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Sorry if this has been diaried already, but I think it's important enough to post.

Europe has been desperately trying to pull together their financial situation, a problem that centers upon poor investor confidence.  My understanding is (correct me if I'm wrong) that Italy and Spain would not been on the edge of collapse if investors had confidence enough to buy their bonds - the lack of investor confidence in their bonds is in and of itself leading to the collapse of said bonds.  While that sounds suspiciously like a pyramid scheme to me, that's a subject for another diary.  Into this precarious situation steps the S&P, last seen downgrading US debt for no decipherable reason:

Standard & Poor's blamed "deepening political, financial and monetary problems within the eurozone" on Monday night as it warned 15 of the 17 countries in the single currency that they faced a possible downgrade of their credit ratings.

The downgrade threat extends to Germany, France, and Luxemberg, who have all been financially solid in the current crisis.  This leads to the obvious question:

What is the S&P trying to accomplish?  I think its clear from their completely unjustified downgrade of the US debt that they are not 'looking out for investors'.  I completely fail to see how anyone stands to gain from a Eurozone collapse, though.

I'll try and stay on top of comments, but I'm currently sitting 50 miles off the coast of Massachusetts, so internet may be spotty.

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Comment Preferences

  •  This is a big topic, and a useful one. But.... (3+ / 0-)
    Recommended by:
    gerald 1969, lotlizard, buckstop
    I think its clear from their completely unjustified downgrade of the US debt that they are not 'looking out for investors'.

    I don't get how you think the US downgrade was unjustified. There is a very good chance that the US will be downgraded again at the end of the year. The US banks have just been downgraded. And many US states have now been graded as junk.

    For investors, this merely means that you can expect higher interest rates for your investment because there is some risk involved. These ratings are mostly about interest earnings.


    Give a man a gun and he can rob a bank. Give a man a bank and he can rob the world. Save the lives of the people and the future of the planet. Nationalize the banks.

    by Pluto on Mon Dec 05, 2011 at 09:24:39 PM PST

    •  The US has been in the same situation re: debt (1+ / 0-)
      Recommended by:
      randomfacts

      The US has been in roughly the same situation re: debt for the better part of the last decade.   The only thing that changed to prompt the downgrade was the blatant failure of the R's and D's to come to a suitably ludicrous 'compromise' on deficit reduction prior to hiking the debt ceiling.

      Furthermore, there was little response from investors to the debt rating downgrade - in fact, US bonds rallied in the wake of it - indicating that investors by and large disagreed with the S&P.

      •  The ratings agencies are agnostic (4+ / 0-)
        Recommended by:
        twigg, lotlizard, taonow, buckstop

        ...about the debt. They don't care whether the imbalance is solved with austerity or with taxes.

        Either one would satisfy them.

        But they also note that the government is in gridlock and unable to accomplish anything.

        It's important to understand what the "full faith and credit of the United States" means to investors. It refers to the Constitution that allows the government to levy taxes on the citizens in order to pay debt. If the government refuses to do that when necessary to correct the balance sheets, it is considered compromised. And risky.


        Give a man a gun and he can rob a bank. Give a man a bank and he can rob the world. Save the lives of the people and the future of the planet. Nationalize the banks.

        by Pluto on Mon Dec 05, 2011 at 09:40:02 PM PST

        [ Parent ]

        •  It's a rare day indeed whan I (8+ / 0-)

          disagree with you, Pluto :)

          But Ratings Agencies are not agnostic. They are highly political, and the recent spate of sabre-rattling rings a little hollow given their recent participation in the housing debacle, and their willingness to AAA rate junk bonds.

          I hope that the quality of debate will improve,
          but I fear we will remain Democrats.

          by twigg on Mon Dec 05, 2011 at 10:56:37 PM PST

          [ Parent ]

          •  Oh, that's true. No question. (4+ / 0-)

            In that case, they were rating bankster derivatives -- and they were in over their heads. Crimes on that scale hadn't been committed in over 80 years. Total lack of regulation in the financial sector was relatively new and quickly became outrageous.

