Who gives a damn what the ratings agencies say?
by David Atkins
You might not have heard, but mighty Moody’s has downgraded France’s credit rating from AAA to AA, just as S&P did to the United States. So should France care and start panicking like so many centrist fetishists did in the United States?
Not quite:
Bond-market history indicates that the utility of sovereign ratings may be limited. Almost half the time, yields on government bonds fall when a rating action by Standard & Poor’s and Moody’s suggests they should climb, according to data compiled by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as the 1970s.
After S&P stripped France and the U.S. of AAA grades, interest rates paid by the countries to finance their deficits dropped rather than rose.
No kidding. Realize what this means: it’s not just that the ratings agencies spectacularly failed to accurately predict the risk involved in collateralized debt obligations and credit default swaps in the lead-up to the Great Economic Catastrophe of 2008.
It also means that the ratings agencies have almost the same record as flipping a coin when it comes to determining if a country’s interest rates will rise or fall, even though ratings agency grades are a lagging indicator of conventional wisdom, and even though many ratings downgrades of countries actually in significant trouble such as Greece or Zimbabwe should easily pad the agencies’ stats in the predictions department.
And finally, it means that the ratings agencies have this incredibly mediocre record in spite of the fact that pronouncements from the ratings agencies themselves should theoretically be self-fulfilling prophecies, in that investors should theoretically be following the lead of the ratings agencies in fleeing from downgraded countries’ debt, if the agencies’ proclamations have any value whatsoever.
So what value, then, are the ratings agencies except as tools of the plutocratic elite to publicly embarrass and punish nations that care too much for their people instead of demonstrating the “flexibility” and “lack of rigidity” demanded by the contemptible few who want labor as cheap and fungible as possible?
None. Which consequently means that no moral nation should pay the ratings agencies the slightest heed.
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