spain downgraded by Moody's
Discussion
Well whilst Spain being downgraded is a big headline it doesn't mean very much....it has almost zero impact on their ability to finance their debt, Moody's announced they were reviewing the rating 90 days ago and gave themselves 90 days to do it so it was expected. The market is generally always ahead of the agencies though they are of course supposed to be forward looking. There are certain changes in credit rating that will have an impact but Spain is a long way from any of these.
Some of the Eurozone countries will undoubtedly go through a whole lot more pain but it will take a long time to play out....there will be a gradual drip feed of information of months and years rather than weeks to allow for an orderly market unwind of the risk. When the original Irish bank bailout (NAMA) was announced it was plainly obvious that the size of the bailout was driven by what the Irish government could afford/what the market perceived was "acceptable" rather than what was actually needed/the size of the problem. So the news on Anglo Irish yesterday was just a continuation of that drip feed.
Someone said earlier that the rating agencies have got off relatively likely throughout this whole period. The people that have got off lightly are the politicians and regulators....the latter in particular did a shocking job and almost to a man still have their jobs. RBS had the worst performing share price of any European banks for three or four years before the financial crisis because the market didn't like the fact that earnings growth was primarily delivered through a ballooning balance sheet (i.e. very poor quality and risky earnings)....why oh why are these regulators still in their jobs when they let a single company have a bigger balance sheet than the GDP of the country that it was domiciled in ? Gordon Brown appointed those regulators and all I ever hear is what a "great job" he did throughout the crisis.....he would have done a much better job if he'd stopped it happening in the first place.
Some of the Eurozone countries will undoubtedly go through a whole lot more pain but it will take a long time to play out....there will be a gradual drip feed of information of months and years rather than weeks to allow for an orderly market unwind of the risk. When the original Irish bank bailout (NAMA) was announced it was plainly obvious that the size of the bailout was driven by what the Irish government could afford/what the market perceived was "acceptable" rather than what was actually needed/the size of the problem. So the news on Anglo Irish yesterday was just a continuation of that drip feed.
Someone said earlier that the rating agencies have got off relatively likely throughout this whole period. The people that have got off lightly are the politicians and regulators....the latter in particular did a shocking job and almost to a man still have their jobs. RBS had the worst performing share price of any European banks for three or four years before the financial crisis because the market didn't like the fact that earnings growth was primarily delivered through a ballooning balance sheet (i.e. very poor quality and risky earnings)....why oh why are these regulators still in their jobs when they let a single company have a bigger balance sheet than the GDP of the country that it was domiciled in ? Gordon Brown appointed those regulators and all I ever hear is what a "great job" he did throughout the crisis.....he would have done a much better job if he'd stopped it happening in the first place.
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