            I was speaking about sovereign debt ratings, not commercial ratings. I should have been clearer. (I only deal with sovereign debt, so I'm sort of myopic about it.)


            Give a man a gun and he can rob a bank. Give a man a bank and he can rob the world. Save the lives of the people and the future of the planet. Nationalize the banks.

            by Pluto on Mon Dec 05, 2011 at 11:40:43 PM PST

            [ Parent ]

            •  I could almost forgive (2+ / 0-)
              Recommended by:
              highacidity, Pluto

              them for the derivatives debacle ... after all, it was reasonable for them to take the Banks at their word, to an extent.

              However, that contributed to the financial meltdown and now they are rating sovereign debt based at least in part on a mess they helped create.

              Maybe we should ask criminals to sentence themselves :)

              I hope that the quality of debate will improve,
              but I fear we will remain Democrats.

              by twigg on Tue Dec 06, 2011 at 05:57:24 AM PST

              [ Parent ]

      •  So, what's the problem? (0+ / 0-)
        in fact, US bonds rallied in the wake of it - indicating that investors by and large disagreed with the S&P.

        What it really indicates is that those investors are not as picky as I am. I require a risk premium when I invest.


        Give a man a gun and he can rob a bank. Give a man a bank and he can rob the world. Save the lives of the people and the future of the planet. Nationalize the banks.

        by Pluto on Mon Dec 05, 2011 at 09:41:59 PM PST

        [ Parent ]

    •  To be clear, there were a number of factors (2+ / 0-)
      Recommended by:
      lotlizard, taonow

      ...that triggered the US downgrade.

      1. The obvious insolvency of US Banks.
      2. The failure to let the innaproprate Bush tax cuts expire.
      3. The disgraceful fight over the routine raising of the debt limit.
      4. The shameless printing of money and the opacity of the Fed.

      As an investor, all of these are a factor that might make me want to invest in Treasuries -- because I could demand higher interest rates.

      Now, if these higher rates were not forthcoming, I might look elsewhere at nations with the same risk levels but appropriate rates that reflect the risk.

      Since the House refused to negotiate to increase the Federal income via taxes, and the Super Committee failed its assignment -- I think all rating agencies will determine that the US is irresponsible and negligent toward its investors -- and the ratings axe will fall again by 2012. As it should.


      Give a man a gun and he can rob a bank. Give a man a bank and he can rob the world. Save the lives of the people and the future of the planet. Nationalize the banks.

      by Pluto on Mon Dec 05, 2011 at 09:33:29 PM PST

      [ Parent ]

      •  We can debate this till we're blue in the face, (2+ / 0-)
        Recommended by:
        Bush Bites, highacidity

        but the markets have spoken, and they delivered S&P a huge bitch-slapping, as US Treasuries are deemed far more secure than pretty much anything else, especially AAA-rated French OATs/BTANs. Just saying.

        "It is, it seems, politically impossible to organize expenditure on the scale necessary to prove my case -- except in war conditions."--JM Keynes, 1940

        by randomfacts on Mon Dec 05, 2011 at 10:12:39 PM PST

        [ Parent ]

      •  These same rating agencies (2+ / 0-)
        Recommended by:
        katiec, highacidity

        are compromised.

        S & P wasn't alone.

        Not like the SEC was really on top of the situation either.

        I gather this is not news to you.

        The money power of the country will endeavor to prolong its reign by working on the prejudices of the people until all wealth is aggregated in a few hands and the republic is destroyed. ~ Abraham Lincoln

        by ozsea1 on Mon Dec 05, 2011 at 10:19:21 PM PST

        [ Parent ]

  •  I found that very interesting myself. Premarket (1+ / 0-)
    Recommended by:
    northsylvania

    the dow was up 150+ When the news came out - the market tanked and ended up 78+. All I can say is it's very interesting. My guess is the dow will be down big tomorrow. Asia is down tonight.

