S&P warning or warning about S&P analysis? The fact that S&P is now issuing a warning to all Euro countries regarding their sovereign ratings is not a surprise.
All these governments are facing difficulty managing their fiscal policy so there is a potential risk in government bonds, a risk that maybe we have been ignoring for too long. And the behavior of S&P is consistent with their earlier practices: Japan or the US are not AAA in their ratings and they seem to like to make announcements around specific events so that people listen to what they have to say. What is more surprising is that their announcement made it to the front page in all newspapers and seemed to be moving markets.
I did not learn much from their announcement except that I confirmed my earlier impression that rating agencies have very little to say when it comes to sovereign debt. Their analysis is shallow and in many cases misleading or even wrong (e.g. in their recent calculations regarding the US fiscal outlook). Sounds good. Antonio Fatás. Subprime Mortgage Bonds Get AAA Rating S&P Denied to U.S. Standard & Poor’s is giving a higher rating to securities backed by subprime home loans, the same type of investments that led to the worst financial crisis since the Great Depression, than it assigns the U.S. government.
S&P is poised to provide AAA grades to 59 percent of Springleaf Mortgage Loan Trust 2011-1, a set of bonds tied to $497 million lent to homeowners with below-average credit scores and almost no equity in their properties. New York-based S&P stripped the U.S. of its top rank on Aug. 5, saying Washington politics were making the country less creditworthy. Treasuries gained about 1.95 percent and U.S. borrowing costs have fallen to record lows as investors repudiated the downgrade, according to Bank of America Merrill Lynch indexes. “Everybody has been led to believe over the years that AAA means AAA means AAA across the board,” Gregory W. Inflated Grades Senate Report Springleaf Bonds Better Record Ability to Tax Lost Trust Lessons Learned Congress’s Failure.
Standard & Poor's. Matt Stoller: Standard & Poor’s Predatory Policy Agenda. By Matt Stoller, a fellow at the Roosevelt Institute.
He is a former financial services staffer to Rep. Alan Grayson. (on Twitter at @matthewstoller) While it’s useful to think of the ratings agencies as incompetent, or as greedy, it’s important to remember that they have an actual policy agenda. They weren’t just wrong in rating subprime tranches of toxic dreck AAA. In the early 2000s, several states attempted to rein in an increasingly obvious predatory mortgage lending wave. S&P used its power to destroy this threat. Standard & Poor’s was the most aggressive of the three agencies, however. That press release is here.
This is far from the only time S&P has thrown its weight around to advance its financial interests. Of course, on a larger level, this is not an American story, it’s just the latest iteration of the liquidation of society by international investors. The current austerity wave in the US is the same play.