The ratings agencies, which facilitated the 2008 financial disaster by rating subprime securities as grade A investments, have not been known for being out in front on warning of looming catastrophes. Now, however, with the Greek debt crisis raging, the ratings agencies are outdoing each other in releasing their downgrades. Moody’s is back with a downgrade on Greece, lowering it three levels to CA, just slight above an actual debt default.
What Moody’s and others are saying is that they have no faith in the second massive EU and IMF bailout plan, with it being funded by borrowing by other sovereigns that are also in difficulty, and involving bizarre formulae for debt exchanges which may or may not involve the private sector. As Moody’s puts it, “the announced EU program… implies that the probability of a distressed exchange, and hence a default, on Greek government bonds is virtually 100 percent.”