    "We're here to start a dialog, nothing more. We keep quiet and let the press, the politicians, and the Wall Streeters hang themselves." From a veteran protester in the civil rights days at Liberty Park. h/t to pistols at dawn.

    by mrsgoo on Mon Dec 05, 2011 at 09:26:31 PM PST

    •  do not (3+ / 0-)
      Recommended by:
      Pluto, lotlizard, taonow

      make the mistake of thinking that the Dow reflects market activity by Joe Everyman investor. Approximately 80% or more is program trading, big blocks, institutional. Right now, the professionals are running the thing up toward the end of the year, so their year-end numbers will look good and they'll get their fat bonuses.

      Watch things like central bank rates -- Australia just cut its -- and dollar strength vs. other currencies, as additional useful indicators.

      The trouble with quotes on the internet is that it is difficult to determine whether or not they are genuine. -- Abraham Lincoln

      by Mnemosyne on Mon Dec 05, 2011 at 11:17:53 PM PST

      [ Parent ]

      •  Yep. The retail investors have left the room. (4+ / 0-)
        Recommended by:
        lotlizard, taonow, gerald 1969, Mnemosyne


        Give a man a gun and he can rob a bank. Give a man a bank and he can rob the world. Save the lives of the people and the future of the planet. Nationalize the banks.

        by Pluto on Mon Dec 05, 2011 at 11:41:58 PM PST

        [ Parent ]

      •  The Aussies did just cut rates by 25 basis points (0+ / 0-)

        and you see the result this morning - their market is down by 1.36%, everything is being overshadowed by Europe's troubles. There are more banks stuck with Europe's bonds than what is generally recognized, including U.S. banks. And don't forget that large European banks also operate here in the U.S. - they're all tied into together, they all go down together. One big minus for European banks is the fact that they got caught holding the bag with our junk mortgage notes - so they are double screwed being really strapped for cash.

         As for the Dow - the general sentiment among the prognosticators is that an xmas rally takes us up to 1330 on the S&P over the next few weeks and then it's back to doom and gloom going into 2012.

        But I agree about the S&P downgrade - it's hypocritical to have missed the junk mortgage problem and now want to be trusted to grade debt. No one needs to point out that euro debt is a bad investment - the bond market seems to be voting with it's feet as you see yields are WAY up...

        "WAR IS PEACE FREEDOM IS SLAVERY FOX NEWS IS JOURNALISM"

        by FakeNews on Tue Dec 06, 2011 at 02:47:42 AM PST

        [ Parent ]

        •  and for people who (0+ / 0-)

          don't have all the jargon at hand, 100 basis points = one point, which is what the Auzzies cut their central bank rate by. So 25 basis points = 1/4 point. Metals trades are denominated that way, so if a trader says (as a friend once did to me on the phone) "Oops, silver is down 35 points" don't panic . . . that's basis points.

          The trouble with quotes on the internet is that it is difficult to determine whether or not they are genuine. -- Abraham Lincoln

          by Mnemosyne on Tue Dec 06, 2011 at 09:50:58 AM PST

          [ Parent ]

    •  Futures (0+ / 0-)

      ...right now are pretty much flat.

      S&P Futures    1,254.80    -0.20    -0.02%
      Nasdaq Futures    2,331.00    +6.00    +0.26%
      Dow Futures    12,070.00    +4.00    +0.03%

  •  Some International financial companies (rhymes (5+ / 0-)
    Recommended by:
    ozsea1, randomfacts, Pluto, lotlizard, Spoc42

    with Goldman Sachs) helped Greece hide debts and loans off balance sheets (analogous to Enron). Other financial predators do similar in all countries with currency manipulations and rigging of the economies. Until international control is placed on these monsters, democracy remains a hollow promise.

    Republicans aren't so bad as long as they don't move next door, try to marry my child, or run for public office.

    by OHdog on Mon Dec 05, 2011 at 09:58:59 PM PST

  •  They're hacks. (0+ / 0-)

    Who are trying to close the barn door after they let all the animals out.

    The revolution will not be privatized.

    by Bush Bites on Tue Dec 06, 2011 at 01:21:36 AM PST

  •  S&P (0+ / 0-)

    ...is criticized for uprating mortgage bonds and firms exposed to them up through the 2008 crash and now they're criticized for downgrading government bonds?

    The S&P 500 is only about 20% down from it's all-time high in 2007 in the heyday of the real estate bubble.

