The rating agencies continue down the road to irrelevance:
Moody’s [bank] downgrades are “the most obscene act I’ve ever seen by a major institution,” Richard Bove, an analyst at Rochdale Securities, said in an interview . . . “What we’ve seen is a consistent increase in the prices of bank debt and a consistent decrease in the yield. And now we’ve got Moody’s coming along, downgrading the debt of companies where the investors are finding a real desire to purchase.”
The conflict between investors, who own $2.2 trillion of debt sold by the 15 banks, and Moody’s shows that money managers have limited confidence in the ability of rating firms to determine whether companies or governments are creditworthy. For the third time in less than a year, the conclusions of credit- rating companies are being rejected by the people with the most at stake: investors in the $43 trillion global fixed-income market. [Emph. added]
“Limited confidence” is one way to put it. One wonders what goes on in the minds of the people at the rating agencies. Nearly a year ago, S&P thought it made sense to downgrade the proprietor of the world’s reserve currency shortly after the conclusion of an agreement between Congress and the White House that, at the margin, slightly shrank the federal deficit. Treasury prices have gone straight up ever since. Now, after months of stress-testing, balance-sheet-shrinking, and asset-disposing by the banking industry, Moody’s issues its downgrades. Fixed-income investors immediately signal to the agencies that they’re full of it. At least the agencies were early on the Spanish banks. Wait, hang on. I’m failing to see any useful purpose the agencies serve anymore. . . .