Aaa – aaa – PLUS! Gesundheit!

Rating agencies dominate the financial markets and the news these days. Standard & Poor’s recent downgrading of French, Spanish, Austrian (and other, but not German) government bonds from “AAA” to “AA+” caused waves in media and markets even before they were official. But maybe it is much ado about nothing. Bond yields didn’t go up in France and Spain, as markets have seemed to downplay the downgrade. Maybe common sense is ticking in?

Because, what is it that these rating agencies can? They could rate junk financial instruments “AAA” before the financial crisis. Standard & Poor’s rated Lehman Brothers “A” in September 2008 (just before Lehman went bankrupt). This rating means “Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.

Confronted with these peculiarities during the US Senate hearings on “2008 Financial Crisis & Rating Agencies”, the agencies themselves emphasized that they only offer “opinions”. Yes, “opinions”. This clip from the Oscar-winning 2010 documentary Inside Job shows the agencies in live action:

So maybe the media and politicians should spend less time in the future on the opinions of a few private companies with poor track records.

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