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Still, neither of those two agencies has the best track record of late. Both played a key role in the events that led to the financial crisis, by continuing to slap AAA ratings on subprime-mortgage-backed securities, even long after it became clear to many that they were junk.
Why are people actually taking these threats of a downgrade from Moody's, Standard and Poor's and the like seriously?
And why are some politicians, and economists trying to actually use these flawed agencies downgrade threats to scare the american people/ U.S. government to work towards a debt ceiling resolution?
I just don't get it. Please enlighten me here.
Last edited by baystater; 07-19-2011 at 03:15 PM..
Why are people actually taking these threats of a downgrade from Moody's, Standard and Poor's and the like seriously?
And why are some politicians, and economists trying to actually use these flawed agencies downgrade threats to scare the american people/ U.S. government to work towards a debt ceiling resolution?
I just don't get it. Please enlighten me here.
That would be because every financial professional in every financial market in the entire world uses these ratings agencies as a metric for the creditworthiness of any entity to which they apply. That means that when the ratings agencies downgrade the US, investors all over the world will pretty much instantly demand higher interest rates to hold riskier US debt securities - and your wallet (and your childrens' wallets) will most certainly come to know the difference due to the many untold billions upon billions more in future interest expenses that we as a nation will have to repay. In addition to that, as the US has been the world's most stable reserve currency up until now, a downgrade is likely to reflect itself in a materially detrimental effect on the value of the US dollar and the valuation of financial markets all over the world. Does all that sound to you like something that should be taken seriously?
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Quote:
Originally Posted by ambient
That would be because every financial professional in every financial market in the entire world uses these ratings agencies as a metric for the creditworthiness of any entity to which they apply. That means that when the ratings agencies downgrade the US, investors all over the world will pretty much instantly demand higher interest rates to hold riskier US debt securities - and your wallet (and your childrens' wallets) will most certainly come to know the difference due to the many untold billions upon billions more in future interest expenses that we as a nation will have to repay. In addition to that, as the US has been the world's most stable reserve currency up until now, a downgrade is likely to reflect itself in a materially detrimental effect on the value of the US dollar and the valuation of financial markets all over the world. Does all that sound to you like something that should be taken seriously?[/
While I feel there needs to be a debt ceiling resolution to should the world we are committed to meeting obligations? And in the end probably will.
In answer to you about credit agencies and their use as a metric. My personal answer is NO. This is because these same rating agencies blew the mortgage market apart and this in turn has played a major role to our current financial state. These rating agencies should have NO credibility by any financial professional at all. Unfortunately so called experts still use these useless rating agencies. Probably because they feel they have no other options but to listen to these agencies opinion. And that's all it is opinion.
So in essence. What you call the metric that world uses has proven to be severely flawed and should not be taken seriously..........period.
I believe in this article Mark Weisbrot is spot on. Though others may to decide to agree with the other two economist.
Quote:
Q: If the credit rating agencies downgraded the U.S., what would be the immediate impact?
Weisbrot: I'm not sure it would have any impact. When you look at the bond market — 10-year U.S. Treasuries, for example — where is it today? In the light of all this hype about debt ceilings and possible defaults, it's at 2.93 today, so this is an extremely low interest rate in both nominal and real terms. It means that everyone in the world is willing to hold these bonds and is not the least bit worried about the possibility of a default. So, investors haven't changed their view of the creditworthiness of the United States at all, and I don't think they're likely to in the foreseeable future.
Quote:
Q: Specifically, how would it affect Wall Street and global markets?
Weisbrot: Well, you never know. Markets can be irrational. It's like what [John Maynard] Keynes said — they're looking at what other investors might think, instead of what they themselves think. And they might think other investors are really stupid and actually believe that there's some reason to think that the United States could default on its debt. With that proviso, I think you're much more likely to see what you're seeing now, which is that the bond markets are completely ignoring all of this discussion –- as they should — because the probability of a default on the U.S. debt has not increased from where it was two years, five years, 10 years or 50 years ago
Quote:
Q: In the case of a downgrade, what would it take to recover a AAA rating from the agencies and how soon could that happen?
