Bogus Rating Agencies Threaten to Push Greek Bonds into Junk Territory So That the IMF Can Seize the Nation's Resources for Debt Repayment
The submissive attitudes of these rating agencies in their dealings with the North American financial sector, has turned them into a major actor on the international scene, and their responsibility in triggering and worsening crises has not been highlighted enough by the media. The economic stability of European countries has been placed in the hands of these rating agencies with no safeguards, no serious means of controlling them provided by governmental authorities. The only way to get out of this impasse is by creating a public rating agency. - The Debt Crisis in the European Union: Key Proposals for Another Europe, GlobalResearch.com, May 2, 2011 Fitch Cuts Greek Rating, Warns Over Restructuring
Reuters - Fitch cut Greece's credit rating by three notches on Friday, pushing the country deeper into junk territory, and warned that any kind of debt restructuring would amount to default.
Fitch was the second rating agency to warn that it would consider any loss imposed on bondholders as a default after Standard and Poor's said the same earlier this month.
"An extension of the maturity of existing bonds would be considered by Fitch to be a default event and Greece and its obligations would be rated accordingly," the rating agency said.
If private sector 'burden sharing' is coercive, the credibility of EU/IMF policy commitments not just for Greece but also Ireland and Portugal would be severely diminished and affect financial stability across the euro area, it said.
One year into its European Union/International Monetary Fund bailout, Greece is struggling with weak revenues and a deep recession, fueling speculation that it will have to restructure its debt to pull itself out of the fiscal mess that triggered a euro zone crisis.
"The rating downgrade reflects the scale of the challenge facing Greece in implementing a radical fiscal and structural reform program necessary to secure solvency of the state and the foundations for sustained economic recovery," Fitch said in a statement.
The three-notch cut to 'B+' with a negative outlook takes Fitch's rating into "highly speculative" territory, broadly in line with Standard & Poor's 'B' rating and Moody's 'B1' grade. Both have also warned they could drag it deeper into junk.
Greece said the decision was influenced by "intense rumors" in the press at a time when Greece's program was being assessed by its lenders, and ignored new pledges.
"It overlooks the additional commitments already undertaken by the Greek government to meet its 2011 fiscal targets and speed up its privatization program," the Finance Ministry said in a statement.
But Fitch said implementation and political risks have risen as further austerity measures were required to meet the 2011 budget deficit target of 7.5 percent of GDP and warned of more downgrades if the EU and the IMF do not produce a credible plan for the debt-ridden country.
"In the absence of a fully funded and credible EU/IMF program, the rating would likely fall into the 'CCC' category indicating that a Greek sovereign debt default was highly likely," Fitch said.
MISSING TARGETS
Analysts said the move was no surprise after disappointing state budget figures for January-April, which suggest the government's efforts were not enough to meet bailout targets.
"Given the poor economic conditions, more austerity is not guaranteed to be reflected in improving fiscal figures and, in our view, it will be difficult to find a sustainable solution without having to resort to a debt restructuring of some sort," said Diego Iscaro of IHS Global Insight.
Paul Rawkins, senior director at Fitch, said he did not expect Greece to be able to return to markets before May 2013, when its 110 billion euro EU/IMF aid deal expires, and that a solid rescue plan needed to be put in place beyond that date.
"It should probably be long enough for Greece to get a recovery in place, the fiscal position to be looking much better and the debt to be beginning to come down," Rawkins said.
Fitch said the greater emphasis on privatization has also increased risks the EU/IMF funding may be delayed, as the 50 billion euros in asset sales targeted will be hard to meet.
Despite all this, Fitch said it believed the government remained committed to its fiscal program and some assets would be sold by the end of the year.
The B+ rating reflects the belief the EU and IMF will come up with fresh funds for Greece and that its bonds will not be subject to "soft restructuring" or "re-profiling."
Standard and Poor's, which downgraded Greece's credit rating further into junk territory to B on May 9, had also warned that any extension of debt bond maturities held by private investors would be viewed as a selective default.
"Such private sector burden sharing would likely constitute a distressed exchange according to our criteria, for which we assign a rating of 'SD' for selective default," the agency said.
The chairman of the 17-country Eurogroup Jean-Claude Juncker acknowledged on Tuesday Greece may have to move toward a "soft restructuring" of its debt, although the European Central Bank remains strongly opposed to such a move.
Ratings Agencies: How to Say You’re Safe and Sound with Zero Credibility
March 6, 2009TheFinancialBrand.com - New York Life is just one of the financial institutions continuing to see value in ratings agencies like Moody’s, S&P and Fitch. New York Life continues to tout their triple-A rating as an indicator of their safety and soundness.
Reality Check: A good rating was once viewed as a badge of honor. Not anymore.
A glowing rating from Moody’s or S&P is anything but a “stamp of good health” these days. For some people, it has the opposite effect. It says, “We shovel out big bucks to total fraudsters who will gladly give us whatever grade we paid for.”
“A deal could be structured by cows and we’d rate it.”
Remember that little gem? It was a text message sent from an employee at one of the large ratings agencies, and last fall it became a symbol for their gross negligence in evaluating mortgage backed securities.
Key Question: How can ratings agencies be trusted when they failed so miserably at their purported “core competency?”
Rating agencies today have zero credibility. The only reason that they aren’t out of business is that the commercial paper market has no substitute for them (yet). But anyone smart enough to know who Moody’s or S&P is knows they are a joke. They come along and drop a firm’s rating months after its share price plummets, or after the firm announces it’s on the brink of bankruptcy. They are always late to the party. They don’t do anything more than tell the market what it already knows.
Bottom Line: Financial institutions need to look from within to find proof that they are safe and sound. Paying a third party to tell you — and your audience — “we’re okay” is a concept outmoded by the economic crisis, and simply isn’t worth the money. If you want to say you’re safe and sound, you’ve got to drum up real proof, not the hollow claims of some shill. You need to start talking about capital ratios, default rates and loan loss provisions. People may not understand all that stuff, but at least it’s real, credible and tangible.
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