spain downgraded by Moody's

[fulham911club]

Murcielago_Boy said:

elster said:

V88Dicky said:

I don't get it.

What is not to get?

Spain AA1
Ireland AA2
Portugal A1
Greece BA1

All looks peachy for the Euro zone.

I haven't looked at other ratings.

Why hasn't this been reflected by increased Euro weakness? It's staring to p1ss me off... The Euro zone is F**KED and the markets don't care and wont price it in! Or will there be a massive correction later?

Completely agree with you EUR is still way over-priced versus GBP.

Much of the problem comes from the size of France and Germany within the Eurozone and these two countries ability to somewhat massage facts about the health of their economies

[Whoozit]

[quote=Murcielago_Boy
Why hasn't this been reflected by increased Euro weakness? It's staring to p1ss me off... The Euro zone is F**KED and the markets don't care and wont price it in! Or will there be a massive correction later?
[/quote]

Individual Eurozone countries have different ratings to reflect different perceived risks. I would sympathise with you that this implies there is a chance of one country going bust, in practice there is a strong political will to avoid this happening. Euro weakness would imply a systemic problem for the Eurozone which isn't therefore on the cards.

As to the markets not pricing it in - current 5 year $ CDS spreads to US swap rates (a measure of riskiness, equivalent to "how much higher than mine is the credit card interest rate of the chav next door") for a sample of Eurozone countries:

Germany 0.3873%
UK 0.6527%
Italy 1.976%
Spain 2.291%
Portugal 4.410%
Ireland 4.669%

Admittedly Portugal and Ireland have had a rough couple of weeks.

ETA - Spain's downgrade by Moody's was widely expected and priced in, another reason why there was little change. Spain is actually one of the best performing of the larger European stock markets today.

Edited by Whoozit on Thursday 30th September 15:10

Edited by Whoozit on Thursday 30th September 15:14

[The Excession]

Whoozit said:

Admittedly Portugal and Ireland have had a rough couple of weeks.

You can say that again, the 'final' asessment figure for bailing out Anglo Irish Bank was released this morning at 29-34 billion, oh my for a country full of 4 million people, then there is the deficit running at over 30% GDP.

It's not pretty.

[Andy Zarse]

The Excession said:

Whoozit said:

Admittedly Portugal and Ireland have had a rough couple of weeks.

You can say that again, the 'final' asessment figure for bailing out Anglo Irish Bank was released this morning at 29-34 billion, oh my for a country full of 4 million people, then there is the deficit running at over 30% GDP.

It's not pretty.

Apparently the total estimated cost of the bail out is now around Eu50BN!!

Put it this way, if the Irish had started setting aside one euro for every second of time they would have to have started saving a hundred and fifty years before the reign of King Authur in around 425AD to have enough maoney to pay this off. (on the basis that a billion seconds equals 31.7 years) Frightening huh?

[Murcielago_Boy]

Whoozit said:

[quote=Murcielago_Boy
Why hasn't this been reflected by increased Euro weakness? It's staring to p1ss me off... The Euro zone is F**KED and the markets don't care and wont price it in! Or will there be a massive correction later?

Individual Eurozone countries have different ratings to reflect different perceived risks. I would sympathise with you that this implies there is a chance of one country going bust, in practice there is a strong political will to avoid this happening. Euro weakness would imply a systemic problem for the Eurozone which isn't therefore on the cards.

As to the markets not pricing it in - current 5 year $ CDS spreads to US swap rates (a measure of riskiness, equivalent to "how much higher than mine is the credit card interest rate of the chav next door") for a sample of Eurozone countries:

Germany 0.3873%
UK 0.6527%
Italy 1.976%
Spain 2.291%
Portugal 4.410%
Ireland 4.669%

Admittedly Portugal and Ireland have had a rough couple of weeks.

ETA - Spain's downgrade by Moody's was widely expected and priced in, another reason why there was little change. Spain is actually one of the best performing of the larger European stock markets today.

