Global Market Commentary, Analysis and Investments
Yesterday’s big news wasn’t really news at all. Standard and Poor’s finally found the nerve to state openly what the rest of the world already knew: the Emperor is naked.
The esteemed ratings service announced that America risks losing its triple-A credit rating. “We believe,” said S&P, “there is at least a one-in-three likelihood that we could lower our long-term rating on the US within two years.”
[Read more...]How the ratings agencies have managed to emerge from the credit crisis unscathed and unregulated is a mystery…and a sham.
“Nothing is ever clear or certain in public,? we wrote in The New Empire of Debt. “Every error is someone else's fault. That is why so many men prefer it. The public world is so surrounded in fog that he thinks he sees half-naked nymphs behind every tree and $100 bills under every cushion.?
[Read more...]When it comes to the post-crisis world of American finance, there's one thing we can all agree on:
Something's got to give when it comes to ratings agencies.
Over the past decade, we've all witnessed the “big three's? role in the credit crisis. S&P, Moody's and Fitch gave their famous AAA ratings to an array of troubled securities, companies and nations. Not only did they issue the wrong ratings – and correct those ratings far too late – but their dubious business model was put under the spotlight, too… ripe with conflict of interest and suspicious relationships with their Wall Street clients.
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The Return of the Downgrade Cycle
“Downgrading” is in a bull market.
If you google the phrase “credit downgrade,” your query returns 264,000 responses. But when you google “credit upgrade,” you get only 52,600 responses. Clearly, downgrading is in an uptrend.
The downgrade craze emerged slowly in the summer of 2007, as the housing boom was shifting into bust mode. By September of 2007, the ratings agencies had downgraded only $85 billion worth of mortgage-backed securities (MBS). But within one year, that number would soar to nearly $2 trillion.
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