    Seems like its not the job of S&P to keep a bubble inflated.

  •  Europe (0+ / 0-)

    If I was S&P I too would downgrade, and yes the US downgrade was deserved. The US political system is dysfunctional and although a default is unlikely, it is possible. Of course anyone lending money to the US government at 2% for 10 years, or 3 per cent for 30 years needs to have their head examined (unless it is solely a short term trade).

    But it is important to realize that bond investors do not pay much attention to S&P. They are the big boys of investing, they do, or should do their own research. If they wait for S&P to make a determination they will be far far far too late.

    The way to avoid these issues is not to get so deeply into debt. Once you do you are vulnerable.

    At the same time markets do reward credible efforts ... which so far we have not seen from any of the players involved.

    Those who make peaceful revolution impossible will make violent revolution inevitable. - JFK

    by taonow on Tue Dec 06, 2011 at 03:30:58 AM PST

  •  Rating agencies are all criminal conspiracies (0+ / 0-)

    Having said that, investors should certainly demand a risk premium for buying securities from countries that routinely spend more than they take in, and which (unlike the US) don't have their own currencies.  

    But nobody's buying flowers from the flower lady.

    by Rich in PA on Tue Dec 06, 2011 at 03:37:29 AM PST

  •  here are some excerpts from an op-ed (0+ / 0-)

    in Thr Guardian from august.2011, soon after the u.s. downgrade:

    It is true that if countries did not run up debts they could not afford, their ratings would be stronger. But the agencies are not merely market umpires but also market players, with an interest in outcomes. They consistently overrated sub-prime mortgage-backed securities when times were good. Now that times are hard, they are consistently underrating the security of nation states which refuse to bow to agency orthodoxy by cutting expenditure.

    Anger against the agencies is not simply a case of wanting to shoot the messenger. It is also a matter of revolting against a ratings system that allows a very small number of not-always-brilliant analysts to spread fears that threaten the cohesion of sovereign nations, states and governments. Anger with a system that treats, whatever its denials, the lives of nations as a chip on the bond market gambling tables is well directed. The agencies like to claim that they are acting on behalf of investors. But investors can too often also be speculators.

    there is some very healthy skepticism regarding the role of credit agencies. this was also written in august.
    Michael Hudson: The Case Against the Credit Ratings Agencies
    http://www.nakedcapitalism.com/...

    and since then; many euorpean countries have received downgrades, including france. these moves have so angered the politicians in these countries, that the
    EU Considers Ban on Country Ratings

    http://www.spiegel.de/...

    so to the diarists' point, it sure appears that the governments of the E.U. think there is a problem.

    There is a crime here that goes beyond denunciation. There is a sorrow here that weeping cannot symbolize. There is a failure here that topples all our success. Grapes of Wrath, John Steinbeck

    by dear occupant on Tue Dec 06, 2011 at 05:54:55 AM PST

  •  On what planet Greek/Italian/Spain debt a "buy"? (1+ / 0-)
    Recommended by:
    Jabarten

    These countries lack the capacity to pay off their debts, and the wealthier nations of Europe are not going to pick up the check. So downgrading such debt is entirely rational.

    Ratings agencies were guilty of softballing trillions in toxic assets during the U.S. meltdown pre-2008; so now you want to smack them around for being a bit more honest?

    •  Wish I could thumbs up... (0+ / 0-)

      A 1000 times.  Only fools believe that the situation in Europe is going involve China or the Fed buying up toxic PIIGS debt because there is simply too much of it, along with the derivatives ad derivatives of derivatives of that debt.

      Get ready for the "Mother of all Financial crisises".   We crossed the "Too Big to Fail" boundary to the "Too Big to Bail out" world.   It should have collapsed completely in 2008, but alas we have the "Favorite Oligarchs" and we just couldn't let them go under.........too late......it's over this next time.   The so called "Masters of the Universe" are in reality, the "Morons of the Universe".   They screwed up fatally this time....and I will be giving them directions to the Sunshine Skyway Bridge here in the Bay area when they are in full realization that they lost everything because their "wealth" was illusory paper wealth with nothing backing it up.......

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