Edited by Whoozit on Thursday 30th September 15:10

Edited by Whoozit on Thursday 30th September 15:14

Understood mate. But based on CDS spreads why do the FX markets give us a 1.15 against the Euro? This is ridiculous.
Germany and France are hiding/lying about the truth. And the PIGS are in serious ste.
This is a nonsense.

[DonkeyApple]

Andy Zarse said:

The Excession said:

Whoozit said:

Admittedly Portugal and Ireland have had a rough couple of weeks.

You can say that again, the 'final' asessment figure for bailing out Anglo Irish Bank was released this morning at 29-34 billion, oh my for a country full of 4 million people, then there is the deficit running at over 30% GDP.

It's not pretty.

Apparently the total estimated cost of the bail out is now around Eu50BN!!

Put it this way, if the Irish had started setting aside one euro for every second of time they would have to have started saving a hundred and fifty years before the reign of King Authur in around 425AD to have enough maoney to pay this off. (on the basis that a billion seconds equals 31.7 years) Frightening huh?

You forget that if they had borrowed more money and invested it all in leveraged property deals they would have made a fortune.

[Kermit power]

elster said:

Fittster said:

elster said:

Fittster said:

Do the rating agencies have any credibility anymore?

How do you mean?

If you think all the credit agencies downgrading a country has no iact, you would be wrong.

After their huge failure in the build up to the credit crunch why does anyone think that they are no matter able to predict the future?

I don't think you understand what they do.

Say you do a personal credit rating score and get 1000, then you get the best interest rates
500 and you will get limited rates
100 and you get sky high rates.

That is all they do.

They don't predict the future, they base someones rating on previous trends. Much the same as you, Experian don't reduce your credit rating on your future ability to pay and say we can't offer you a mortgage as in 10 years time you will go on a spending spree causing you to have no money and o bankrupt.

I think you're maybe the one who doesn't understand what they do, or at least doesn't understand the full extent of what they do. They don't just credit rate individuals, but also countries (as per this thread), companies and, crucially, financial instruments.

The ratings agencies' role in the build up to this crash has gone staggeringly unreported upon.

Lots of people have blamed the banks and other financial institutions for investing in sub-prime mortgage bundles. "They should've checked the risks", people screamed. That's right, of course, but then a big part of checking risks, surely, is to go and check their status with the ratings agencies? After all, what's the point of ratings agencies, if not to provide expert consideration of what might or might not be a risky investment?

Prior to the crash, there were a few handfuls of countries and companies with top level credit ratings. Compare that to thousands of financial instruments shortly about to go pop, and then try again to justify why the credit ratings agencies still retain any credibility.

[DonkeyApple]

Kermit power said:

elster said:

Fittster said:

elster said:

Fittster said:

Do the rating agencies have any credibility anymore?

How do you mean?

If you think all the credit agencies downgrading a country has no iact, you would be wrong.

After their huge failure in the build up to the credit crunch why does anyone think that they are no matter able to predict the future?

I don't think you understand what they do.

Say you do a personal credit rating score and get 1000, then you get the best interest rates
500 and you will get limited rates
100 and you get sky high rates.

That is all they do.

They don't predict the future, they base someones rating on previous trends. Much the same as you, Experian don't reduce your credit rating on your future ability to pay and say we can't offer you a mortgage as in 10 years time you will go on a spending spree causing you to have no money and o bankrupt.

I think you're maybe the one who doesn't understand what they do, or at least doesn't understand the full extent of what they do. They don't just credit rate individuals, but also countries (as per this thread), companies and, crucially, financial instruments.

The ratings agencies' role in the build up to this crash has gone staggeringly unreported upon.

Lots of people have blamed the banks and other financial institutions for investing in sub-prime mortgage bundles. "They should've checked the risks", people screamed. That's right, of course, but then a big part of checking risks, surely, is to go and check their status with the ratings agencies? After all, what's the point of ratings agencies, if not to provide expert consideration of what might or might not be a risky investment?

Prior to the crash, there were a few handfuls of countries and companies with top level credit ratings. Compare that to thousands of financial instruments shortly about to go pop, and then try again to justify why the credit ratings agencies still retain any credibility.

