Rating Agency

The first Western downgrade of US government debt is a fact!

Yesterday we reported that instead of manipulating home price data, China would simply stop reporting it. Fast forward to today and a few thousand miles west where we get a comparable report, only this time involving an insolvent continent and a comprehension-challenged rating agency. Just released from S&P: "Following new European Union regulations on credit ratings, we are converting our issuer credit ratings on these sovereigns and the ECB to "unsolicited", as we do not have rating agreements with the rated entities. Standard & Poor's  will nonetheless continue to rate the seven sovereigns and the ECB, and classify the ratings as unsolicited, as we believe that we have access to sufficient public information of reliable quality to support our analysis and ongoing surveillance, and because we believe there is significant market interest in these unsolicited ratings. Article 10 of EU Regulation 1060/2009, which addresses matters relating to the disclosure and presentation of credit ratings, requires, among other things, that unsolicited credit ratings be identified as such." In other words, Europe just told S&P, "Go fornicate yourself. We'll continue being broke while pretending to be solvent, and don't need you to spoil the party by being occasionally truthy..."

Those poor idiotic rating agencies can never catch a break. Despite doing their fair share of hiring as many prosimians with a single digit IQ (not to mention a penchant for spreading inside information to preferred clients, see Deep Shah) as they can, thereby keeping the labor pool sufficiently susceptible to BLS manipulation, it was they that, according to Koo, destroyed the global economy the first time around, after keeping every toxic CDO at a AAA rating. Now, the Nomura economist, whose obstinacy in his views at times makes even such distinguished voodoonomic shamans as Paul Krugman seem like docile little lambs, is convinced that "these same agencies are once again attempting to interfere with governments that are trying to do the right thing in response to the economic crisis (ie, the balance sheet recession) triggered in part by these agencies’ actions. In spite of the fact that fiscal stimulus is the only effective measure during such a recession, the rating agencies are making it more difficult for governments to spend money by implicitly threatening downgrades." Yeah ok, the right thing is to fight debt with more debt. And more debt with morer debt. And so on. We wonder if that is the case, why doesn't Dictator Bernank just tell his Jeethner lackey to print $100 trillion tomorrow? After all that is the NEF's target for debt in 2020. That way we should grow world GDP by about 100% overnight, and save ourselves ten years of deleveraging misery. But stop there? Why not print $1 quadrillion, $1 quintillion, $1 decillion... After all debt is wealth remember? Because try as hard as we can, we just can't spot any faults with this argument which derives straight from Mister Koo's supposedly irrefutable logic.

Who needs The Onion, when you have Europe. Reuters quotes EU's Rehn as saying that bank stress tests will need to be a regular occurrence in the future of the EU: in other words, every time banks drop by 20% or so, the European Department of Truth will trot out the another piig zombie de jour, plastered with lipstick and demonstrate just how viable it is. Just because everyone believes what an honest and solvent Europe has to say. But here's the kicker: headline floating by that Europe may well be preparing to ban all sovereign downgrades. After all, how dare someone suggest that Europe's ponzi has any way to go but up.

It looks like a feud is brewing among the credit rating agencies. For now, it is just the verbal bashing between S&P and Dagong. With S&P's fresh downgrade on Moody's this Tue., Moody's may have a score to settle as well.

Last night we referenced an article by the WSJ which essentially confirmed that the death knell for the rating agencies is being rung. Today, China proves that the best time to kick a body (or a rating agency) is just after it has been shot in the back of the head and before it is begins stinking up the place. And in doing so, it has officially put a stake in for the role of primary global credit rater, citing China's unique role as the world's primary creditor. Of course, if that were to occur, the US rating may promptly be impacted just a tad more than the record 2 Years and just below record 10 Years would suggest is agreeable. As was posted previously, Dagong already issued a rating grid in which China, not at all surprisingly, came on top of both the US and UK, neither of which has any possibility of paying back the trillions and trillions of debt accumulated over the years. Now whether China would be willing to suicide itself and junk the US, is a different question.

