Yesterday details came out about Europe’s plans to neuter the ratings agencies by suspending their ability to rate countries in a crisis, among other things.Well, S&P has (perhaps) inadvertently bolstered Europe’s argument that the messenger must be shot.
In a big report out last night, it warned that in a recession scenario ratings would get shredded across the board.
From the press release.
- The impact would be hardest on sovereigns and sectors most closely aligned with the credit fortunes of governments, such as government-related entities, local and regional governments, and banks.
- Sovereign ratings on France, Spain, Italy, Ireland, and Portugal likely would be lowered by one or two notches under both scenarios.
So basically, it’s saying: If things get worse, we’re going to make things even worse for you by killing your AAA rating.
Bottom line: Governments must kill the raters before the raters kill the government.
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