I suspect you've misunderstood the post. He was using a 'personal' example to explain how credit ratings work on any level.

[Engineer1]

Kermit power said:

Prior to the crash, there were a few handfuls of countries and companies with top level credit ratings. Compare that to thousands of financial instruments shortly about to go pop, and then try again to justify why the credit ratings agencies still retain any credibility.

Because credit ratings work on "normal" situations, a company that goes bust because its bank got wary and pulled credit can kill other more credit worthy companies purely because they didn't get paid.

[Kermit power]

DonkeyApple said:

Kermit power said:

elster said:

Fittster said:

elster said:

Fittster said:

Do the rating agencies have any credibility anymore?

How do you mean?

If you think all the credit agencies downgrading a country has no iact, you would be wrong.

After their huge failure in the build up to the credit crunch why does anyone think that they are no matter able to predict the future?

I don't think you understand what they do.

Say you do a personal credit rating score and get 1000, then you get the best interest rates
500 and you will get limited rates
100 and you get sky high rates.

That is all they do.

They don't predict the future, they base someones rating on previous trends. Much the same as you, Experian don't reduce your credit rating on your future ability to pay and say we can't offer you a mortgage as in 10 years time you will go on a spending spree causing you to have no money and o bankrupt.

I think you're maybe the one who doesn't understand what they do, or at least doesn't understand the full extent of what they do. They don't just credit rate individuals, but also countries (as per this thread), companies and, crucially, financial instruments.

The ratings agencies' role in the build up to this crash has gone staggeringly unreported upon.

Lots of people have blamed the banks and other financial institutions for investing in sub-prime mortgage bundles. "They should've checked the risks", people screamed. That's right, of course, but then a big part of checking risks, surely, is to go and check their status with the ratings agencies? After all, what's the point of ratings agencies, if not to provide expert consideration of what might or might not be a risky investment?

Prior to the crash, there were a few handfuls of countries and companies with top level credit ratings. Compare that to thousands of financial instruments shortly about to go pop, and then try again to justify why the credit ratings agencies still retain any credibility.

I suspect you've misunderstood the post. He was using a 'personal' example to explain how credit ratings work on any level.

Which is exactly where the credit ratings agencies fell down, from what I can see. The banks lent money in the form of sub-prime mortgages to people who, individually, the credit ratings agencies would've given an average credit rating score of maybe 10/1000. Once those bad risks got wrapped up, repackaged and sold on in bulk, however, their average credit ratings seemed to suddenly jump from 10/1000 to 900/1000 for absolutely no good reason.

Certainly a lot of blame needs to be laid at the feet of the people packaging up the debts - to say nothing of the Clinton administration for effectively forcing the banks to make the loans in the first place - but a lot of other people further down the line indulged in a bit of due diligence by checking the supposed strength of their planned investment vehicles with the credit rating agencies, who gave them a glowing reference based on nothing.

[Kermit power]

Engineer1 said:

Kermit power said:

Prior to the crash, there were a few handfuls of countries and companies with top level credit ratings. Compare that to thousands of financial instruments shortly about to go pop, and then try again to justify why the credit ratings agencies still retain any credibility.

Because credit ratings work on "normal" situations, a company that goes bust because its bank got wary and pulled credit can kill other more credit worthy companies purely because they didn't get paid.

But again, this isn't, as I understand it, what happened. The credit ratings agencies seemingly decided to allow bad individual credit risks to be turned into a good general risk just by them being bundled together. It wasn't good, middle-class borrowers who caused these vehicles to collapse by unexpectedly defaulting, but very poor risks who might always have been expected to default.

[elster]

Kermit power said:

elster said:

Fittster said:

elster said:

Fittster said:

Do the rating agencies have any credibility anymore?

How do you mean?

If you think all the credit agencies downgrading a country has no iact, you would be wrong.

After their huge failure in the build up to the credit crunch why does anyone think that they are no matter able to predict the future?

I don't think you understand what they do.

Say you do a personal credit rating score and get 1000, then you get the best interest rates
500 and you will get limited rates
100 and you get sky high rates.

That is all they do.

