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Friday afternoon, just before markets were due to wrap up for the week, Moody's Global Credit Research released a ratings action on UK government debt quality, downgrading it from AAA to Aa1.

What role exactly does Moody's think they play in the market?

This is the same firm that was instrumental in giving Aaa ratings blindly to sub-prime mortgage assets , which exacerbated the downturn in the financial panic of 2008.

This is the same firm that is being sued for fraud for its role in duping investors and threatening the integrity of the financial system (a judge recently ruled against ratings agencies who attempted to dismiss the fraud suit).

Recall that when the Moody's CEO testified at the Financial Crisis Inquiry Commission hearings in 2010, he made an admission worth repeating, as quoted directly from the business-friendly CNBC:

The chief executive of Moody's says his company's inaccurate ratings of mortgage-related investments were "deeply disappointing" but investors shouldn't rely on ratings to buy or sell securities.
Not only does Moody's admit their ratings are worthless (by fessing up to the fact that they can't rely on them), but the market has already figured this out:
Yields on sovereign securities moved in the opposite direction from what ratings suggested in 53 percent of the 32 upgrades, downgrades and changes in credit outlook, according to data compiled by Bloomberg. That’s worse than the longer-term average of 47 percent, based on more than 300 changes since 1974. This year, investors ignored 56 percent of Moody’s rating and outlook changes and 50 percent of those by S&P.

For national debt, following decisions of the arbiters of credit risk is less reliable than flipping a coin for determining borrowing costs

Say what you want about the markets, but they are efficient mechanisms for pricing of assets. Yes, they fail, but they are also brutally honest and reflect the intersection of supply and demand of a particular asset. And in the case of ratings agencies, especially Moody's, and especially their ratings of government debt, markets don't care what they say, because they, as the CIO of Charles Schwab said to Bloomberg:
“Credit-rating agencies historically lag the real economic fundamentals, whereas markets are ahead.”
We've also seen how the markets reacted to the downgrade of US debt, not giving a single fuck, essentially.

And of course they've failed miserably in their analysis of Japan, as they have downgraded debt quality rating numerous times, to well-below Aaa over the years. Meanwhile, here's how the 10-year Japanese debt yields have responded to the numerous downgrades of its debt:

The downgrades only seemed to make Japanese bonds more popular, and the yields have tumbled in the face of all the doom and gloom by these ratings crooks.

So why should anyone care about the whimsical sub-par research efforts of Moody's?

Alas, despite a knee-jerk reaction in the currency market leading to a decline of GBP/USD in the closing hours of the market Friday evening, this decision will not have any impact on the UK's bond markets or financial security.

Instead, this is yet another example of irrelevant ratings agencies trying to save face by disingenuously downgrading the perception of credit quality of monetary sovereigns like the UK.

Predictably, the warnings of this action have only emboldened sadistic conservatives like George Osbourne, who stubbornly insist that austerity in the UK is working, despite mounds of evidence to the contrary.

However, the intransigence of the austerity-happy conservatives in the UK won't be appreciated in the face of a suffering population, as a recent poll shows:

But some 61% of those questioned by pollsters Ipsos Mori believed they would be affected over the coming 12 months. Almost half (48%) said the Government had made the wrong decisions about where the cuts should be made.
Given Moody's track record in rating the sovereign credit of the US and Japan, and the fiasco of their rubber-stamping of toxic sub-prime debt, Britons have nothing to fear from this news of a downgrade of their national debt, save for the misguided austerity policies of their elected officials.

If anything, they should instead take it as a sign of positive things to come!

Originally posted to AusteritySucks on Fri Feb 22, 2013 at 10:12 PM PST.

Also republished by Money and Public Purpose.

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Comment Preferences

  •  Then relax. Go long. n/t (2+ / 0-)
    Recommended by:
    Pluto, debedb
  •  The ultimate irony of the downgrade (7+ / 0-)

    is that Britain has adopted severe Austerity, the sort of solutions that are militantly demanded by the Wizards of Wall street behind places like Moody's to avoid such downgrades and hits.

    So, 'you better to this awful stuff, or you'll be downgraded' actually means 'in six months to a year or two, after you do as we say, we are going to downgrade you anyway' as a practical outcome.

