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Tuesday, 6 December 2011

Rating the Eurozone

Even the most despicable people can make intelligent remarks and display real understanding. The same is true of organisations, even Rating Agencies. These firms made a huge amount of money by kitemarking gambling slips that they did not understand, as being investment-grade 'assets'; and thereby they contributed crucially both to the 'banking crisis' of 2007-8 and the crisis of government funding that is reaching a new crescendo.

Back in the nineteen-eighties, long before the financial innovators had started gambling in cyberspace, the Rating Agencies were taking fees and 'research funding' from companies to whose bond issues they then gave a positive rating. Directors of firms that administered pension funds, insurance reserves and investments charities used ratings as a way of justifying their allocation of the investments that they made. The national financial regulators accepted ratings as valid measures of the worth of different promises-to-pay in the future [which is what bonds are]. So banks accepted government bonds on the strength of their ratings; and governments accepted corporate and other governments' bonds on the strength of their ratings. We all know where that led the western world; and that the problem is still grinding on.

But now Standard & Poor's has stated a simple truth; If Germany and France commit all of their treasure into a support fund for junk and near-junk bonds that have been issued by lying governments [as 'the markets' have been demanding] they will have to give so much money to the market players [such as 'hedge funds'] that have stockpiled bonds at knock-down prices that their economic strength will be sapped. The way a rating agency expresses this is by reducing its rating of a government's debt. So they have said that if Germany opens its coffers to the rogues, then the rating of Bunds [German State Bonds] will fall: and this applies to at least five other Eurozone states' debt. That is simple sense!

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