Wednesday, May 05, 2010

EU warns credit rating agencies

Just like in England, where the state education system hands out 'A' grades like confetti, so politicians can claim that their school management policies are wonderful, the EU wants to licence bond rating agencies so that all European countries will be given 'AAA' grades, no matter how parlous their finances.

What these fools don't realise, is that if Greece and the UK are forcibly given 'AAA' grades for their bonds by rating agencies, then it will not mean that serious Joe Punters will actually still treat them as 'AAA' bonds.

Yes, fools will.

But serious Joe Punters will start treating 'AAA' ratings as the new form of junk bond status.

Because the market always outs, in the end, because the market is truth. Eventually.

Even in the US, where the ratings agencies are licensed by the SEC, thereby causing them to be very careful in how they rate US Treasury bonds, to keep this privileged status, it will do no good.

Because US Treasury bonds are going down, baby. And when they do, they'll still be treated as 'AAA' status by the licensed rating agencies, all the way to the bottom. These unsinkable Titanics will rest on the floor of the Atlantic, four miles down, revelling in their 'AAA' status while the world above takes 70 years to find them again.

Politicians really don't get it.

In economics, resources are scarce and wishing them into existence, in a Harry Potter fantasy land, really doesn't work. And even in Harry Potter, Gamp’s Law of Elemental Transfigurations prevents Greek public sector bums from eating food that doesn't previously exist.

The truth hurts. And it can't be regulated out of existence, no matter how hard the bureaucrats rant and rave about it.

Poor loves.

HT to Katabasis

HT to Paul