    That's fucking genius right there. Do this, or I'll dump you, or, if you do do this I'll dump you anyway in six months regardless.

    Why on Fig Newton's Flattened by a Freight Train would anybody listen to these sociopaths?

    Heath Ledger's Joker is not a role model.

    I am from the Elizabeth Warren and Darcy Burner wing of the Democratic Party

    by LeftHandedMan on Fri Feb 22, 2013 at 10:52:08 PM PST

    •  Excellent point (5+ / 0-)

      One that I've actually been expanding on in a separate article i'm writingg about the UK's situation in particular.

      Why did the UK, a monetary sovereign, adopt austerity in the first place? Because banksters, international consulting firms, etc. told them they had to do it to avoid crisis and downgrades (despite a calm Gilt market throughout the crisis, contrary to their Eurozone partners).

      So they've adopted the austerity, worsened their situation in numerous ways, and gotten the downgrade to add insult to injury.

      Deficits don't matter, jobs do.

      by aguadito on Fri Feb 22, 2013 at 11:10:20 PM PST

      [ Parent ]

      •  aguadito - if you aren't paying for a Moody's (0+ / 0-)

        service, why do you care? The hostility and profanity in your diary detract from a very solid analysis.

        "let's talk about that"

        by VClib on Sat Feb 23, 2013 at 05:12:57 AM PST

        [ Parent ]

        •  I disagree (1+ / 0-)
          Recommended by:
          aguadito

          It's OK to have and express a negative opinion about a business that has become completely untethered from its stated purpose.  

          If GM were selling lemons, the exact same kind of language would be used, and nobody would have a problem with that.  

          The product that Moody's is selling is abstract in nature.   But it's crap.  And unfortunately, Moody's continues to be used by people in positions of influence to justify their decision.

          It's not enough for a few people to ignore Moody's.  They need to be publicly discredited.  

        •  I never paid for a sub-prime mortgage (0+ / 0-)

          But it affected me anyway, because it led to systemic problems.

          It concerns all of us when firms like Moody's use faulty analysis to bully around nations, companies, and other market players, after very recently allegedly engaging in fraud and demonstrating quite clearly that they are totally incompetent.

          Deficits don't matter, jobs do.

          by aguadito on Sat Feb 23, 2013 at 11:18:18 AM PST

          [ Parent ]

      •  Because you can't just print... (0+ / 0-)

        ...your way out of trouble.

        Britain's deficits indicate a mismatch between its imports of real, physical, stuff and its exports of real, physical stuff. The market understands this.

        If you allow the mismatch to increase for too long, people sending you stuff will stop doing so when they realize they aren't going to receive stuff in return.

        It's all about 'stuff', not money, whether you can print your own money, or you cannot.

        (-5.50,-6.67): Left Libertarian
        Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

        by Sparhawk on Sat Feb 23, 2013 at 05:51:41 AM PST

        [ Parent ]

        •  Not-printing can land you in a world of trouble (0+ / 0-)

          Yes, it is ultimately all about stuff, not money. That is why sound economics takes great care to distinguish between the "real"/ the "stuff" and the nominal/monetary , while bad economics works very hard to confuse the two.

          If you are running your national economy with minimal sanity, then it is true that you cannot print your way out of trouble. But except for the great exception of the postwar Keynesian era, modern economies are only run sanely during the insanity of war.

          Modern economies tend to be run with the specific insanity of not-printing their way into trouble. Because of the insane delusion that there is a constraint on printing money.

          A parallel delusion would be a person who convinced himself that there was a hard limit on the raw number of decisions he could make, and made himself stop making decisions once he had hit the mystical upper limit. Or an army whose general decided that there was an upper limit on the number of orders he could give.

          Sure, Britain, say running a trade deficit might put downward pressure on its currency. This is the worst- case analysed / assumed by Abba Lerner long ago. Prosperity, through money-printing or any other reason, will put downward pressure on the currency due to higher imports. The answer to this concern is simply - So What?

          The losses due to austerity, unemployment and depression are colossal. Possible currency depreciation: chump change, just reality imposing beneficial, necessary readjustment/reduction in imports. Trade is no reason to not run government budget deficits big enough to reduce unemployment to zero.  A trade deficit - being able to buy real stuff on credit - is a benefit, not a cost. The craziest thing you can do once you get extended good credit from a merchant is to quit your job - but that is the counsel of insane garbage mainstream "economics" with its insane phobia of printing money / making decisions.

