Martin Lee @ Sg
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Confusion Over France Downgrade

Last Thursday, S&P caused a shock in the bond markets when it informed some of the subscribers that it had downgraded the credit rating of France.

An hour and a half after the original message was sent out, S&P sent out a clarification that the message resulted from a technical error and not from any action it intended to take against France.

French policy makers were understandably enraged and called for an investigation of the mistake.

At a time where the Eurozone was already getting very jittery over the problems of Greece and more recently Italy, this was the last thing that the markets needed. A downgrade of France’s AAA credit rating would affect the rating of the European Financial Stability Facility (EFSF), the bailout fund for struggling euro member countries.

Earlier in the year, S&P had downgraded the credit rating of the United States from AAA to AA+. This was followed by the resignation of its president Deven Sharma a few weeks after the downgrade.

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1 comment
James says 13 years ago

S&P, Moody’s and Fitch accept large yearly fees from debt issuers in order to assign them credit ratings. Bluntly speaking, their ratings are bought and paid for by the very same institutions they’re rating.

If they downgrade countries like France, they must also downgrade banks and other on-the-brink institutions that depend on those countries for bailouts. But those institutions are some of their best customers, paying them the biggest fees!

This is an egregious conflict of interest and helps explain WHY they’re so reluctant to downgrade countries like Greece or France, delaying the appropriate action for months or even years.

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