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Two months ago, I wrote about Moody's downgrading the UK's AAA debt rating and suggested:

...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.

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!

And of course, since that downgrade, UK Gilt 10-year debt has gone from over 2.00% to about 1.60% -- 40 basis points lower in the yield, reflecting higher demand for British debt, and more investor confidence in the UK's credibility since the Moody's downgrade.
Amusingly enough, Egan-Jones also downgraded the UK's credit rating last month, which has of course corresponded with a continued decline in the yields and higher prices on the debt -- further exposing just how inept and incompetent these ratings agencies are. The market reactions to these downgrades has been to shrug and to pile on more demand for the debt!

As I wrote about in the other diary, these ratings agencies are corrupt and lack the ability to competently rate monetary sovereigns' debt, as well as other forms of debt as we saw in the Financial Crisis of 2007-8, as quoted from the FCIC:

"The three credit rating agencies were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval. Investors relied on them, often blindly. In some cases, they were obligated to use them, or regulatory capital standards were hinged on them. This crisis could not have happened without the rating agencies."
We're just now seeing some progress in the courts against these corrupt ratings agencies, as evidenced by S&P being taken to court for their role in the crisis.

Additionally, Egan-Jones in particular has been fingered for fraud ("misrepresenting the firm's actual experience") and has been banned for 18 months in the United States from rating credit of the government or Asset-Backed Securities. So when the news came out last Friday that Egan-Jones has decided to downgrade German debt, I couldn't help but just laugh.

Now, while Germany is not a monetary sovereign and thus is held to a different set of conditions that determine their creditworthiness, they are easily, by far, the most credible Eurozone member of the bunch. Thus, this action by Egan-Jones to downgrade German sovereign debt is a futile attempt at establishing credibility in an industry where there is none left.

The track record of these ratings agencies is getting so amusingly bad that countries ought to be begging for a downgrade to get a lower yield on their debt! The market clearly doesn't care about these discredited firms and their debunked methodology, especially for sovereign debt.

Back at home, Dodd-Frank has established a number of rules to govern ratings agencies. The question is whether sufficient enforcement of the rules will put these corrupt organizations in their place. Until then, when a ratings agency downgrades a monetary sovereign (note: this excludes the €-zone nations), take it as a signal to buy!

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Comment Preferences

  •  It's Kind Of Like Congress.... (6+ / 0-)

    Nobody believes in them either.  They couldn't even get background checks passed when over 90% of the country
    wanted it.

    The rest of us couldn't get away w/ that kind of lousy job performance.  When I get emails from them now, I rarely open them up.  Same old, same old.

    •  Sadly Wrong. (1+ / 0-)
      Recommended by:
      Jim P

      90% of the OCCUPANTS wanted it passed. The occupants are not the "country."

      We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

      by Gooserock on Tue Apr 23, 2013 at 04:38:47 AM PDT

      [ Parent ]

  •  What we have here is gross insubordination. (3+ / 0-)

    Commercial and financial enterprises are, like other private corporations, authorized and created pursuant to the legislative actions of public corporations. That is, the privates are naturally subordinate to the public. For the privates to then presume to judge the operations of the public is grossly presumptuous and insubordinate.
    Of course, respect for one's elders is obviously not automatic. If it were, it wouldn't be necessary to have a commandment to honor one's parents.

    We organize governments to deliver services and prevent abuse.

    by hannah on Tue Apr 23, 2013 at 01:31:40 AM PDT

    •  Our village elders here in the West (10+ / 0-)

      are failing us miserably.

      The wealth is concentrated amongst them in Europe and the US, and most of them are avoiding taxes in the Carribbean or Switzerland, while cutting spending and telling the unemployed youth to go F themselves, essentially.

      Our village elders have been shown to be wrong and incompetent in conducting basic public policy, when we're in a very advantaged position relatively in the world.

      Case in point: Herndon (young PhD candidate) debunking two old, bald, fat, useless Harvard economists (okay, Carmen Reinhart isn't bald, but she's still old fat and useless) who have pushed a horrible, counter-productive public policy of austerity across Europe and creeping on the US (we've already cut future spending by trillions in the US, that's austerity no matter how you spin it).

      I'm not much for the intergenerational conflict that the media has been trying to push, but there is something to be said of the analogy of our society to a Village, with the village elders running the show- - they really ARE responsible for the failed policies...