They don't predict the future, they base someones rating on previous trends. Much the same as you, Experian don't reduce your credit rating on your future ability to pay and say we can't offer you a mortgage as in 10 years time you will go on a spending spree causing you to have no money and o bankrupt.

I think you're maybe the one who doesn't understand what they do, or at least doesn't understand the full extent of what they do. They don't just credit rate individuals, but also countries (as per this thread), companies and, crucially, financial instruments.

The ratings agencies' role in the build up to this crash has gone staggeringly unreported upon.

Lots of people have blamed the banks and other financial institutions for investing in sub-prime mortgage bundles. "They should've checked the risks", people screamed. That's right, of course, but then a big part of checking risks, surely, is to go and check their status with the ratings agencies? After all, what's the point of ratings agencies, if not to provide expert consideration of what might or might not be a risky investment?

Prior to the crash, there were a few handfuls of countries and companies with top level credit ratings. Compare that to thousands of financial instruments shortly about to go pop, and then try again to justify why the credit ratings agencies still retain any credibility.

I know what credit rating agencies do thanks, I just added an example of personal usage.

Remember the crash has not had a huge impact globally. The number of countries that had good credit ratings that have been reduced are very small. If you go on how many years this system has been operating to how many years a few countries have upset the apple cart then the system works very well.

The credit rating system in place at the moment is the best available, I don't think they have people who can see into the future soa ll they can go on is trends.

[Kermit power]

elster said:

Kermit power said:

elster said:

Fittster said:

elster said:

Fittster said:

Do the rating agencies have any credibility anymore?

How do you mean?

If you think all the credit agencies downgrading a country has no iact, you would be wrong.

After their huge failure in the build up to the credit crunch why does anyone think that they are no matter able to predict the future?

I don't think you understand what they do.

Say you do a personal credit rating score and get 1000, then you get the best interest rates
500 and you will get limited rates
100 and you get sky high rates.

That is all they do.

They don't predict the future, they base someones rating on previous trends. Much the same as you, Experian don't reduce your credit rating on your future ability to pay and say we can't offer you a mortgage as in 10 years time you will go on a spending spree causing you to have no money and o bankrupt.

I think you're maybe the one who doesn't understand what they do, or at least doesn't understand the full extent of what they do. They don't just credit rate individuals, but also countries (as per this thread), companies and, crucially, financial instruments.

The ratings agencies' role in the build up to this crash has gone staggeringly unreported upon.

Lots of people have blamed the banks and other financial institutions for investing in sub-prime mortgage bundles. "They should've checked the risks", people screamed. That's right, of course, but then a big part of checking risks, surely, is to go and check their status with the ratings agencies? After all, what's the point of ratings agencies, if not to provide expert consideration of what might or might not be a risky investment?

Prior to the crash, there were a few handfuls of countries and companies with top level credit ratings. Compare that to thousands of financial instruments shortly about to go pop, and then try again to justify why the credit ratings agencies still retain any credibility.

I know what credit rating agencies do thanks, I just added an example of personal usage.

Remember the crash has not had a huge impact globally. The number of countries that had good credit ratings that have been reduced are very small. If you go on how many years this system has been operating to how many years a few countries have upset the apple cart then the system works very well.

The credit rating system in place at the moment is the best available, I don't think they have people who can see into the future soa ll they can go on is trends.

I'm not suggesting they should be able to see the future, but surely they should have been able to predict with a reasonable degree of certainty that taking a bunch of individual transactions which they'd rated risky themselves and bundling them up wasn't the best way of creating a gilt-edged investment?

I realise you were adding an example of personal usage, but you did so in response to someone else questioning why the ratings agencies' credibility might come into question. If they'd applied the same sort of sensible analysis they apply to personal usage to bundled up bad debts.

Please tell me if I've read the whole situation wrong, as it sounds like you're maybe more involved in this space than I am, but I really do struggle to see how they didn't get roasted for it?

[DonkeyApple]

Kermit power said:

DonkeyApple said:

Kermit power said:

elster said:

Fittster said:

elster said:

Fittster said:

Do the rating agencies have any credibility anymore?

How do you mean?

