Markets Digest a Greek Downgrade But Who Cares What the Rating Agencies Think?

Tuesday, June 15, 2010 , , 0 Comments


European shares were expected to open lower Tuesday, as investors get their first chance to react to Moody's downgrade of Greece's credit rating.

Moody's Investors Service on Monday cut Greece's government debt rating by four notches to Ba1 from A3, following a similar move by Standard & Poor's in April. Traders said that while the move didn't come as a surprise, it brought the issue of sovereign debt to the fore again.

The downgrade "has been a long time coming and doesn't materially change the current environment with respect to what the markets know about Greece and the problems in Europe," said Michael Hewson at CMC Markets. "However, the markets' sensitivity to bad news has seen the recent revival in risk appetite knocked back, highlighting the fragile state of investor sentiment in the current environment."

Felix Salmon called it a non event. Again, no one cares what Moody's thinks. You can stop pretending now.

Did you forget about the Standard & Poor's hacks who said they'd do "a deal structured by cows?"

In a hearing today before the House Oversight Committee, the credit rating agencies are being portrayed as profit-hungry institutions that would give any deal their blessing for the right price.

Case in point: this instant message exchange between two unidentified Standard & Poor’s officials about a mortgage-backed security deal on 4/5/2007:

Official #1: Btw (by the way) that deal is ridiculous.

Official #2: I know right…model def (definitely) does not capture half the risk.

Official #1: We should not be rating it.

Official #2: We rate every deal. It could be structured by cows and we would rate it.

A former executive of Moody’s says conflicts of interest got in the way of rating agencies properly valuing mortgage backed securities.

Former Managing Director Jerome Fons, who worked at Moody’s until August of 2007, says Moody’s was focused on “maxmizing revenues,” leading it to make the firm more “issuer friendly.”

See also: Death to the Rating Agencies via Skeptical CPA, March 2008.

I repeat: no one cares, least of all the market.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.