The decision of Moody's to downgrade the credit rating of Slovenia by 3 steps at a time shows for another time the full inadequacy of leading old credit rating agencies. This is simply not professional as a rating can not be change so fast and a country can not lose or add 3 levels literally overnight.

Economy is an inertia structure and is not capable of rapid moves. Unless a war begins or an atomic bomb explodes in the capital, it is simply not real to lower the rating by 3 steps. The fact Moody's is doing this shows that something with the ratings was not correct and now a fast and panic reaction is needed to avoid bigger problems in near future.

We all remember the AAA rating of Lehman Brothers just a day before its default. And also the AAA level of subprime mortgages. So if another such disgrace happens, it will be very bad for the credit rating agencies. That's why they are in a hurry to lower the rating of every country that is closing to requesting a help from bailout funds.

But the more important question is why up to now the rating was so high? Why rapid moves are needed for saving the honor of agencies? Why the rating was not going down gradually - along with the economic situation.

The answer of these questions is very simple. Countries are paying the credit ratings agencies and these agencies are loyal to them and not to investors. Te agencies are helping the countries look better. And when the crash is close, panic moves appear to compensate the previous silence.

According to my formula, Slovenia has a BB rating - even lower than the current level of Moody's and S&P. Slovenia is in speculative ratings group - far away from its A and up levels it had till yesterday. And lower than today's Baa2 of Moody's that is still an investment grade. Slovenia is a risky speculative country and this is so for months and years, and the change is not since yesterday.
So rapid moves in rating can confuse the investors. An asset can not change so fast its quality. The investors have no time to think and react. This is not honest as the change for the worse has not happened overnight, but in months and years. So the rating had to go down slower and step by step...

If credit ratings agencies have used a clear and transparent formula just like this site is doing they would not become looking so ludicrous...

Dobri
August 3rd 2012