The Greece downgrade non-event

By Felix Salmon
June 14, 2010
shocking four-notch downgrade of Greece to junk status:

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Here’s a graph of the stock market plunge in the wake of Moody’s shocking four-notch downgrade of Greece to junk status:

plunge.jpg

By my eyes, that’s a drop of about 2 points in the S&P 500, or 0.18%. In other words, the market didn’t even blink.

There are two big lessons here, I think. Firstly, beware all market reporting: you can be quite sure that if the market was down sharply today, everybody would be citing the Greece news as the reason for that. And secondly, no one cares about the ratings agencies any more. Moody’s is a joke, it’s massively behind the curve, and bond investors feel free to ignore anything it says.

It’s true that there are still some bond investors who are constrained by credit ratings, but they’re not the kind of people who are playing in the market for Greek debt, which has for months been dominated by European banks and the ECB. Even so, a monster downgrade of an EU country to junk status would have caused chaos in the markets not all that long ago.

So well done, markets, for finally treating the ratings agencies with the respect they deserve — which is to say, none at all. Now let’s try to get the government to do the same thing, and get rid of the silly and outdated NRSRO designation.

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Comments
7 comments so far

Oooh, brutal post! I like it!

“So well done, markets, for finally treating the ratings agencies with the respect they deserve — which is to say, none at all. “

Posted by DanHess | Report as abusive

I am surprised that the markets are up despite European problems spreading to more countries.Spanish banks are facing funding problems,Romania faces a no-confidence motion due to public sector cuts and Belgium faces a political deadlock after elections.

Posted by AGreenInvestor | Report as abusive

Or at least change the acronym to something pertinent….
hmmmm…..maybe SCREWED for
Statistically crappy review & evaluation of (un)worthwhile economic devices ….or some such.

Posted by fresnodan | Report as abusive

Had the ratings agencies been a little more alert a few years earlier and stayed that way, their pronouncements might be widely regarded as meaningful today.

http://www.corporateeurope.org/system/fi les/…/Goldman+Sachs+(June+2010).pdf

But they didn’t, so they’re not.

Posted by HBC | Report as abusive

HBC, flicked through the report and that is 10 mins i will never get back in my life…

Never got the benefit of your wisdom on the who calling people who criticise Israel anti-semitic caused Iraq’s killing by gas of over 100,000 Kurds in a year along with all of the rest of the Middle East’s problems – virtually all of which have nothing to do with either the Israelis or Palestinians – so maybe you can help me out here. According to the is report one of the undisputed facts is that the total size of the bet Paulson made in Abacus was 951million yet he made 3.7billion on that exact same bet. Maybe you could point out how this is possible for those not as smart as you…

Posted by Danny_Black | Report as abusive

The ratings agencies now have the same credibility as sell side brokerage analysts. However, they are far more dangerous because many of the world’s accounting rules still imbue them with special powers.

As you point out, it is time that they are made legally irrelevant as well as practically irrelevant.

For some reason, the world’s financial system is simply pretending that 2007-2008 never happened. This has become the Mother of All Moral Hazards with governments and central banks doing anything they can to avoid bringing sanity to the lunatic asylum of the financial sector.

Posted by ErnieD | Report as abusive
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