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The Next Headache From The Rating Agencies

As global regulators continue to prove their impotence when it comes to dealing with the rating agencies, Moody's and S&P are trying to threaten their way back to legitimacy. With no alternatives and an inexplicable continued reliance on ratings from the dynamic duo, a second round of RA-based damage is creeping closer. Having convinced many investors currently holding AAA-rated structured products valued at less than 50 cents on the dollar that their holdings were safe to sleep on at night, the agencies are seeking to redeem themselves by threatening sovereign downgrades.
Following up on the warning shot fired across the UK's bow several months ago by S&P, Moody's put Ireland, Kuwait Estonia, Latvia and Lithuania on notice that should their interest rates (adjusted for inflation) start taking off, the sad trombones will start playing. Showing just how far they've come in the past year, Moody's also took the opportunity to bring the hammer down and knock two of AIG's lending units down to a still investment-grade Baa3.