If you think all the credit agencies downgrading a country has no iact, you would be wrong.

After their huge failure in the build up to the credit crunch why does anyone think that they are no matter able to predict the future?

I don't think you understand what they do.

Say you do a personal credit rating score and get 1000, then you get the best interest rates
500 and you will get limited rates
100 and you get sky high rates.

That is all they do.

They don't predict the future, they base someones rating on previous trends. Much the same as you, Experian don't reduce your credit rating on your future ability to pay and say we can't offer you a mortgage as in 10 years time you will go on a spending spree causing you to have no money and o bankrupt.

I think you're maybe the one who doesn't understand what they do, or at least doesn't understand the full extent of what they do. They don't just credit rate individuals, but also countries (as per this thread), companies and, crucially, financial instruments.

The ratings agencies' role in the build up to this crash has gone staggeringly unreported upon.

Lots of people have blamed the banks and other financial institutions for investing in sub-prime mortgage bundles. "They should've checked the risks", people screamed. That's right, of course, but then a big part of checking risks, surely, is to go and check their status with the ratings agencies? After all, what's the point of ratings agencies, if not to provide expert consideration of what might or might not be a risky investment?

Prior to the crash, there were a few handfuls of countries and companies with top level credit ratings. Compare that to thousands of financial instruments shortly about to go pop, and then try again to justify why the credit ratings agencies still retain any credibility.

I suspect you've misunderstood the post. He was using a 'personal' example to explain how credit ratings work on any level.

Which is exactly where the credit ratings agencies fell down, from what I can see. The banks lent money in the form of sub-prime mortgages to people who, individually, the credit ratings agencies would've given an average credit rating score of maybe 10/1000. Once those bad risks got wrapped up, repackaged and sold on in bulk, however, their average credit ratings seemed to suddenly jump from 10/1000 to 900/1000 for absolutely no good reason.

Certainly a lot of blame needs to be laid at the feet of the people packaging up the debts - to say nothing of the Clinton administration for effectively forcing the banks to make the loans in the first place - but a lot of other people further down the line indulged in a bit of due diligence by checking the supposed strength of their planned investment vehicles with the credit rating agencies, who gave them a glowing reference based on nothing.

Very true but the real problem arose that the banks then lent the money to the other institutions to buy this stuff and when it fell 10-20% in value on the back of the turd elements hidden within they couldn't meet margin calls and we had the panic selling (or attempts to sell!)and realisation that the bulk of these institutions hadn't really known what they were doing.

It was the gearing in the portfolios that ultimately allowed the market to become swamped and unable to withstand the run.

[loafer123]

DonkeyApple said:

Kermit power said:

DonkeyApple said:

Kermit power said:

elster said:

Fittster said:

elster said:

Fittster said:

Do the rating agencies have any credibility anymore?

How do you mean?

If you think all the credit agencies downgrading a country has no iact, you would be wrong.

After their huge failure in the build up to the credit crunch why does anyone think that they are no matter able to predict the future?

I don't think you understand what they do.

Say you do a personal credit rating score and get 1000, then you get the best interest rates
500 and you will get limited rates
100 and you get sky high rates.

That is all they do.

They don't predict the future, they base someones rating on previous trends. Much the same as you, Experian don't reduce your credit rating on your future ability to pay and say we can't offer you a mortgage as in 10 years time you will go on a spending spree causing you to have no money and o bankrupt.

I think you're maybe the one who doesn't understand what they do, or at least doesn't understand the full extent of what they do. They don't just credit rate individuals, but also countries (as per this thread), companies and, crucially, financial instruments.

The ratings agencies' role in the build up to this crash has gone staggeringly unreported upon.

Lots of people have blamed the banks and other financial institutions for investing in sub-prime mortgage bundles. "They should've checked the risks", people screamed. That's right, of course, but then a big part of checking risks, surely, is to go and check their status with the ratings agencies? After all, what's the point of ratings agencies, if not to provide expert consideration of what might or might not be a risky investment?

Prior to the crash, there were a few handfuls of countries and companies with top level credit ratings. Compare that to thousands of financial instruments shortly about to go pop, and then try again to justify why the credit ratings agencies still retain any credibility.

