop dicking with their figures) and all the paranoics on here could ignore their ratings whichever it was in favour of working it all out with a slide-rule (can't trust those govternment approved new fangled computers don'cher'know).

Look, ratings agencies are like bookmakers who "rate" the odds of a horse winning. Currently, they have a business model in which the horse owners are paying them to set the odds on their horses so they can clean up on the betting.

If another "govt bookmakers" started, and offered odds on liklihood of winning...... either they'd **** it up, and punters wouldn't bet with them..... or they'd do better, and force the private bookmakers to start offering proper odds as the punters started ignoring their dodgy odds for the better ones

It's a no lose proposition for the punters.

(and I realise there are problems with this analogy... but it's just a seat of the pants thing).

Considering the howls and screams around here givent he CDO's AAA rating I just don't understand why this is an issue..... an independent govt. ratings agency (along with the transparency) is one of a few measures short of forcing a new business model on the RA's that might actually work, and as long as people aren't compelled to use the govt. rating it can do no harm.

By all means, if you are one of the "govt. statistics are always crooked" crowd ignore them.

Yours,

TGP