Moody's Downgrades Greece To A2, Keeps It Two Notches Above S&P And Fitch, Prostitutes Itself Again
The rating agency that has gotten selling out down to an art, just downgraded Greece from A1 to A2, yet kept it two notches higher than where the country is now fairly rated by Fitch and S&P, thereby preventing the country from collapsing into a liquidity crisis. By taking this action, Moody's has once again proven its utter worthlessness, by pretending to be objective while at the same time keeping an artificially inflated rating high enough to prevent the unforeseen spillover effects from Greece's inability to use Treasury's as ECB collateral: the definitive first domino to fall in Europe, about which we wrote 3 days ago.
Full Moody's ridicule script:
Moody's downgrades Greece to A2 from A1
Moody's Investors Service has today downgraded Greece's government
bond ratings to A2 from A1. Today's rating action concludes
the review for possible downgrade initiated by Moody's on 29 October
2009. The outlook is negative.
This rating action does not affect the ratings of Greece's country
ceilings for bonds and bank deposits, which remain Aaa (like the
rest of the Eurozone).
"Greece's repositioned rating of A2 balances the Greek government's
very limited short-term liquidity risks on the one hand,
and its medium- to long-term solvency risks on the other,"
says Sarah Carlson, Moody's lead sovereign analyst for Greece.
Moody's notes that the country's longer-term risks
have only partly been offset by the government's announced policy
Moody's had initiated its review of Greece's A1 sovereign rating
in response to mounting evidence that the government's long-term
credit strength was eroding materially. In particular, the
rating agency intended to assess the new government's policy intentions
and its room for manoeuvre.
"Moody's believes that Greece is extremely unlikely to face
short-term liquidity/refinancing problems unless the European Central
Bank decides to take the unusual step of making the sovereign debt of
a member state ineligible as collateral for bank repurchase operations
-- a risk that we consider very remote," says Arnaud
Marès, Senior Vice President in Moody's Sovereign Risk
Well, you know what they say one must do with any piece of paper that has the words "Moody's believes" on it...
Moreover, as evidenced by other support operations within the EU,
Moody's indicated that there are potentially other means to mobilize emergency
liquidity funding should it be required -- but Moody's does
not believe that this will be necessary.
And again. For those who need a refresh, flashback to 2007 and this pearl: "Moody's does not believe that housing will pose a significant risk." Oh really now...
Moody's also does not believe that the Greek government's
difficulties represent a vital test for the future of the eurozone,
but rather a repricing of relative risks that had been concealed by years
of abundant global liquidity and somewhat above-potential growth.
That's three times Moody's has said believe. Quite appropriate, two days before Christmas (yes, had it been Easter the irony would be supreme).
"The Greek government's credit challenges are of a longer-term
nature," explains Ms. Carlson. "They stem
from a slow erosion in competitiveness and economic potential, which
implies that the government's debt problem cannot be resolved by
growth alone. They also result from chronically weak fiscal institutions,
which cast a shadow over the government's ability to implement decisive
fiscal retrenchment in order to restore debt sustainability."
Furthermore, the combination of a global post-crisis environment
that is less favourable to Greek public finance dynamics (with increased
risk discrimination and muted global demand) and an equally challenging
domestic environment (with accelerating demographic pressure on public
finances in coming years) will make any fiscal adjustment increasingly
difficult and costly to postpone. However, Moody's continues
to think that a migration of liabilities from the banks' balance sheets
to that of the sovereign is unlikely.
Moody's acknowledges that last week's announcements by the
Greek government clearly identify these weaknesses and pave the way for
a lasting solution. However, the long-term credit
standing of Greece will depend on the Greek population's acceptance
of these measures and the government's vigorous implementation of
them. "As neither of these can be taken for granted,
and because these measures will also take time to bear fruit, Moody's
has placed a negative outlook on the Greek government's new A2 rating,"
says Ms. Carlson.
At A2, Greece's bond rating compares with those of other high-income
but highly indebted countries that do not face external payment vulnerabilities.
However, the rating is positioned well below those of Belgium,
Ireland or Italy (which are rated at Aa1-Aa2) to reflect Greece's
poor track record in terms of real fiscal adjustment. Greece's
rating also remains higher than Baa-rated Mexico, Brazil
or Hungary, all of which have better or similar debt metrics but
much lower income levels. These countries also do not benefit from
the protection against external payment crises afforded by Greece's
membership in the European Monetary Union.
Looking ahead, the question of whether the negative outlook will
evolve into a stable outlook or into a further downgrade will depend on
the Greek government's plan being followed through -- as demonstrated
for instance by a sustained increase in tax revenues and/or the effectiveness
in reining-in expenditure.
And if all else makes perfect sense, even if it is in bizaro world, but that last paragraph is simply a killer. What world do these "analysts" live on?
Moody's last rating action with respect to the government of Greece was
on October 29, 2009, when its A1 long-term debt ratings
were placed on review for possible downgrade.
Once again the direct hotline straight to the cheap hooker suite at 7 World Trade Center does not disappoint. Today Trichet, tomorrow whoever is the next in dire need of "condoming" the most recent iteration of extend and pretend (if you get syphilis after rating agency rape and nobody sees your nose fall off, did you ever get a case of rating agency syphilis?). How Buffett is still involved in this garbage enterprise is beyond us. At least with an army of disgruntled Deep Shahs running around Moody's offices, one can be certain that at least several hedge funds found a way to make some serious money out of this latest piece of "news" from Moody's.