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Kill the Ratings Agencies
The carnage that hit the market in the last hour of trading yesterday wasn't mysterious--it came from S&P taking a whack at General Motors by putting the battered automaker on credit watch. And this morning Moody's warned that Morgan Stanley, another stock that was bloodied Thursday, could have its debt rating cut too.
Minyanville's Jeff Macke takes exception to the role that ratings agencies have played in the market sell-off, saying they've jammed up the Fed's rescue efforts.
"What Moody's and S&P did last night and this morning illustrates, to me, the futility of Fed actions to date. By noticing the glaring and obvious long-standing problems of General Motors and Ford last night, S&P effectively raised G.M. and Ford's cost of capital infinitely. G.M. is in the middle of a "capital raise." It was going to be expensive before S&P raised the price of G.M. paper. Now, after S&P's downgrade threat, it's going to be impossible."
Macke, the outspoken trader often found kibitzing on cable with his fellow stars of CNBC's Fast Money, assigns blame squarely and harshly to what he calls the "under-intellectually horsepowered" troops at Moody's and S&P.
"As long as faceless, nameless drones at credit agencies are able to capriciously raise the price of capital of already ailing corporations, particularly on such mind-numbing observations as 'we've noticed difficulties in General Motors' business model,' there's simply no way to effectively make a valuation argument for any American corporation...As I've said before, I believe they are like 3-year-olds with hand guns: They have no idea what kind of damage they can cause, but you are a fool if you don't give them a wide berth."
Also on Minyanville recently:
