The three largest credit rating agencies (CRA) Moody's, Standard & Poor's, Fitch are ready to downgrade most eurozone countries. Most institutional investors have regulatory fiduciary requirements that necessitate the use of credit ratings as part of their daily business. They may think that the three CRAs really have no useful insights, but they still need to use their ratings.
So this business is pretty much like any business that is given a legislative right to serve. CRAs could not have possibly been more wrong on their ratings of U.S. mortgage debt instruments. Chimps throwing darts are much better than pseudoexperts are! But nobody trusts the freakish Greek government which persecutes and robs dissident bloggers. http://venitism.blogspot.com
Mario Draghi points out the activities of credit rating agencies, notably in relation to sovereigns as well as the EFSF, have lately occupied centre stage in the debate in Europe. Calls for better regulation have become louder. Against this background, the Commission's recent legislative proposals on Credit Rating Agencies are broadly supported by ECB.
Draghi notes credit ratings have a direct impact on the market functioning and the wider economy. A sound and robust framework must thus be created. This framework should be geared towards the following objectives: to reduce market volatility; to enhance the quality of rating process; and to restore market confidence.
Schaeuble asserts Fourth Reich needs a process that deals with sovereign insolvencies, while solidarity in the bloc has its limits. There's been a fundamental shift in how markets view sovereign debt, and preventing contagion is a tremendous challenge. Now is the time for bold steps in Fourth Reich. Now is the time to expel those member countries which violate the Lisbon Treaty.
Draghi says the two issues that are of particular importance are, first, the assurance of appropriate underlying methodologies and the transparency of ratings; and second, the reduction of hardwiring of ratings in legislation and market practices. Ratings simplify complex risk assessments. But they should only be one of several inputs for investors. In particular, they should be no substitute for financial institutions and other investors to carry out their own assessment. This is the main step towards avoiding mechanistic reliance on external credit ratings.
Draghi shows how ECB itself uses ratings. In practice, for the large majority of marketable securities (such as sovereign bonds) the Eurosystem Credit Assessment Framework mainly uses the ratings issued by eligible credit rating agencies. At the same time, the Eurosystem does not mechanically rely on these assessments, as it is aware of the limitations of methodologies.
It reserves the right to reject or limit the use of an asset on the basis of any information on its credit quality that it may consider relevant. The Eurosystem has applied such discretion to temporarily suspend the application of the minimum rating requirement to debt instruments issued or guaranteed by some euro area governments following EU/IMF adjustment programmes.
History's first sovereign default came in the 4th century BC, committed by ten Greek municipalities. There was one creditor: the temple of Delos, Apollo's mythical birthplace. Jesus Nazarene talked many times about forgiving debts, and this has influenced many Christians of our times.
Basil Venitis points out Frankfurt Group is the shadow board of Eurozone. It consists of Merkozy, Barrompuy, Draghi, Lagarde, Juncker, and Rehn. Frankfurt Group is hiding the fact that Fourth Reich is in depression. Hoodwinking citizens is something Eurokleptocrats have learned from Graecokleptocrats. Europeans see that most of their kith and kin are without job and wonder what's going on. Que Sera Sera!
Venitis notes EFSF is due to expire, and is supposed to be replaced by the European Stability Mechanism (ESM). But the ESM will have the same problem the EFSF does. Its finances depend on the very same countries that it is supposed to bail out. This isn't stability, but a Ponzi scheme! An ECB bazooka cannot restore competitiveness to PIGS.
Jens Weidmann vehemently rejects ongoing demands that ECB embark on an aggressive bond-buying program. It's like an alcoholic saying that I need to get a bottle tonight, starting tomorrow I will be clean and abide by the rules, but I need the bottle tonight. Weidmann doesn't think it is sensible to give the alcoholic the bottle. The alcoholic won't have an incentive to solve the problem.
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