Weisbrot: You'd have to ask the credit rating agencies on that, because what they are doing doesn't really make sense from an economic point of view. So, it's really a question of their politics. They're intervening in a political sense. They are intervening in the debate, politically.
Quote:
Q: Why should we even care what the credit rating agencies have to say considering how wrong they have proven to be in the recent past?
Weisbrot:It's clear they are not a reliable source of information. These are the same credit rating agencies that gave AAA ratings to mortgage-backed securities that turned out to be almost worthless in some cases and enormously overrated in other cases. They were as wrong as you could possibly be and wrong in a way that anybody who could do arithmetic could see was wrong at the time. So, why should we take them seriously?[/
That would be because every financial professional in every financial market in the entire world uses these ratings agencies as a metric for the creditworthiness of any entity to which they apply. That means that when the ratings agencies downgrade the US, investors all over the world will pretty much instantly demand higher interest rates to hold riskier US debt securities
That's a good explanation. You can look at Portugal (who is on the verge).
Quote:
Originally Posted by ambient
- and your wallet (and your childrens' wallets) will most certainly come to know the difference due to the many untold billions upon billions more in future interest expenses that we as a nation will have to repay.
The National Debt would start to balloon real fast, and the result of that, is continuous downgrades eventually reaching the "C" levels.
The effects of downgrading is that few people buy debt, and the end result of that is forced budget cuts, which I'm sure people would call "Armageddon" measures.
Quote:
Originally Posted by ambient
In addition to that, as the US has been the world's most stable reserve currency up until now, a downgrade is likely to reflect itself in a materially detrimental effect on the value of the US dollar and the valuation of financial markets all over the world. Does all that sound to you like something that should be taken seriously?
One possible effect is that OPEC might adopt the Euro-burse, and that would just add to US economic problems ans the US Dollar plummeted in value against world currencies.
Quote:
Originally Posted by baystater
In answer to you about credit agencies and their use as a metric. My personal answer is NO.
That's probably because you aren't an investor and don't buy $Millions in government backed securities from various countries each year.
Bascailly because a down garde will mean more expensive borrowing. That si why comoanies;governamnet fro local to federal protect that rating. Anyone seeing the cost difference in just bonds issued for local projects in final cost.Maybe we will see bonds offered to 'well qauilfied borrowers' like we do in thoe ads for auto sales one day.I have seen people getting zero to less than one per cent loans on vehicle while other are lucky to get 7%.Bascailly the same thing but we are ofdten talking millons in differences just locally.With federal borrowing and who buys the debt it means huge tranfer of wealth out of the country.
Just getting you used to the idea of austerity. The bankers stole the money and now the working class is going to pay for it.
But it will take some kind of emergency to get people to accept getting less and paying more.
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just suppose your home loan changed interest rate from 5% to 10% overnight~ that will be the result of a downgrade of the national debt! US.Stock market would see this as a huge thing and would drop by about 1/4 ~ that would also result in the dollar plumetting ~ causing petroleum (and gas) to go up from about $2.40 a gallon now to $7 or 8 overnight~ inflation rates will go from slight now to over 10% . If you can think of a worse senario I'd like to hear it~ it's got me scared that there are those who aren't copnvinced it'll cause the decline of our country from a 1st world country to a 3rd world country within less than a year
Just getting you used to the idea of austerity. The bankers stole the money and now the working class is going to pay for it. But it will take some kind of emergency to get people to accept getting less and paying more.
You are joking right? I hope you are joking; otherwise, I will have to assume either you have been asleep for the past 4 years or you just do not have a clue.
The bankers engineered the housing bubble and the housing collapse along with the bail out and subsequent Fed policy of loaning them money for free. This allowed them to loan it back to the US government at a profit, and to the Brazilian government at an obscene profit. All the while driving inflation in commodities and equities.
Oh and don't forget about that sweet deal that allowed them to dump all their toxic assets on the Fed and Fannie and Freddy at 100 cents on the dollar.
That 7 trillion dollars that the government has spent on your tab over the last 4 years, where do you think it went?
When the government spends money, it goes into someone’s pocket; in this case, it was mostly the bankers.
Goldman Sachs did not stack there people in the Fed, Treasury, and Presidential Administration for nothing.
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Please enlighten me here.
