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The ratings agencies HAVE NO CREDIBILITY because they were exposed as in the pocket of the securities/bonds issuers and of Wall St, and knowingly, fradulently rated good what was actually toxic .
http://www.cnbc.com/id/40641123Moody's May Cut US Rating on Tax Package
Published: Monday, 13 Dec 2010 | 10:34 AM ET
Moody's warned Monday that it could move a step closer to cutting the U.S. Aaa rating if President Obama's tax and unemployment benefit package becomes law.
Moody's estimates the tax bill could cost up to $900 billion.
The plan agreed to by President Obama and Republican leaders last week could push up debt levels, increasing the likelihood of a negative outlook on the United States rating in the coming two years, the ratings agency said.
A negative outlook, if adopted, would make a rating cut more likely over the following 12-to-18 months.
For the United States, a loss of the top Aaa rating, reduce the appeal of U.S. Treasuries, which currently rank as among the world's safest investments.
"From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth," Moody's analyst Steven Hess said in a report sent late on Sunday.
After Obama announced his plan, Treasury prices fell sharply in volatile trade last week and yields have hit a six-month high, in part due to concerns over the effect the package will have on government debt levels.
If the bill becomes law, it will "adversely affect the federal government budget deficit and debt level," Moody's said.
On Monday, the Democratic-led U.S. Congress moved toward grudging approval of President Obama's deal with Republicans to extend expiring tax cuts, even for the wealthiest Americans, Last week, Moody's and Fitch Ratings both expressed concerns about the U.S.'s rating longer term, with Moody's fearing the impact if the tax cuts become permanent.
In a market obsessed with the euro sovereign debt crisis, the Moody's note reminded foreign exchange investors about their worries of growing U.S. debt and was a factor pressuring the dollar on Monday.
The cost of insuring U.S. government debt in the credit default swap market was little changed on Monday at around 41 basis points, or $41,000 per year to insure $10 million in debt for five years, according to Markit Intraday.
Negative Impact
A negative outlook would indicate that the rating may be more likely to be cut from the top Aaa rating over the following 12 to 18 months. The United States currently has a stable outlook, indicating a rating change is not anticipated over this time frame.
Moody's estimates the cost of the funding the proposed tax bill, along with unemployment benefits and other policy measures, may be between $700 and $900 billion, which will raise the ratio of government debt to GDP to 72 to 73 percent, depending on the effects on nominal economic growth.
This means that the government's debt relative to revenues will decline much more slowly over the coming two years, to just under 400 percent from 420 percent at the end of fiscal year 2010.
"This is a very high ratio compared with both history and other highly rated sovereigns," Moody's said.
The ratings agencies HAVE NO CREDIBILITY because they were exposed as in the pocket of the securities/bonds issuers and of Wall St, and knowingly, fradulently rated good what was actually toxic .
Postcrisis, a Struggle Over Mortgage Bond Ratings
Two weeks ago, Standard & Poor’s put out a news release warning that it was poised to lower its ratings on almost 1,200 complex mortgage securities.
So what? Isn’t that dog-bites-man at this point?
Well, two-thirds of these mortgage bonds were rated only last year, long after the financial crisis. And S.&P. was supposed to have taken the distress of the housing crash and credit crisis into account when it assessed them. But in December, the ratings agency acknowledged that it had made methodological mistakes, including not understanding who would get interest payments when.
As everyone knows by now, the credit ratings agencies played an enormous role in creating the conditions that led to the financial crisis. Their willingness to slap triple-A ratings on all manner of Wall Street-engineered mortgage rot was enormously lucrative for the raters, but a disaster for the global economy.
Unfortunately, as the episode in December shows, the credit ratings agencies are still struggling to get it right.
http://dealbook.nytimes.com/2011/01/...er=rss&emc=rss
Yeah, how many of those securities that were filled with utter crap were AAA rated? Moody's, lower our rating.
So extending the Bush tax cuts and adding another $1T to the deficit are cool with the boutons?
I don't think that is his point. He's ranting about how worthless the rating agencies are, and he's right. Support for the tax package is neither here nor there.
The ratings agencies still matter whether you find them credible or not. The US losing its Aaa rating would have real consequences, even if Moody's is FOS.
Kill the wars or drop the bill. Regardless of what Moody's says, we can't continually be daring foreign countries to drop the dollar as the de facto world currency.
Such as?
US Treasuries less desirable, cost of obtaining/carrying debt goes up.
With the possible downstream wreckage alluded to by AS.
Might not be a bad thing, don't you think?
Would seem to be appropriate feedback.
Although I don't think its very likely to happen. Year after year after year this type of scare tactic is used.
It is undeniably true that the Rating Agencies share a large portion of the blame for the financial crisis for failing to understand/adequately address the horrendous risks associated with so many of the financial products that were toxic. The fact that Standard and Poors and Moody's fees are paid by the folks whose products they rate has made them suspect for a very long time.
However, lots and lots of buy-side en ies are forbidden by their charters to purchase any financial product that has a rating from the agencies of less than Aaa. Thus, the reality is that it could harm all of us enormously if they do this.
Thing is, they probably won't do it for political reasons.
"made them suspect"
the entire financial industry is corrupt, not "suspect", until proven otherwise.
Ayn Rand Paul: "There's no need for financial regulation".
This.
Like Manny said, the threat seems to be getting routine. I seem to recall very similar noises were made last year.
If it happened then a good chunk of whatever spending cuts / tax increases congress does somehow manage to agree to will just get eaten up by debt service as opposed to going towards defecit reduction.
Getting downgraded might not be the end of the world, but it's definitely more bad than good.
I think you are right, CG.
Raising the debt ceiling is not to increase the Repug LIE of "runaway" spending, but simply to print the cash to service the interest on debt, 40%+ of which is held by wealthy Americans.
Looks like someone at Moody's grew a pair of solid brass balls.
The Tea s looking to use every ounce of leverage that they think they have, has made them reach for the Red Button That Everyone Knows Is Too Horrible To Press.
Flirting with the apocolyptic threat of US debt downgrade to squeeze another .0001% out of government spending is unnecessary, and irresponsible.
Raise the limit and get it over with, then talk like adults.
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