European markets have not let the massive ratings downgrade cast a shadow over trading on Monday, with only a slight fall.
The announcement of the ratings giant Standard & Poor’s that it slashed the scores of nine EU nations, including the Triple-A scores of France and Austria, came after Europe’s markets closed on Friday.
European leaders have been quick to criticize credit ratings agencies for having a negative impact on the 17-nation monetary union at the very time it is attempting to avert a crisis.
It has been a tense weekend for financiers, but financial commentator and co-founder of Quantum Hedge Fund Jim Rogers explained to RT why the markets are calm on Monday. It is simply because the US-based agencies are becoming obsolete.
“It means that you should not bother to pay any attention to the rating agencies. Everything they have done in the past 15 or 20 years has been wrong,” he raged. “I stopped bothering about them long ago. Everybody knows that France is no longer Triple-A, everybody knows that Italy is no longer as highly-rated as it used to be. The market knows all about this. This is not news. I know you have to report something, but this is not news to people in the market.”
Meanwhile another ratings agency, Moody’s, says on Monday it is keeping France’s AAA credit rating for now, despite rival S&P’s downgrade. This forced S&P to promise it would update its position on France later this quarter.
Responding to the major European credit rating cut, German Foreign Minister Guido Westerwelle said late Sunday Europe needs to create independent credit rating agencies and stop relying solely on leading US-based agencies.
Jim Rogers agreed with the proposal, but says the agency simply must be competent, regardless of its origin.
“Whether it is European or not is irrelevant, the fact is that you do need somebody competent and somebody who can examine and decide who is solvent and who is not solvent,” he said. “Until a few months ago that they had the US as a Triple-A credit. The US is the largest debt nation in the history of the world. It is absurd that it was Triple A. Europe needs somebody competent who can go in there. It does not matter whether it is Russian, or Australian or American, or European, just so you have somebody competent. And these guys in S&P and Moody’s have had a semi-monopoly for decades. They have gotten corroded and lazy and sloppy and they are no longer competent.”
And he shared his view on the European crisis and how to get out of it.
“The best way to get out of it is to go ahead and to let people go bankrupt, let the people who made mistakes take their losses, the banks who made the bad loans, the people who invested in the bad banks – they should take their losses and start over,” he suggested.
“It looks as though the EU is about to make some of them take some losses and that will be good. That way we can start over and go forward. The problem is they are not doing enough. They are not taking enough losses. They are hoping that they can get through the next election or two and then everything will be OK. This is not going to solve the problem, it will delay the problem a bit longer, it does not solve the problem,” he stated.
Author and financial analyst F. William Engdahl told RT that Standard and Poor’s move to lower France’s credit ratings will be “water off a duck’s back” because the move was widely anticipated in the markets – but what it has inadvertently revealed is S&P’s own bias.
“S&P has played a rather blatant and aggressive role in the whole unravelling of the European euro crisis since December 2009, so people here are beginning to get used to it, and if anyone loses in the end, it’s going to be the credibility of institutions like Standard and Poor’s, or Moody’s, who are going to be seen as political agents,” Engdahl said.
He also told RT that many people in Europe believe American ratings agencies are being used as political tools. “The role that the US-based rating agencies have played since the Greek crisis erupted in December 09 has been what many people here see as a brazenly political role. I don’t think they’re the independent agencies that they portray themselves to be,” Engdahl said.
“Many times when it comes to the interests of the Wall Street banks, the so-called “Gods of Money” banks, like Goldman Sachs or others, they tend to be rather lenient. And when it comes to the interests of European institutions they tend to be rather aggressive, which leads many Europeans that I’ve talked with to think that the rating agencies are simply an extension of the US political apparatus.”
Jim Rogers has taught finance at Columbia University’s business school and is a media commentator worldwide. He is the author of Adventure Capitalist, Investment Biker, Hot Commodities, A Gift to My Children, and A Bull in China. See his website.