As Thomas Friedman once quipped:
We live in a two-superpower world. There is the US and there is Moody’s. The US can destroy a country by levelling it with bombs: Moody’s can destroy a country by downgrading its bonds.
Or, for that matter, its Talf eligible securities. Zero Hedge notes the continuing power of ratings — and by extension, rating agencies – in the credit markets: the Talf, (along with, we might add, virtually every other government liquidity/lending facility around the world) assesses securities’ eligibility based on their ratings. In the case of the Talf, securities eligible need to be rated triple A.
But the really interesting bit follows.
Last week two Talf eligible — triple -A rated — credit card ABS were completed for use in the TALF programme. Cabela issued $425m of notes and WFN $560m.
Niether of those, though, were rated by Moody’s.
Zero Hedge’s Tyler Durden spots the below, from Moody’s Weekly Credit Outlook:
Moody’s rates WFN and Cabela’s other outstanding credit card ABS at less than Aaa.
And indeed…
We were not asked to rate these TALF deals.
In other words, the government is guilty of the same practice the banks were — something that forced rating agencies to devalue their own analysis: rating shopping. Picking only the agencies that give the ‘best’ ratings to rate deals – and thus incentivising agencies to lower their standards.
Here’s Zero Hedge:
Yup, folks – turns out the survivorship bias of the AAA-rating is back in town. If the government wants a AAA rating to peddle it garbage to “private” investors and is aware it will not get it, it simply chooses to bypass that particular rating agency which disagrees with the government’s assessment on the pristineness of the collateral. Sure enough: the Cabela’s deal gets a AAA rating from the three other gov’t pets: S&P, Fitch and DBRS. No wonder Egan-Jones is nowhere to be included in this fray: their objectivity would royally screw with the purpose of picking the top three ratings out of the hat of four rating agencies eligible for pandering to Barney Frank and the PPIP.