This is a syndicated repost courtesy of Credit Bubble Bulletin . To view original, click here. Reposted with permission.
Marie Diron, Moody’s associate managing director, Sovereign Risk Group, commenting Wednesday on Moody’s Chinese downgrade (Bloomberg Television): ‘It is likely to be a very medium-term and gradual erosion of credit metrics and we are looking at the policies that the government is implementing. The authorities have recognized the risks that come with high leverage and have a very broad agenda of structural reforms and we take that into account to the point that we think leverage will increase more slowly than it has in the past. But still these measures will not be enough to really reverse the increase in leverage.’
I’ve always felt the rating agencies got somewhat of a bum rap after the mortgage finance Bubble collapse. Sure, their ratings methodologies were flawed. In hindsight, Trillions of so-called ‘AAA’ MBS were anything but pristine Credits. And, again looking back, it does appear a case of incompetence – if not worse. Yet reality at the time was one of home prices that had been inflating for years with a corresponding long spell of low delinquencies and minimal loan losses, along with GDP and incomes seemingly on a steady upward trajectory. The GSEs had come to dominate mortgage finance, while the Fed had market yields well under control. Washington surely wouldn’t allow a housing crisis, which ensured that markets were absolutely enamored with anything mortgage related. So the mortgage market enjoyed bountiful liquidity conditions, and it was just difficult for anyone – including the ratings firms – to see what might upset the apple cart.
This post was published at Wall Street Examiner by Doug Noland ‘ May 27, 2017.
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