And now for today's bombshell - lietarlly at the very end of Moody's 10-Q filed last night, we find this stunner:

On March 18, 2010, MIS received a “Wells Notice” from the Staff of the SEC stating that the Staff is considering recommending that the Commission institute administrative and cease-and-desist proceedings against MIS in connection with MIS’s initial June 2007 application on SEC Form NRSRO to register as a nationally recognized statistical rating organization under the Credit Rating Agency Reform Act of 2006.

Well at least it took Moody's under two months to report this massively material development, which while we are not positive on how to read the C&D action on the NRSRO registration, could mark the beginning of the end for the rating agency. If the firm is enjoined from providing additional rating research should the SEC action find fault and proceed with a lawsuit, it would mean game over for the business. Egan-Jones: it's IPO time.

We will be shocked, shocked we tell you, to find that Mr. Buffett has sold out his entire position in MCO when BRK's next 13-F is filed.

The rating agency, whose "objectivity" was recently fully exposed after it has been persistently the one rater who refuses to downgrade Greece, even after its peers S&P and Fitch have made Greek bond eligibility for ECB collateral contingent purely on Moody's lack of conscience, is pretending that it has some credibility after all, by doing a little extra posturing, and grumbling that if things get much worse, it may, just may, consider dropping the US AAA rating. This, of course, despite Tim Geithner's promise that the US would only be downgraded over his dead body, or something like that. Furthermore, as we have recently learned, the FRBNY has a "proactive" influence in rating agency decisions. To assume that Mr. Brian Peters of the New York Fed would return a Moody's call and say "yes, we agree with your assumption that the US is not really AAA-worthy, please go ahead and downgrade us" requires copious amount of prior consumption of LSD and other hallucinogenics. Yet for those who still care about what output Moody's produces, here is the full relevant text discussing the outlook for the United States.

It appears all it takes these days to get invited for some free ouzo and a little sirtaki is to issue a note that one's minions are about to downgrade Greece. This is precisely what has happened to analysts from S&P, which last week announced it was looking at notching Greece closer to junk status (currently BBB+). Market News, quoting Greek officials who apparently have a rumor retention span of about 2 seconds before they blast anything and everything to their entire rolodex, reports that "a team from ratings agency Standard & Poors is on its way to Athens for talks Tuesday with government officials about the country's economy and ongoing efforts to reduce its public sector budget deficit." Not too surprisingly, S&P had no comment by how much it would upgrade Greece following this gift reception ceremony.

I wonder how many more years the SEC will “look at” the ratings agencies before they nail them for putting USDA Grade A stickers on rotting horse shit. Maybe the SEC should do some soul-searching and ask why they allow private for-profit companies (with tons of conflicts of interests) to act as an oversight committee for financial products. Is that not the role of a governor? It’s as laughable as renaming “bribery” the socially acceptable term “lobbying.”

Rep. Paul Kanjorski is preparing to take the rating agencies head on with a bill on credit agency reform. Some key Bill highlights presented.

At 2 pm, the House Financial Services Committee will hold a live webcast hearing (here for the link) discussing credit rating agencies, which should be quite entertaining and potentially violent as the RA storm clouds have been gathering for a while now, even more so since recently CT AG Blumenthal has made it his crusade to destroy the monopoly of S&P and Moody's with the current administration.

It is no secret that the administration, and especially Barney Frank, has made public enemy number one out of the rating agencies (and particularly Moody's), mostly in line with populist rhetoric and scapegoating. Of course, when the rating agencies satisfied a role that helped housing prices go higher, keep people happier and officials like Barney Frank in office longer, all was good. When things turn sour, the Franks of the world know to keep the attention away from Washington.

It is no secret that the administration, and especially Barney Frank, has made public enemy number one out of the rating agencies (and particularly Moody's), mostly in line with populist rhetoric and scapegoating. Of course, when the rating agencies satisfied a role that helped housing prices go higher, keep people happier and officials like Barney Frank in office longer, all was good. When things turn sour, the Franks of the world know to keep the attention away from Washington.

It is no secret that the administration, and especially Barney Frank, has made public enemy number one out of the rating agencies (and particularly Moody's), mostly in line with populist rhetoric and scapegoating. Of course, when the rating agencies satisfied a role that helped housing prices go higher, keep people happier and officials like Barney Frank in office longer, all was good. When things turn sour, the Franks of the world know to keep the attention away from Washington.