        •  In reality, you *can* print.. (0+ / 0-)

          ..if you're a sovereign nation. There is no reason not to.

          There is a reason to tax and prosecute the banksters wholesale, however, since so much of the debt being extorted from them by the likes of Moody's is fraud to begin with.

          This whole "austerity" game is an effort to both force the people to pay the banks' gambling debts, and prevent governments from issuing enough debt-free cash for people to get out from under the banks' thumbs. If government spends and people have adequate paychecks, why on earth would they take out loans? The banks are facing a huge contraction in their power if they allow this to happen.

          That's the real story here.

  •  "...contributed to the exacerbation of..."?? (0+ / 0-)

    I'm goinna guess you're real big on "hedge" funds

    It seems curiosity has killed the cat that had my tongue.

    by Murphoney on Fri Feb 22, 2013 at 10:58:42 PM PST

    •  thanks for correction, fixed it. (2+ / 0-)
      Recommended by:
      Sandino, wilderness voice

      i guess i was torn between "exacerbated" and "contributed to" :)

      and actually I have no problem with hedge funds at all.

      i have a problem with poor regulation and poor supervision.

      there's no reason why hedge funds shouldn't privately manage wealth in the market by purchasing various assets, and i think it's inaccurate to say they've contributed to the problem, no less than pension funds or other wealth managers have at least.

      Deficits don't matter, jobs do.

      by aguadito on Fri Feb 22, 2013 at 11:14:04 PM PST

      [ Parent ]

      •  it was a literate point and a literal one, not (1+ / 0-)
        Recommended by:
        Sandino

        financial.

        my understanding may be street-level and most certainly incomplete, or at least indelicate, but Moody's et al and their hands in the sub-prime sewage were "contributory" to the criminal ransacking of the economy only inasmuch as the oily rags and matches are used to obscure the arsonists' retreat.

        It seems curiosity has killed the cat that had my tongue.

        by Murphoney on Fri Feb 22, 2013 at 11:29:01 PM PST

        [ Parent ]

        •  I'm afraid I don't grasp your point (2+ / 0-)
          Recommended by:
          Sandino, wilderness voice

          Your statement can be interpreted (depending on tone) to be dismissive of the significant role Moody's and other ratings agencies played in the financial crisis, and it can also be interpreted as me understating the role they've played.

          Either way, I wouldn't say they played the central and deciding role in all of it, but a significant one, nonetheless.

          Deficits don't matter, jobs do.

          by aguadito on Fri Feb 22, 2013 at 11:51:04 PM PST

          [ Parent ]

          •  If you will revisit my comparison (1+ / 0-)
            Recommended by:
            Sandino

            you might notice that it can well be conjectured that the arson would not be very possible at all, without the oily rags nor the matches

            I see your forgiveness of Moody's complicity as unjustified.

            It seems curiosity has killed the cat that had my tongue.

            by Murphoney on Sat Feb 23, 2013 at 12:12:02 AM PST

            [ Parent ]

            •  At issue (2+ / 0-)
              Recommended by:
              Sandino, wilderness voice

              was who the "arsonists" were in your analogy.

              But I still think there would have been significant demand for toxic assets outside of the AAA-stamped stuff, driven by a global savings glut.

              I'm not "forgiving" Moody's complicity, if you would revisit my diary, I hold them accountable for a significant role in the financial crisis and lambasted them for their incompetence in risk measurement and fund analysis.

              Deficits don't matter, jobs do.

              by aguadito on Sat Feb 23, 2013 at 12:37:02 AM PST

              [ Parent ]

              •  In a word, bullshit. As you don't give (0+ / 0-)

                consideration to the role of Moody's as co-conspirator in the least degree, my comparison takes care to separate their sins from those of the "arsonists," who, and in which case, are not "at issue" as we are not discussing them -- the arsonists-- as you did not mention them -- the arsonists, as you would define them, were you to define them -- in your diary and I am addressing your treatment of Moody's, the willing tool.

