THIS DOESN’T INSPIRE CONFIDENCE: Germany Considers Ban On Sovereign Bond Sales? “Ms Merkel said she would consider calls from her party colleagues for legislation to bar institutional investors such as insurance companies from selling bonds when ratings were downgraded, or fell below investment grade.” One hopes this never passes, because it’s idiotic — but I suspect rational bondholders will begin dumping bonds now just in case, which makes the statement itself idiotic.

On the other hand, perhaps she simply meant changing the rules so that they won’t have to sell bonds when they’re downgraded below investment grade. That might actually make sense, but it’s not what the report says.

UPDATE: This report suggests the latter:

Meanwhile, in a move to circumvent their influence, Germany’s Merkel backed a proposal to reduce the reliance of institutional investors on ratings agencies, which some of her allies say are politically driven.

The idea would be to introduce legislation to allow institutional investors to evaluate risk themselves and make decisions independent from the U.S.-based agencies.

So it sounds like they’re trying to arrange things so a downgrade doesn’t immediately force massive sell-offs, rather than actually banning such sales.