Moody's influence on the economy

[CaptainPanic]

Today in the news: Moody's warns France on possible negative outlook

 

So, summarizing the article in my own subjective words: Moody's sees no reason yet to change France's AAA rating, but still influences the economic world and the political debates, by making front page news of an announcement of a possibility in the future. This press release about a possible lowering of the rating of France may cost the French tax payers millions of euros, in higher interests... and there isn't even any reason to change the rating yet!

 

These credit rating agencies have gained a LOT of power over the last year. Until some time ago, nobody had ever heard of them, but now they are able to run entire countries into the ground with a single press release about a lower rating (example). The markets respond to such ratings by instantly asking a higher interest rate on loans to such a country. And it's the tax payers who have to cough up that money. Three American agencies are therefore able to influence the economy of entire continents. It's ridiculous.

 

I think these credit rating agencies are despicable, and I do not trust their sincerity... Because you can make many millions if you know about these press releases in advance, I fear that their current popularity, and their frequent changes of the status of countries are just a huge corrupt plot to steal a lot of money. It is easy to hide insider trading when trading in government bonds: the volume of these trades is enormous. It is too easy to steal money this way, so I am practically certain that this is abused. I cannot prove it, but knowing just a few hours in advance what silly press release Moody's, Standard & Poor's, or Fitch is going to release can bring you millions.

 

And contrary to press releases about companies for the stock market, which are based on actual news of these companies (like quarterly reports or take-overs), the press releases of the rating agencies are not necessarily based on any facts. It can, like today, be just a prediction of a possible scenario.

 

These agencies are just tools of (some of) the big financial players. And I'm not the only one who thinks there's something wrong.

[imatfaal]

Captain - you may enjoy (not sure that's the right word actually) reading some of the sage of omaha's writing on the ratings agencies. Buffett was very anti for a while - till he ended up as a large shareholder! The ratings agencies have consistently misrepresented valuations in order to favour their large corporate clients - this is not new and was contributory to the problems caused by the failure of enron

[michel123456]

I am so glad you ask the question.

I live in Greece, a country that has been accused of the worst (economical) crimes lately. Being Belgian, I follow the news in Belgium as well. It is quite remarkable that since Belgium has been warned by Moody's (due to Dexia bankruptcy), Greece is not in the newspapers front page anymore. Now the bad guys are the credit rate agencies: Standard & Poor's, Moody's and Fitch.

 

Indeed, it is frustrating to endure a loan at 5% when yesterday it was 3%, just because someone somewhere decided you are less solvable. Tomorrow, the loan will go up to 7% because you have a sudden difficulty to adapt, after-tomorrow it will be 10%, and in a month or two, 15 or 20%. Before you understand anything, you become totally unsolvable: you are a pig. Just like that, simply going to work as usually, because someone somewhere decided so.

It must happen to you to understand the feeling.