Over the years the Credit Rating Agencies have taken a beating ( in most cases deservedly so ) for not being fast enough to monitor the deteriorating of credits, whether it of corporates or sovereigns. Of late they are trying to change and it is interesting to see how the credit ratings of the developed countries, particularly those of the European Union have been downgraded , whereas those of the emerging markets such as India and Indonesia have been upgraded.
The EU countries with a common currency the Euro , were seen as part of an integrated economy. It was a exclusive club everyone aspired to join. Entry to it meant that they had "arrived". Turkey has for the last decade tried hard to join, but of late has been loosing interest.
You really have to wonder how the rating agencies and the risk managers failed to see the signs both for the sub-prime crises in the United States and elsewhere .The risk managers at banks and the investors instead of doing their own due diligence relied on the ratings to take on their exposures.
Similarly in the EU, the banks perhaps based on the Alexandre Dumas tagline from his book The Three Musketeers " All of one and one for all " felt that they would be safe in buying the bonds issued by EU countries. They obviously neglected to drill down deeper on some basics such as total debt, use of proceeds and other things which you would normally focus on while setting credit limits, relying instead on the EU band of brotherhood to be bailed out. . Unfortunately for countries such as the Portugal, Ireland, Italy ,Greece and Spain the summer party finally ended and like the proverbial grasshopper are now hoping that the German burgher ant will open doors to let them in from the cold.
If you really want to see the neglect ( and I am being kind here in assuming that they were neglectful instead of being totally stupid) I would recommend you to read two books by Micheal Lewis -" The Big Short" which deals with the sub-prime crisis and " Boomerang" which deals with the EU and Iceland disasters. He also touches upon the problems to be faced at the state level in the United States by including a chapter on California. These are easy to read books which explains in layman's language the two crises.
After reading about how the Icelandic fishermen turned into investment bankers overnight and started investing all over the world and Greek bishops speculating in property , you might wonder what the bankers and institutional investors were doing lending to these Icelandic and Greek institutions.or purchasing their debt.
The EU countries with a common currency the Euro , were seen as part of an integrated economy. It was a exclusive club everyone aspired to join. Entry to it meant that they had "arrived". Turkey has for the last decade tried hard to join, but of late has been loosing interest.
You really have to wonder how the rating agencies and the risk managers failed to see the signs both for the sub-prime crises in the United States and elsewhere .The risk managers at banks and the investors instead of doing their own due diligence relied on the ratings to take on their exposures.
Similarly in the EU, the banks perhaps based on the Alexandre Dumas tagline from his book The Three Musketeers " All of one and one for all " felt that they would be safe in buying the bonds issued by EU countries. They obviously neglected to drill down deeper on some basics such as total debt, use of proceeds and other things which you would normally focus on while setting credit limits, relying instead on the EU band of brotherhood to be bailed out. . Unfortunately for countries such as the Portugal, Ireland, Italy ,Greece and Spain the summer party finally ended and like the proverbial grasshopper are now hoping that the German burgher ant will open doors to let them in from the cold.
If you really want to see the neglect ( and I am being kind here in assuming that they were neglectful instead of being totally stupid) I would recommend you to read two books by Micheal Lewis -" The Big Short" which deals with the sub-prime crisis and " Boomerang" which deals with the EU and Iceland disasters. He also touches upon the problems to be faced at the state level in the United States by including a chapter on California. These are easy to read books which explains in layman's language the two crises.
After reading about how the Icelandic fishermen turned into investment bankers overnight and started investing all over the world and Greek bishops speculating in property , you might wonder what the bankers and institutional investors were doing lending to these Icelandic and Greek institutions.or purchasing their debt.
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