FT and S&P - conventional wisdom : why we should care | 27 comments (27 topical, editorial, 0 hidden)

Re: Re : rating agencies (none / 0)

If they have half the effect that credit reporting agencies have on people, it has to be devastating. They also have the same effect on the ability of private companies to finance themselves by issuing bonds.

However, credit ratings that hinder irresponsible lending and borrowing are a good thing. What I am interested in is, to what extent the rating of countries (and to a lesser extent of companies) is politically motivated? What is the rate of US government debt, and what would need to happen for it to be downgraded?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Carrie (migeru at eurotrib dot com) on Wed Mar 29th, 2006 at 10:44:54 AM EST
[ Parent ]

Re: Re : rating agencies (none / 0)

I grab something to eat and I'll get back to you on this.

When through hell, just keep going. W. Churchill

by Agnes a Paris on Wed Mar 29th, 2006 at 01:32:28 PM EST
[ Parent ]

Re: Re : rating agencies (4.00 / 3)

Okay, here we go.
First a definition from S&P themselves

Issue credit ratings are based, in varying degrees, on the following considerations:
1.Likelihood of payment--capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;
2.Nature of and provisions of the obligation;
3.Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights.

To put it more clearly, a sovereign rating is the result of political and macro-economic data assessment.
As to the way those criteria interact, it takes more than a simple post, perhaps even a diary.

US Government bonds are obviously rated AAA.<s>

What would push the USA sovereign rating down ? this is a good topic for a PhD essay. Who volunteers ? :)

When through hell, just keep going. W. Churchill

by Agnes a Paris on Wed Mar 29th, 2006 at 02:10:39 PM EST
[ Parent ]

Re: Re : rating agencies (4.00 / 3)

One more thing. The current rating of a conterpart (country, local government, corporate, financial institution) is strongly influenced by the default history of that counterpart.
S&P and, likewise, Moodys' rely on a huge database of sovereign and corporate defaults.
The USA not having defaulted on their sovereign debt for ages is certainly is strong driver of their AAA rating.

BTW, GM has just been put on creditwatch with negative implications, which means they'd better behave well in the next few months...

When through hell, just keep going. W. Churchill

by Agnes a Paris on Wed Mar 29th, 2006 at 02:15:59 PM EST
[ Parent ]

the USA are AAA (4.00 / 2)

According to S&P,

The rating on the United States of America rests on its high level of wealth, strong economy, and solid track record of predictable and prudent economic policies.
In addition, the rating reflects the distinct advantages afforded it by the U.S. dollar's unique role as the world's reserve currency.
These strengths continue to outweigh persistent fiscal deficits, low household savings, and the associated deterioration of the country's external debtor position.

When through hell, just keep going. W. Churchill

by Agnes a Paris on Wed Mar 29th, 2006 at 02:18:59 PM EST
[ Parent ]

Great stuff (4.00 / 2)

Worth a diary in itself, really. This is the New Fact for today for me.

But Migeru's question intrigues: What I am interested in is, to what extent the rating of countries (and to a lesser extent of companies) is politically motivated?

It's one thing to lambast the FT, the NYT, IHT, The Economist and so on. Journalist are motivated to write stuff based on corporate business and the memes that get passed down from the higher ups, (certainly if you'd believe the stories about FoxNews).

It's another thing to step to the fore and criticize on similar grounds the holy temples of economics. We've had rabid discussion on Greenspan and the Fed and to me it seems (as an ignorant observer) that economic ideology sways the decision direction of the Fed. Even here political motivations were suspected. But in how far are these ideologies present in for example in Standard and Poor's?

by Nomad (Bjinse) on Wed Mar 29th, 2006 at 04:39:20 PM EST
[ Parent ]

Re: Great stuff (none / 0)

That's precisely the reason why I think it's more serious when S&P write such things on France.
I will try and come up with something by Friday.

When through hell, just keep going. W. Churchill

by Agnes a Paris on Wed Mar 29th, 2006 at 04:52:10 PM EST
[ Parent ]

Re: Great stuff (none / 0)

Well, can you imagine the political impact of S&P or Moody's downgrading the USA from AAA to AA?

The much anticipated [around these parts, at any rate] collapse of the system might be triggered by just that (people would try to dump their bonds, there would be a run on the dollar...).

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Carrie (migeru at eurotrib dot com) on Wed Mar 29th, 2006 at 04:54:27 PM EST
[ Parent ]

Yes (none / 1)

And therefore I find it pretty remarkable that this is practically the first time I bump into this subject on ET. Just when you think you've scratched the surface... More surface. (I've got stocks myself (French ones!) and I did figure out one day that their rating AAA is a Good Thing, but then I shrugged and moved on...)

But define political... Your example sounds more like an economic impact. The implication of your question, however, is that a political impact can become disguised as an economical one.

So in that sense, I'll also eagerly await Friday and the Return of Agnes...

by Nomad (Bjinse) on Wed Mar 29th, 2006 at 05:06:01 PM EST
[ Parent ]

Re: sorry to disappoint you (none / 0)

but I've been off sick today so not much brain capacity available, and I'm travelling to London tonight for a computer free-quality time week end. I'll try and pull the guts of a diary early next week.
Plus tehre is a lot of interesting stuff being posted today and should be more over the week end.

When through hell, just keep going. W. Churchill

by Agnes a Paris on Fri Mar 31st, 2006 at 09:26:00 AM EST
[ Parent ]

Re: Great stuff (none / 1)

Feared, not anticipated.

by Colman (colman at eurotrib.com) on Wed Mar 29th, 2006 at 05:16:07 PM EST
[ Parent ]

Re: Great stuff (none / 0)

Not eagerly, no.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Carrie (migeru at eurotrib dot com) on Wed Mar 29th, 2006 at 05:16:36 PM EST
[ Parent ]

Re: Great stuff (none / 1)

Why so ?? I hope you forgot a <snark> in you post ?...

When through hell, just keep going. W. Churchill

by Agnes a Paris on Thu Mar 30th, 2006 at 02:36:48 AM EST
[ Parent ]

Re: Great stuff (3.50 / 2)

Well, I ckecked the dictionaries and I feel windicated in that the first meaning of "anticipate" does not imply desire:

1. regard as probable; expect or predict: she anticipated scorn on her return to the theater. ∎ guess or be aware of (what will happen) and take action in order to be prepared: they failed to anticipate a full scale invasion. ∎ look forward to: Stephen was eagerly anticipating the break from the routine of business. ∎ use or spend in advance.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Carrie (migeru at eurotrib dot com) on Thu Mar 30th, 2006 at 03:24:45 AM EST
[ Parent ]

FT and S&P - conventional wisdom : why we should care | 27 comments (27 topical, 0 editorial, 0 hidden)

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