      Deficits don't matter, jobs do.

      by aguadito on Tue Apr 23, 2013 at 01:53:24 AM PDT

      [ Parent ]

      •  True. Austerity and sacrifice and humility get (4+ / 0-)

        pushed by people whose practical talents are virtually nil. It's in their self-interest to push workers to work, produce surplus and let them have a share. It would be nice if these leeches at least appreciated the effort and didn't demand that the workers work harder. But, that would be a tacit admission of their own dependence. Their demands are a kind of bluster to cover their insecurity. That's why demand is a cornerstone of economic theory.
        Which is not to suggest that the supply side theory has validity. It could, because in the normal process, the supply does come first, before it can be demanded and doled our (there have to be apples on the tree before Eve can pick one to eat), but it doesn't because the Cons' rephrasing was just that, the substitution of a euphemism that sounds nicer than "demand." The proponents' objective was to increase the flow of products from which they and their cronies could take a "cut." Because, that's how these leeches perceive the collection of taxes -- as taking a cut of what others produce.
        Indeed, it is this perception which sets the commercial class (represented in chambers of commerce) in conflict with governments (represented in Congress). What government collects, commerce can't have. Both are perceived as middlemen. That the Congress is actually the source of dollars escapes their notice -- by design.  After all, Congress set up the Federal Reserve Bank, a public/private hybrid, to launder dollars and disguise where they actually come from, because, believe it or not, that makes their distribution easier to control. If dollars have to be collected or borrowed before they can be spent, then "unwise" expenditures (those that don't prompt the electorate to vote right) can be denied on the grounds that the money is just not forthcoming. Congress can play indulgent mommy, which Wall Street is the mean and austere daddy, or vice versa.
        "Nanny state" is a dysphemism which the mongers of austerity are now trying to refute.

        We organize governments to deliver services and prevent abuse.

        by hannah on Tue Apr 23, 2013 at 03:17:11 AM PDT

        [ Parent ]

      •  Our leaders are decadent (3+ / 0-)
        Recommended by:
        quill, Jim P, jbob

        In the Fall of Rome sort of way.
           They've abandoned any sense of obligation to their communities.

        ¡Cállate o despertarás la izquierda! - protest sign in Spain

        by gjohnsit on Tue Apr 23, 2013 at 06:40:34 AM PDT

        [ Parent ]

    •  You're Expressing a Religious Belief (0+ / 0-)

      that the country equates to its occupants. It doesn't. The occupants are, functionally, only one of the interest groups that make up the country.

      We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

      by Gooserock on Tue Apr 23, 2013 at 04:39:54 AM PDT

      [ Parent ]

      •  pardon? (0+ / 0-)

        I don't know what you mean or how that's relevant to my diatribe against ratings agencies.

        Deficits don't matter, jobs do.

        by aguadito on Tue Apr 23, 2013 at 05:21:42 AM PDT

        [ Parent ]

      •  Country is a figment of the imagination -- (0+ / 0-)

        i.e. a human invention. There are other occupants of a particular territory besides humans. However, I tend to doubt they have the mental capacity to formulate such an abstraction.
        Does the ability to formulate abstractions endow humans with the right to destroy other forms of life? I'd argue no. That's not religious; that's just life identifying with life.

        We organize governments to deliver services and prevent abuse.

        by hannah on Tue Apr 23, 2013 at 05:25:57 AM PDT

        [ Parent ]

  •  Not irrelevant (4+ / 0-)
    Recommended by:
    quill, FG, Jim P, jbob

    Granted, they've totally lost their credibility.
    However, if they (for example) downgraded a security to junk then pension funds and mutual funds would be forced to sell that asset because of their own rules.

     The real scandal is how rating agencies still grade government debt harshly, but give the benefit of the doubt to Wall Street packaged securities.

    ¡Cállate o despertarás la izquierda! - protest sign in Spain

    by gjohnsit on Tue Apr 23, 2013 at 06:36:29 AM PDT

  •  It's been discussed here quite a bit. Basically, (1+ / 0-)
    Recommended by:
    jbob

    debt ratings are important for developing countries (especially smaller ones) since investors often don't have a lot of other information on them. But for countries like US, UK and Germany investors usually have a pretty good idea what they are getting into and ratings don't provide a lot of additional information and thus can have little to no effect on the price of the debt. The only exception would be if the debt was downgraded to junk status.

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