Breaking: Eurozone bail-out fund loses AAA rating

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    Jan 16, 2012 8:34 PM GMT
    http://www.telegraph.co.uk/finance/debt-crisis-live/9016985/Debt-Crisis-Live.html

    S&P strips eurozone bail-out fund of AAA crown, saying it is "no longer fully supported by guarantees from EFSF members rated AAA", as Greece to send officials to US for talks with IMF over bond swap impasse.
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    Jan 17, 2012 1:14 AM GMT
    It's sort of odd how they would criticize the S&P as the messenger in this case.


    http://www.telegraph.co.uk/finance/financialcrisis/9019093/Eurozones-big-bazooka-bail-out-fund-is-left-in-tatters-by-SandP-downgrade.html

    Eurozone's 'big bazooka' bail-out fund is left in tatters by S&P downgrade

    Plans for a €1 trillion "big bazooka" to stem the debt crisis were crushed on Monday night as Standard & Poor's stripped the European Financial Stability Fund (EFSF) of its AAA credit rating.

    The EFSF, which is tasked with supporting indebted countries, was itself hobbled as S&P gave it a AA+ rating, reflecting the downgrade of France and eight other eurozone countries on Friday.

    As the standoff with Greece's creditors continued, Mario Monti, the Italian prime minister, pleaded for Germany and other creditor countries to help lower his country’s borrowing costs. He warned there would be a “powerful backlash” among voters in smaller EU countries if they did not.
    S&P said the EFSF's rating would be cut again if member states' creditworthiness eroded further.

    Leaders appeared to abandon hopes for the EFSF and turned their focus on the European Stability Mechanism (ESM) instead. Herman van Rompuy, co-president of the European Union, said he would assess the size of the ESM "without delay" and ensure it is operational by July.

    Klaus Regling, chief executive of the EFSF, said the fund would have "sufficient means to fulfil its commitments under current and potential future adjustment programmes until the ESM becomes operational in July 2012".

    S&P was severely criticised across the eurozone, even before the EFSF decision was announced. Olli Rehn, an EU Commissioner, said ratings agencies are the tools of "American financial capitalism".

    Wolfgang Schauble, Germany's finance minister, said rating agencies' influence should be curbed and insisted German guarantees for the EFSF were sufficient. The governor of the Bank of France, Christian Noyer, said S&P's mass downgrades "constitutes an additional challenge".

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    Jan 17, 2012 3:38 AM GMT
    At what point does S&P simply get ignored? They've proven themselves completely inept, have a built in conflict of interest, and are politically motivated, so why would anyone trust what they say about credit ratings?
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    Jan 17, 2012 4:53 AM GMT
    Christian73 saidAt what point does S&P simply get ignored? They've proven themselves completely inept, have a built in conflict of interest, and are politically motivated, so why would anyone trust what they say about credit ratings?


    They're only the messenger - their ratings are also mandated by law - ie regulations that restrict institutional investors from investing in non-investment grade securities.

    It's stunning that you would even think they were wrong in downgrading - if anything it's long overdue. At this point as well they are a lagging indicator to CDS's that you want to ban anyway and that are more accurate.
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    Jan 17, 2012 5:38 PM GMT
    Parenthetically - the returns on a 2 year Greek Government Bond (if they actually pay is about 164%) - http://www.bloomberg.com/apps/quote?ticker=GGGB2YR:IND. It's almost certain now they won't.

    http://www.zerohedge.com/news/fitch-says-greece-will-default-march-20-bond-payment

    Fitch Says Greece Will Default By March 20 Bond Payment

    It's all over but the crying at least as far as Greece is concerned. First, it was S&P's Kraemer telling Bloomberg yesterday the country is finished, now today for dramatic impact, we get Fitch's repeating the doom and gloom, stating that the country will likely default before its March 20 payment. From Bloomberg: "Greece is insolvent and will default on its debts, Fitch Ratings Managing Director Edward Parker said. The euro area’s most indebted country is unlikely to be able to honor a March 20 bond payment of 14.5 billion euros ($18 billion), Parker said in an interview in Stockholm today. Efforts to arrange a private sector deal on how to handle Greece’s obligations would constitute a default at Fitch, he said. “The so called private sector involvement, for us, would count as a default, it clearly is a default in our book,” Parker said. “So it won’t be a surprise when the Greek default actually happens and we expect it one way or the other to be relatively soon." Europe’s debt crisis is likely to be “long and drawn out,” Parker said." And here we go again, with official attempts to make what appeared apocalyptic as recently as a month ago, seem trite, boring and perfectly anticipated. In other words, the fact that this like every other piece of bad news that should be priced in, is priced in, is priced in. And so on, at least according to the kleptocrats, until we finally learn that nothing is priced in but endless market stupidity.