What does this mean?
Absolutely nothing, since there is no actual change to the credit worthiness of British T-securities.
There is no change because the U.K. government creates its spending money out of thin air, including the money to pay interest on T-securities.
Hence the downgrade is arbitrary and political. It makes no difference to anything in the world. (This would not be the case if the UK government could not create its money out of thin air.)
Investors know this. That’s why they ignore these meaningless credit downgrades. If the downgrades meant something, and if British gilts (T-securities) really were increasing in risk, then their interest yield would go up, since investors want a bigger reward for a bigger risk. But the Bank of England has lowered the interest rates it pays on gilts to historic lows.
Therefore it’s all irrelevant. Nonetheless the corporate media outlets report it as ominous, because they are angry about the Brexit vote. They want people to think a disaster is imminent.
William J. Harrington was a Senior Vice President in the Moody’s derivative products group, which was responsible for producing many of the fradulent ratings that Moody’s issued during the U.S. housing bubble. Harrington says that Moody’s is utterly corrupt, and he explained why in 78-page “comment” to the Securities and Exchange Commission.
Moody’s, Fitch, and S&P are bribed by the banks whose securities they are supposed to objectively rate. This corruption pervades every aspect of Moody’s operations. It makes everyone at the company give bankers the ratings that bankers want, lest the bankers take their business to other corrupt ratings agencies.
The corruption is so pervasive that it renders Moody’s ratings useless at best, and harmful at worst. It’s the same with Fitch and S&P.
Everyone knows this. And yet the corporate media outlets continue to echo the corrupt agencies’ lies. No one from the corrupt ratings agencies ever goes to jail, or is even charged. And no one talks about breaking up the credit rating cartel.
The rating agencies were originally research firms. They were paid by people looking to buy bonds or make loans to a company. If a rating company did poorly in its ratings, it lost business. If it did poorly consistently, it went out of business.
This changed in 1975 when a group of seven ratings agencies bribed the Securities and Exchange Commission to create a cartel. The SEC ruined a perfectly viable business construct by mandating that all debt be rated by a “Nationally Recognized Statistical Rating Organization” (NRSRO) consisting of seven ratings companies that over time were reduced to the “big three.”
The SEC was bribed to create a monopoly that excluded (non-corrupt) competitors. You can’t become a “nationally recognized” rating agency when all debt must by law be rated by the “big three.”
Previously, debt buyers paid ratings companies to know what they were buying. After the SEC created the corrupt cartel in 1975, debt sellers paid the ratings companies to deliver an arbitrary score that enhanced sales. Naturally the sellers (banks) shopped around to around to see which company was the most corrupt, and would give their securities the highest rating.
So if you want to sell fraudulent garbage, all you have to do is pay the rating companies enough money to declare your garbage gold. When the City of Chicago wanted to sell junk bonds, Moody’s would not give the bonds a sufficiently high rating for investors to be interested. Therefore Chicago went to Kroll Inc., a risk consulting firm in New York City, and paid the company to give the junk bonds a higher score. (The score was informal, since Kroll is not a formal rating company.)
How could we eliminate this problem? How could we end the corruption? Easy. We simply revoke the SEC rules and regulations that declare which company is a “Nationally Recognized Statistical Rating Organization.”
In any industry (narcotics, banking, pharmaceuticals, or whatever) evil cartels are created and maintained by government rules that are written by bribed politicians and bureaucrats. Change the rules, and the cartels fall apart.
Moody’s, Fitch, and the S&P should have to sink or swim by the accuracy of their ratings, just like everyone else. Ratings would become truthful if corporations had to live or die by them.
This brings up a broader topic. Neoliberal assholes constantly talk about “free markets,” but genuine free market competition is the last thing they want. They are focused on creating cartels and monopolies in order to eliminate free markets.
The “free trade” treaties (TPP, NAFTA, TTIP, TiSA, etc) are designed to eliminate free trade. They establish, by law, the power of existing cartels and monopolies, thereby keeping out competitors. They will also replace national sovereignty with corporate sovereignty.
Among the most educated Britons, the TTIP was their chief reason for voting “leave” in the Brexit referendum. And yet the corporate media outlets claim that the “Leave” people on average had less education than the “remain” assholes.
As with all corporate lies, this is the opposite of the truth.