The Accidental Downgrading of France

[Metahive]

S&P sends out “accidental” note downgrading France
By Scott Martin
November 10th, 2:28 pm

Tension is already too high in Europe for mistakes, and distributing an alert that Standard & Poor’s had downgraded French credit — contrary to reality — is not the kind of mistake anyone needs right now. S&P blames the alert on a “technical error.”

Markets are rolling with relief, but the fact is that someone triggered a downgrade alert here. What is especially puzzling is that as yet, S&P says its outlook on France is stable. There was no “secret” downgrade composed and entered in the rating agency’s system waiting to be published, so this is not a case of a bad keystroke making a planned downgrade public too early. In any event, we saw U.S. stocks and the dollar spike on the brief “downgrade” today.

There is the chance that Standard & Poor’s was hacked, but that is hardly a comforting thought. As yet, they do not know what happened.

http://emergingmoney.com/euro-currencie ... ng-france/

A "technical error" that made them give out a message totally contrary to their "actual" disposition towards France? Doesn't sound all that credible.

[weemadando]

Look at who made a killing in the brief window for speculation to pay off big time...

It'd be paranoia, except they've earned it.

[madd0ct0r]

a warning shot, telling the leaders of the EU to get on with it?

[LaCroix]

Will they be liable for the damage caused?

[Starglider]

Will they be liable for the damage caused?

What damage? Trading is zero-sum, every loss is someone else's gain, so by definition there was no net loss (ignoring the trivial transaction costs). Everyone who sold on a dip caused by an unverified leak was taking a deliberate risk and deserves what they got.

[Lord Zentei]

Investment is not a zero sum game. And investments are made possible by people moving their money into a country's markets. Regardless, this is going to damage S&P's credibility more than France's economy.

[TheHammer]

This coming on the heels of the two trillion dollar miscalculation of US debt back in August, one has to wonder how much longer S&P will be trusted...

[Starglider]

Investment is not a zero sum game.

Secondary market bond trading is zero sum. The amount of nominal return that the instrument will produce is fixed at the time that it is issued (although central banks may of course destroy real returns via inflation). Bond trading simply changes which parties receive what fraction of the return. 'Damage' could only occur if there had been a French government bond auction in the affected period, and even then only if you believe pension funds etc receiving a slightly higher return on their investment is 'damage'. If you mean market sentiment that is impossible to price, and in any case nothing S&P could do is comparable to the continual newsflow from disorganised dysfunctional amateurish and generally laughable efforts of the EU politicians to manipulate the markets and pretend 'all is well'.

[Teebs]

Well considering the noises EU politicians are already making about ratings agencies and that, if I remember correctly, they'll shortly be publishing regulatory proposals, this seems like exceptionally bad timing on their part.

[Starglider]

Well considering the noises EU politicians are already making about ratings agencies and that, if I remember correctly, they'll shortly be publishing regulatory proposals, this seems like exceptionally bad timing on their part.

Attempts to muzzle ratings agencies will backfire in the exact same way that banning and neutering CDS (thus making it almost impossible to hedge sovereign risk) and banning short selling (thus eliminating short covering rallies) backfired. EU governments are seriously trying to claim 'our debt is so good that w have to censor and suppress anyone who claims otherwise (including comments from particularly evil EU pols about censoring even rumours on news sites)'. They are sufficiently delusional that they actually believe (even more) blatant attempts to suppress the truth will increase investor confidence, as opposed to sending them fleeing from the blatantly obvious slow-motion trainwreck.

[Lord Zentei]

Investment is not a zero sum game.

Secondary market bond trading is zero sum. The amount of nominal return that the instrument will produce is fixed at the time that it is issued (although central banks may of course destroy real returns via inflation). Bond trading simply changes which parties receive what fraction of the return. 'Damage' could only occur if there had been a French government bond auction in the affected period, and even then only if you believe pension funds etc receiving a slightly higher return on their investment is 'damage'. If you mean market sentiment that is impossible to price, and in any case nothing S&P could do is comparable to the continual newsflow from disorganised dysfunctional amateurish and generally laughable efforts of the EU politicians to manipulate the markets and pretend 'all is well'.

If you look at my post very carefully, you'll notice that your rebuttal doesn't actually address it.

[Teebs]

Attempts to muzzle ratings agencies will backfire in the exact same way that banning and neutering CDS (thus making it almost impossible to hedge sovereign risk) and banning short selling (thus eliminating short covering rallies) backfired. EU governments are seriously trying to claim 'our debt is so good that w have to censor and suppress anyone who claims otherwise (including comments from particularly evil EU pols about censoring even rumours on news sites)'. They are sufficiently delusional that they actually believe (even more) blatant attempts to suppress the truth will increase investor confidence, as opposed to sending them fleeing from the blatantly obvious slow-motion trainwreck.

I didn't say they were right to try. Just that it's not going to help. I agree trying to censor rating agencies would be... unhelpful.

[LaCroix]

blatant attempts to suppress the truth

That's where Europe disagrees. They believe that the rating agencies are showing significant bias, and do not adhere to facts. The rules they want to implement are not "you may not say something bad about us", but "you have to actually proove your wild guesses and not just say so".

[Starglider]

blatant attempts to suppress the truth

That's where Europe disagrees.

That's where self-serving European politicians desperate to prolong their political careers disagree. I refuse to call these people 'Europe'.

They believe that the rating agencies are showing significant bias, and do not adhere to facts.

Ratings agencies do show significant bias; they consistently over-rate everything. There are huge pressures on ratings agencies to give the highest possible ratings possible, from issuers, from banks and sell-side brokers, from governments. No one benefits from a bad rating except a small group of speculators and non-customers who chose not to invest because of the bad rating, who are obviously not worth any money. So ratings agencies only downrate when the legal and credibility hit of having a highly rated investment go bad overwhelms all the financial and political pressures to give high ratings.

European debt is as consistently over-rated as US mortgage securities were. The UK should be AA, France should be A+, Italy should probably already be at BBB etc. European politicians are already benefitting from a significant positive bias and cover up, but their instinct to tell the biggest lie possible makes them demand a total whitewash. The pattern is exactly the same as CEOs of bankrupt companies claiming everything is perfectly fine right up to the point where everything is exposed (e.g. Lehman Brothers, the recent MF Global fiasco), which is unsurprising as they are the same social class, go to the same events, were educated at the same private schools etc. It is really genuinely sad that people think politicians (with every incentive to lie and a vast track record of doing so) are more trustworthy than ratings agencies, who at least have some detachment.