I suspect you've misunderstood the post. He was using a 'personal' example to explain how credit ratings work on any level.

Which is exactly where the credit ratings agencies fell down, from what I can see. The banks lent money in the form of sub-prime mortgages to people who, individually, the credit ratings agencies would've given an average credit rating score of maybe 10/1000. Once those bad risks got wrapped up, repackaged and sold on in bulk, however, their average credit ratings seemed to suddenly jump from 10/1000 to 900/1000 for absolutely no good reason.

Certainly a lot of blame needs to be laid at the feet of the people packaging up the debts - to say nothing of the Clinton administration for effectively forcing the banks to make the loans in the first place - but a lot of other people further down the line indulged in a bit of due diligence by checking the supposed strength of their planned investment vehicles with the credit rating agencies, who gave them a glowing reference based on nothing.

Very true but the real problem arose that the banks then lent the money to the other institutions to buy this stuff and when it fell 10-20% in value on the back of the turd elements hidden within they couldn't meet margin calls and we had the panic selling (or attempts to sell!)and realisation that the bulk of these institutions hadn't really known what they were doing.

It was the gearing in the portfolios that ultimately allowed the market to become swamped and unable to withstand the run.

TBH you're both right.

There are individuals out there who understood what a crock of st it all was at the time, including at the rating agencies, and there are a few people willing to stand by their principles or attempt to raise the alarm in that sort of market.

Unfortunately, the middle of the Venn diagram for both sub-sets is tiny!

[DonkeyApple]

loafer123 said:

DonkeyApple said:

Kermit power said:

DonkeyApple said:

Kermit power said:

elster said:

Fittster said:

elster said:

Fittster said:

Do the rating agencies have any credibility anymore?

How do you mean?

If you think all the credit agencies downgrading a country has no iact, you would be wrong.

After their huge failure in the build up to the credit crunch why does anyone think that they are no matter able to predict the future?

I don't think you understand what they do.

Say you do a personal credit rating score and get 1000, then you get the best interest rates
500 and you will get limited rates
100 and you get sky high rates.

That is all they do.

They don't predict the future, they base someones rating on previous trends. Much the same as you, Experian don't reduce your credit rating on your future ability to pay and say we can't offer you a mortgage as in 10 years time you will go on a spending spree causing you to have no money and o bankrupt.

I think you're maybe the one who doesn't understand what they do, or at least doesn't understand the full extent of what they do. They don't just credit rate individuals, but also countries (as per this thread), companies and, crucially, financial instruments.

The ratings agencies' role in the build up to this crash has gone staggeringly unreported upon.

Lots of people have blamed the banks and other financial institutions for investing in sub-prime mortgage bundles. "They should've checked the risks", people screamed. That's right, of course, but then a big part of checking risks, surely, is to go and check their status with the ratings agencies? After all, what's the point of ratings agencies, if not to provide expert consideration of what might or might not be a risky investment?

Prior to the crash, there were a few handfuls of countries and companies with top level credit ratings. Compare that to thousands of financial instruments shortly about to go pop, and then try again to justify why the credit ratings agencies still retain any credibility.

I suspect you've misunderstood the post. He was using a 'personal' example to explain how credit ratings work on any level.

Which is exactly where the credit ratings agencies fell down, from what I can see. The banks lent money in the form of sub-prime mortgages to people who, individually, the credit ratings agencies would've given an average credit rating score of maybe 10/1000. Once those bad risks got wrapped up, repackaged and sold on in bulk, however, their average credit ratings seemed to suddenly jump from 10/1000 to 900/1000 for absolutely no good reason.

Certainly a lot of blame needs to be laid at the feet of the people packaging up the debts - to say nothing of the Clinton administration for effectively forcing the banks to make the loans in the first place - but a lot of other people further down the line indulged in a bit of due diligence by checking the supposed strength of their planned investment vehicles with the credit rating agencies, who gave them a glowing reference based on nothing.

