January 14, 2012

Downgrading the World

Hey, just kidding... 
Everybody knows he is an honourable man! 
(Image couretsy of iMaksim.com)
“In our view, the policy initiatives taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone.”

One might say that Standard & Poor’s, which took away the United States’ AAA rating last summer and yesterday downgraded the government debt of France, Austria, Italy and Spain, is not the only credit rating firm in the Universe. It is actually not the biggest or most influential one. Moody’s is. So what? you might say, is there anyone—and by “anyone” I mean “anyone sane”—who still trusts Moody’s and any other rating agency? Well, who knows? You can expect everything and more. What is certain is that, back in 2008, S&P gave Lehman Brothers an AAA rating a month before it collapsed, but you know, no one is perfect… Apropos of positive attitudes of mind, take this authoritative and on-the-spur-of-the-moment comment:

However much the French government tries to brush it off, this was the biggy. The downgrade of France may well mark the beginning of the end for the eurozone. At the very least, the downgrade will result in more confusion, more delays and more problems for the bail-out of embattled eurozone economies.
The EFSF, the fund supporting the eurozone, is now itself in need of support. The EFSF's ability to support the eurozone has been brought into question, which brings the survival of the eurozone into question. Slowly but surely the weight of the entire eurozone is beginning to push down on Germany, which, over time, could result in the downgrade of Germany itself. [Ranvir Singh, chief executive at market analysts RANsquawk]

Wow, fortunately there are also people who think otherwise: “It’s going to create bad headlines for a day or two … But there’s no underlying new information ... This will be quickly forgotten.” (Jacob Funk Kirkegaard, research fellow at the Peterson Institute for International Economics)

So, perhaps there is no reason to take Friday’s Standard & Poor’s downgrade of nine European nations seriously, because, as someone much cleverer than me once said, “These are the last people whose judgment we should trust.”



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5 comments:

  1. Very suspect that S&P chose such a period to give France the benefit of its 'expert' judgement. Had they waited until Hollande was, (also perhaps due to their opportune help) elected, they would have had more opportunity to really give France a down-grader resulting from the socialist candidate's inappropriate program (among other badly inspired ideas, to massively recruit the national education system with teachers).
    Hollande is visibly delighted to be able to use this little down-grade to criticise even more Sarkozy. As a free gift from S&P however, it's likely to explode in his face later on, if by dire misfortune he is elected. But one has the impression that he just wants to win the vote to play at being President, and to him the rest doesn't matter so much.

    As far as S&P are concerned, the ex director who quit in July of last year is cited to have said that 'those of the credit rating agencies don't know any more about European governmental budgets than the guy in the street who reads his newspaper'...

    Maybe it's time European Parliament demanded an inquiry to check out the rate of credibility of these agencies. It seems that the political and economical effects of their 'godlike' expertise is becoming far more important than their competence.

    (One wonders how ever we were able to get by without these cowboys with their branding irons before?)

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  2. I’m afraid “suspect” is the right but also a very polite term to describe what the S&P downgrade is all about. Let’s not forget that back in 2003 S&P came under fire from investors for maintaining its investment grade rating on Parmalat— the Italian food giant—until days before its collapse under a 14 billion euro hole in its accounts!

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  3. Thanks Rob.
    Another thought re. what sometimes seems to be a concerted effort on the part of certain credit rating agencies to undermine the euro and the European economy, if not influence various European political scenes.

    When Trichet was head of the ECB, and the crisis began in America, one didn't get the impression that the ECB was overly eager to make any helpful gesture towards the USA. It was as if the European Central Bank considered that the problem was limited to the USA and that it was the ECB's opportunity to continue to promote the strong euro to interest the world market with the tacit intention of gradually substituting the international dollar with an international euro. Of course the Iranian regime jumped at the idea (to replace petrol dollars with the euro) but it never seemed to get any further, because if there's any truth in this insinuation, it would have been a very irresponsible and damaging move.

    However should the main US credit rating agencies (perhaps in unsubtle retaliation) have any negative intention for Europe, naturally the USA would also be negatively effected by the consequences. We should by now have woken up to the fact that what is bad for one is automatically bad for the other.

    Ironically it's more in Europe's immediate interests that the formerly pumped up euro loses some of its air, which is now the case. This is more likely to stimulate the European markets, despite the preferred German Bundesbank policy, than continuing the strong euro status quo that has been suffocating the European markets and exports in certain countries for over five years.

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  4. Moody's now contradict S&P's findings, re. France, confirming the maintenance of France's triple A, which makes everything increasingly farcical!
    It also makes Mr. Hollande look even more stupid, if that's at all possible (or not that it's necessary..).

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