Posts Tagged ‘credit rating’

Rut-Roh: Credit Rating Agency Just Not That Into U.S. Debt Right Now

Wednesday, April 20th, 2011

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(photo credit: striatic)

Well, that pesky federal deficit has finally caught up with us. Standard & Poor’s, a credit rating agency that basically judges how risky (or safe) it is to invest in a country, has officially said that the United States’s economic shenanigans may end up costing it its pristine AAA credit rating. (That’s three A’s, so you know it’s extra awesome.) The main reason? Washington’s seeming inability to agree on a plan to reduce the deficit.

S&P didn’t actually downgrade America’s credit rating, but it did change its “outlook” from “stable” to “negative.” This is basically a shot across the bow, or a warning from your mother that if you keep hanging out with those corner boys all you’ll get is a reputation.

This is kind of a big deal. If the U.S. is downgraded (and according to S&P is could be within three years), we’ll be out-credited by France. And foreign investors might be less interested in buying Treasury bonds, which would cut off an important source of income for the government. Which might result in more cuts to services like health care, education, and, you know, repairing roads.

Let’s see where we are in two years. In the meantime, how do you think you would do in S&P’s eyes?

Can you weather the credit storm?

U.S. Becoming Less Trustworthy? TILE Two-Liners 1.10.11 >> 1.14.11

Monday, January 10th, 2011

MONDAY

  • Portugal promises to pay you a handsome 7% interest rate if you lend it some money by buying a bond. Of course, the country may go bankrupt trying to pay you back. (BBC News)

TUESDAY

  • Economic growth in China, U.S., France, and Japan may lead the way to a good year for the rest of the world. (The Wall Street Journal)

WEDNESDAY

  • Whew! Portugal doesn’t have to bribe bond buyers with handsome rates after all. European markets stop freaking out about a potential bailout. (The Washington Post)

THURSDAY

  • Mother nature shows interest in finance, dumps water on Australia. Flooding could cost the country up to 1% in economic growth this year! (BBC News)

FRIDAY

  • You’re not the only one who should be worrying about your credit score – because of rising debt, the U.S. may lose its sparkling AAA credit rating. (The Wall Street Journal)

Important Credit Ratings Agencies “Provided Little Or No Value”

Friday, December 10th, 2010

Ten credit ratings agencies are in charge of predicting risk for investors worldwide. So why didn’t they predict the economic crisis?

  • Agencies like Moody’s and Standard & Poor’s rate the quality of companies, bonds, even countries. Investors use this information to decide whether a particular investment is a safe bet.
  • In the financial reform bill that passed this July, the government called them out for ineffective ratings and serious conflicts of interest.
  • In many lawsuits against the agencies, they’ve said that the First Amendment protects their right to assess investment risks whether they end up being right or wrong. But because they’re regulated by the government, they’re supposed to be trusted and non-biased sources of information for the public.
  • The conflict of interest appears when a credit rating agency wants to do business with a particular company. In that case, it may be tempted to give that company a higher rating than it really deserves.

Facts & Figures

  • The ratings industry is worth about $6 billion worldwide
  • $3 billion of that is in the U.S. market
  • Fitch, Moody’s, and S&P control 97% of all U.S. ratings
  • Moody’s rated 42,625 mortgage-backed securities (you know, the ones that blew up the real estate market) as AAA – the same rating as ultra-secure U.S. Treasury bonds

Best Quote

“Activities of credit rating agencies are fundamentally commercial in character and should be subject to the same standards of liability and oversight as apply to auditors, securities analysts and investment bankers.” – from the Dodd-Frank financial reform bill

Why Greece’s Debt Is Our Problem

Wednesday, June 23rd, 2010
Will Europe’s shaky financial situation cross the pond to the U.S.?
  • Moody’s – a major credit rating agency – handed Greece an awful credit score on Monday, and Wall Street reacted with a distinct slump.
  • The low credit score means low confidence in Greece’s ability to dig out of its debt crisis. Even the bailout plan set out by Greece’s neighbors wasn’t enough to convince the analysts at Moody’s that things would turn around anytime soon.
  • The fact that the U.S. market reacted so directly to this news illustrates the strong link between the European and U.S. economies. Still, analysts predict that the U.S. economy will continue to grow despite this temporary setback.

Facts & Figures

  • The DJIA was down 20.18 points (-0.2%) by the end of Monday
  • At the same time, the value of Bank of America stock fell 1.22% and JPMorgan stock dropped 2%

Best Quote

“It was not a huge surprise that Moody’s is following suit. But it is another reminder of the negative news stream coming out of Europe.” – Win Thin, Currency Strategist, Brown Brothers Harriman

A Credit Rating Agency is…

Tuesday, October 27th, 2009

A credit rating agency is a company that researches and evaluates companies, countries or any other entity for their creditworthiness. They give companies scores, or credit ratings, that can tell investors whether or not they are safe investments. The SEC regulates rating agencies such as Moody’s and Standard and Poor’s.

A Credit Rating is…

Friday, September 18th, 2009

A credit rating is like a grade given to a person, business, or even a country, that says how likely that person is to make payments on a loan as promised. Credit ratings for people are called credit scores and are maintained by credit bureaus like Experian and TransUnion. Credit rating agencies like Moody’s or Standard and Poor’s give ratings to companies and countries that tell investors how safe it is to buy their securities, like bonds or stocks.

A Speculative Bond is…

Thursday, July 30th, 2009

A speculative bond is a direct investment in a company that’s considered risky by a credit rating agency like Standard & Poor’s or Moody’s. You might end up getting higher returns from a speculative or “junk” bond than a better rated one, but you also have a better chance of not getting anything at all.

What’s the difference between a credit score and a credit rating?

Thursday, July 30th, 2009

A credit rating is like a grade for how likely an individual, company, or even a country is to pay back debts on time. Credit rating agencies or bureaus keep track of relevant information about a person, company, or country to determine their credit ratings.

A credit rating for an individual is called a credit score and is a three-digit number, like a batting average in baseball. Credit bureaus (like Equifax or TransUnion) look at how consistently you pay your bills and then publish your credit score, which creditors like banks use to determine how much they are willing to loan you.

Commercial credit rating agencies like Moody’s or Standard & Poor’s assign ratings to companies – from AAA down to D – that reflect how likely it is that the company will pay back dividends on your investment. Some rating agencies also give sovereign credit ratings, i.e. ratings for countries. These ratings give you some idea of how safe it is to invest in that country and take factors like political stability into account.

Your credit score tells creditors (like banks) if you are a good investment or not. Corporate and sovereign credit ratings can help you decide what might or might not be a wise investment.

A Credit Score is…

Thursday, July 30th, 2009

A credit score is a number that describes how well you make payments on things like credit cards. It’s like your debt-repayment batting average. Credit bureaus keep track of your credit history and publish that information in the form of a 3-digit credit score, which can affect how creditors – like banks and even insurance companies – will do business with you.