Very true but the real problem arose that the banks then lent the money to the other institutions to buy this stuff and when it fell 10-20% in value on the back of the turd elements hidden within they couldn't meet margin calls and we had the panic selling (or attempts to sell!)and realisation that the bulk of these institutions hadn't really known what they were doing.

It was the gearing in the portfolios that ultimately allowed the market to become swamped and unable to withstand the run.

TBH you're both right.

There are individuals out there who understood what a crock of st it all was at the time, including at the rating agencies, and there are a few people willing to stand by their principles or attempt to raise the alarm in that sort of market.

Unfortunately, the middle of the Venn diagram for both sub-sets is tiny!

It's larger now. Everyone I meet knew all about it.

[loafer123]

DonkeyApple said:

loafer123 said:

DonkeyApple said:

Kermit power said:

DonkeyApple said:

Kermit power said:

elster said:

Fittster said:

elster said:

Fittster said:

Do the rating agencies have any credibility anymore?

How do you mean?

If you think all the credit agencies downgrading a country has no iact, you would be wrong.

After their huge failure in the build up to the credit crunch why does anyone think that they are no matter able to predict the future?

I don't think you understand what they do.

Say you do a personal credit rating score and get 1000, then you get the best interest rates
500 and you will get limited rates
100 and you get sky high rates.

That is all they do.

They don't predict the future, they base someones rating on previous trends. Much the same as you, Experian don't reduce your credit rating on your future ability to pay and say we can't offer you a mortgage as in 10 years time you will go on a spending spree causing you to have no money and o bankrupt.

I think you're maybe the one who doesn't understand what they do, or at least doesn't understand the full extent of what they do. They don't just credit rate individuals, but also countries (as per this thread), companies and, crucially, financial instruments.

The ratings agencies' role in the build up to this crash has gone staggeringly unreported upon.

Lots of people have blamed the banks and other financial institutions for investing in sub-prime mortgage bundles. "They should've checked the risks", people screamed. That's right, of course, but then a big part of checking risks, surely, is to go and check their status with the ratings agencies? After all, what's the point of ratings agencies, if not to provide expert consideration of what might or might not be a risky investment?

Prior to the crash, there were a few handfuls of countries and companies with top level credit ratings. Compare that to thousands of financial instruments shortly about to go pop, and then try again to justify why the credit ratings agencies still retain any credibility.

I suspect you've misunderstood the post. He was using a 'personal' example to explain how credit ratings work on any level.

Which is exactly where the credit ratings agencies fell down, from what I can see. The banks lent money in the form of sub-prime mortgages to people who, individually, the credit ratings agencies would've given an average credit rating score of maybe 10/1000. Once those bad risks got wrapped up, repackaged and sold on in bulk, however, their average credit ratings seemed to suddenly jump from 10/1000 to 900/1000 for absolutely no good reason.

Certainly a lot of blame needs to be laid at the feet of the people packaging up the debts - to say nothing of the Clinton administration for effectively forcing the banks to make the loans in the first place - but a lot of other people further down the line indulged in a bit of due diligence by checking the supposed strength of their planned investment vehicles with the credit rating agencies, who gave them a glowing reference based on nothing.

Very true but the real problem arose that the banks then lent the money to the other institutions to buy this stuff and when it fell 10-20% in value on the back of the turd elements hidden within they couldn't meet margin calls and we had the panic selling (or attempts to sell!)and realisation that the bulk of these institutions hadn't really known what they were doing.

It was the gearing in the portfolios that ultimately allowed the market to become swamped and unable to withstand the run.

TBH you're both right.

There are individuals out there who understood what a crock of st it all was at the time, including at the rating agencies, and there are a few people willing to stand by their principles or attempt to raise the alarm in that sort of market.

Unfortunately, the middle of the Venn diagram for both sub-sets is tiny!

It's larger now. Everyone I meet knew all about it.

Many knew. How many acted?

I did and I've got the e-mails to prove it.

[fulham911club]

Kermit power said:

I'm not suggesting they should be able to see the future, but surely they should have been able to predict with a reasonable degree of certainty that taking a bunch of individual transactions which they'd rated risky themselves and bundling them up wasn't the best way of creating a gilt-edged investment?

