There’s a sense in which credit ratings agencies are a joke. This includes the three main personal credit rating agencies that receive data from everyone from your landlord to your banker as though it were veritable truth. Often it’s erroneous or simply misleading information. But it’s used for or against us regardless of how accurate such reporting may be. And, if there’s an error, it’s up to us to spend time and resources tracking down the problem and fixing someone else’s ineptitude.
Well, that’s one rant. The other is about larger credit rating agencies, like those that deal with rating banks and nations. These include such well-known names as Moodys, Standard & Poors and Fitch. Unfortunately, these three are supported by some of the very entities that they’re supposed to be rating. Obviously this is akin to pharmaceutical companies training our doctors, but that’s a topic for another day.
Though there are ten such agencies registered with the SEC (NRSROs), Egan-Jones stands head and shoulders above these other three. One of the main reasons is their accountability. They’re supported by subscription from people who need to know what’s going on. In other words, they’re paid to help investors profit. They’re not paid by those they monitor. And this is one reason that they repeatedly are the first agency to reduce the credit rating of companies and nations.
It’s also an excuse for the cronies of the SEC to investigate them for just about any idiotic excuse they can, in what appears to be a not-so-overt effort to discredit them, and perhaps strip their approval. Hopefully it’ll never happen. We need this sort of integrity and proactive investigation and reporting in what’s already an incredibly corrupt system.
Yesterday Egan-Jones slashed Spain’s credit rating from B to CCC+. Aggressively attempting to keep on top of the situation, this is their fourth reduction of Spain’s credit rating in less than two months. As far as this writer is concerned, Egan-Jones is the credit rating agency to watch in order to stay on top of the curve. The big-three agencies stay behind the ball, basically telling us what we should already know.
For the record, Spain’s “bailout” is no bailout at all. To bailout means getting the water out of the boat. In their case the current water is simply replaced with more water. Eventually the ship has to sink, which is what Egan-Jones is telling us.
In a bit of irony, Moody’s reduced Spain’s rating yesterday as well, from A3 to Baa3. Is this nuts or what? How could a country is as much trouble as Spain still be at an A3 rating up until yesterday. And, as you can see, Egan-Jones rates the failing country’s economy much lower than Moody. This is basically the difference between being warned a train is coming so get out of the way and a train came and the damage is done.
A week ago Fitch did reduce Spain’s rating as well; from A to BBB. Again we see leniency and political permissiveness rather than responsible reporting warning investors that Spain’s bonds are what they are, junk. That’s not a slight on the Spanish people. It’s an indictment against an irresponsible fiscal policy awash in the train wreck that is the euro. And anyone willing to invest in such an economy is basically expressing their desire to join the Spanish people in their growing debt load. It’s lunacy.
Gold seemed to leap upward upon the news yesterday, climbing from 1610 to above 1620 at the end of Europe’s trading. And interest rates are climbing quickly in Spain, as it’s becoming much more apparent that current austerity measures are about as affective as rearranging the furniture on the Titanic.
It’s interesting how we can see this so clearly from across the Atlantic, however, without seeing it in our own back yard. Anyone who thinks this is not happening here already simply isn’t examining the facts. Perhaps if we were in Europe we’d more readily recognize just how close the U.S. is to the same catastrophe.
For your prosperity,
J. Keith Johnson
The Gold Informant