                Your treatment of Moody's, which I will again mention that I consider far-too-forgiving, in that you do not acknowledge them as part and parcel with the act of "the arson," even though they were, as oily rags and matches, ready, willing and...willing and ready to participate in "the arsonists'" assault on the economy and reap the bailout benefits.

                You might think you've given Moody's "oh-ho, my goodness -- quite the rigorous have-to," but you don't call them out.  You did not pull the trigger.

                Really, as this ain't a financial blog, if you have harsh words that you've written about Moody's, they might be masked and hidden from readers who are dissuaded by dense and bulbous claptrap such as:

                Say what you want about the markets, but they are efficient mechanisms for pricing of assets. Yes, they fail, but they are also brutally honest and reflect the intersection of supply and demand of a particular asset. And in the case of ratings agencies, especially Moody's, and especially their ratings of government debt, markets don't care what they say, because they, as the CIO of Charles Schwab said to Bloomberg:
                Who cares. Clap Them In Irons.

                There are not new lines in the sand that need to be drawn -- there are only rules of law which need to have heed paid unto them.

                I believe you're giving Moody's undue credit; I've made that clear enough, at least by now.

                You haven't justified the trust you hold (even if it is little trust) for Moody's.

                What, then, supports the trust in your opinions you want me to have in anything you have to say.

                It seems curiosity has killed the cat that had my tongue.

                by Murphoney on Sat Feb 23, 2013 at 04:12:57 AM PST

                [ Parent ]

                •  The quote you made (0+ / 0-)

                  Is a demonstration of how i don't hold any trust of Moody's.

                  I've said markets ignore their announcements, in terms of measurable reaction.

                  I've expressed nothing but a total lack of trust in Moody's, not even a little.

                  Deficits don't matter, jobs do.

                  by aguadito on Sat Feb 23, 2013 at 12:52:34 PM PST

                  [ Parent ]

      •  The object of "regulation" is to make (0+ / 0-)

        regular, what is usually random and unpredictable. Ergo, public agencies tasked with regulation are organized for the purpose of easing the entities they "supervise" -- i.e. overlook.
        There is an assumption that "regulate" means to restrict and there's an assumption that just looking at something will affect how it behaves. Neither assumption is born out by experience. We've had decades of environmental regulation, for example, which has done nothing to prevent contaminants fouling our air, water and lands. Never mind that making the environment regular was a fool's errand from the start. Randomness is the essence of the natural environment, although over very long periods of time some regularity may be discerned.
        To the extent that the intent of the proponents of environmental regulation was to mislead, the public is right to be irate. But the call for more regulations or even enforcement is misplaced. Regulations simply don't prevent.
        For that matter, even outright prohibitions (vide the prohibition against murder) don't prevent. The best we can hope for is that bad actors don't get to repeat their bad actions. One-off events can't be stopped. Which means that putting a lot of effort into trying to prevent one-off events is a waste.

        We organize governments to deliver services and prevent abuse.

        by hannah on Sat Feb 23, 2013 at 05:18:30 AM PST

        [ Parent ]

  •  BBC just showed a series of clips of Chancellor (1+ / 0-)
    Recommended by:
    Calamity Jean

    George Osborne bragging about how austerity had helped to maintain the UK's AAA rating over the last couple of years.Wonder what Boy George has to say now.

    "I smoke. If this bothers anyone, I suggest you look around at the world in which we live and shut your fuckin' mouth." --- Bill Hicks

    by voroki on Sat Feb 23, 2013 at 04:54:12 AM PST

  •  Credit ratings are a power trip by another (0+ / 0-)

    bunch of middlemen who, in earlier times, would have been considered highwaymen. The only reason what they do is not considered extortion is because we've got a new legal principle which argues that when people consent to being abused, it's not abuse. Although this principle is being challenged in the context of marital relations, contract law seems to have a tight grip on it. So monetary abuse gets off.

    We organize governments to deliver services and prevent abuse.

    by hannah on Sat Feb 23, 2013 at 05:03:45 AM PST

  •  Moody's trying to have it both ways (1+ / 0-)
    Recommended by:
    RickD
    The chief executive of Moody's says... investors shouldn't rely on ratings to buy or sell securities.
    is damnably disingenuous because he knows darn well that pension funds,etc., are only allowed to buy investment grade bonds as rated by Moodys and their brethren.

    Good diary, good work.

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