I think you are failing to understand the principals of structured finance. There is nothing wrong with pooling more risky assets to create a less risky asset. It has always happended and will always continue. The issue is when you structure something to within an inch of its life and you don't model the risk correctly.

[elster]

Kermit power said:

elster said:

Kermit power said:

elster said:

Fittster said:

elster said:

Fittster said:

Do the rating agencies have any credibility anymore?

How do you mean?

If you think all the credit agencies downgrading a country has no iact, you would be wrong.

After their huge failure in the build up to the credit crunch why does anyone think that they are no matter able to predict the future?

I don't think you understand what they do.

Say you do a personal credit rating score and get 1000, then you get the best interest rates
500 and you will get limited rates
100 and you get sky high rates.

That is all they do.

They don't predict the future, they base someones rating on previous trends. Much the same as you, Experian don't reduce your credit rating on your future ability to pay and say we can't offer you a mortgage as in 10 years time you will go on a spending spree causing you to have no money and o bankrupt.

I think you're maybe the one who doesn't understand what they do, or at least doesn't understand the full extent of what they do. They don't just credit rate individuals, but also countries (as per this thread), companies and, crucially, financial instruments.

The ratings agencies' role in the build up to this crash has gone staggeringly unreported upon.

Lots of people have blamed the banks and other financial institutions for investing in sub-prime mortgage bundles. "They should've checked the risks", people screamed. That's right, of course, but then a big part of checking risks, surely, is to go and check their status with the ratings agencies? After all, what's the point of ratings agencies, if not to provide expert consideration of what might or might not be a risky investment?

Prior to the crash, there were a few handfuls of countries and companies with top level credit ratings. Compare that to thousands of financial instruments shortly about to go pop, and then try again to justify why the credit ratings agencies still retain any credibility.

I know what credit rating agencies do thanks, I just added an example of personal usage.

Remember the crash has not had a huge impact globally. The number of countries that had good credit ratings that have been reduced are very small. If you go on how many years this system has been operating to how many years a few countries have upset the apple cart then the system works very well.

The credit rating system in place at the moment is the best available, I don't think they have people who can see into the future soa ll they can go on is trends.

I'm not suggesting they should be able to see the future, but surely they should have been able to predict with a reasonable degree of certainty that taking a bunch of individual transactions which they'd rated risky themselves and bundling them up wasn't the best way of creating a gilt-edged investment?

I realise you were adding an example of personal usage, but you did so in response to someone else questioning why the ratings agencies' credibility might come into question. If they'd applied the same sort of sensible analysis they apply to personal usage to bundled up bad debts.

Please tell me if I've read the whole situation wrong, as it sounds like you're maybe more involved in this space than I am, but I really do struggle to see how they didn't get roasted for it?

I just read, and wuoted the wrong post. So doesn't read right.

No I'm not involved, just took an interest at the beginning of the year and been reading since on the financials, I am very much a novice.

Oh, you want to know if they may well be corrupt and over rate some countries and under rate others...surely saying that would be libel

[7thCircleAcolyte]

fulham911club said:

Kermit power said:

I'm not suggesting they should be able to see the future, but surely they should have been able to predict with a reasonable degree of certainty that taking a bunch of individual transactions which they'd rated risky themselves and bundling them up wasn't the best way of creating a gilt-edged investment?

I think you are failing to understand the principals of structured finance. There is nothing wrong with pooling more risky assets to create a less risky asset. It has always happended and will always continue. The issue is when you structure something to within an inch of its life and you don't model the risk correctly.

Exactly. It's not all that far off the model for car insurance, if you look at it in very simplistic terms. Insuring just one person is a horrible risk:reward ratio, but insuring lots of them collectively can be very profitable, even if they're 17 year old boys driving thier mums Corsa.

If you mix a bond of creditors, 10% trailer trash, 90% people with a perfect credit history, then the chance of bond default is waaaay lower than anything the trailer trash can achieve individually.

Its only a problem if you've borrowed 90% of the bonds value to pay for it as you've just been effectively wiped out.