♠ Posted by Emmanuel in Cheneynomics
at 6/01/2009 08:31:00 AM
Nouriel Roubini has achieved near-cult status among those bearish on the fate of the US economy and its repercussions for the rest of the world. However, I am chuffed to report that some bozo may have beat him to the punch on the charade of US rating agencies. Here's what I wrote on 20 November 2008 (don't you love that doctored graphic?):As an IPE scholar, I am inclined to believe that no amount of red ink will make the major credit rating agencies--S&P, Moody's, and Fitch's--downgrade US debt. The reasons are political-economic. With the exception of Fitch's, these are all US-based firms. When push comes to shove, they will try to protect the national interest, provided not-too-subtle nudges from Sammy. For instance, American authorities have sole discretion for classifying these entities as nationally recognized statistical rating organizations (NRSROs). If American authorities catch wind of an impending downgrade, it is child's play to kick them out of the US credit rating business entirely by removing this designation (despite these being American firms). Being disqualified to rate a significant portion of dollar-denominated debt would endanger credit rating agencies in a way that the Asian financial crisis and the credit crunch failed to do.And now for Roubini of 28 May 2009:
In many ways it's very ironic. NRSROs can badly misjudge sovereign debt of LDCs and financial weapons of mass destruction all they want and get away practically scot-free. But, issue an accurate assessment of Uncle Sam's fiscal depravity and there will be hell to pay. Hey, it's an unfair and messed up world, but it was that way long before I got here.
Indeed, as pointed out above, the US is not yet at the stage where rating agencies will downgrade its rating from the current AAA, even if – by some parameters – this downgrade will be warranted in the next year or so. But over time the continuation of unsustainable fiscal deficit may lead to such downgrade. Rating agencies may delay such downgrade as their oligopoly power derives from the special and official regulatory role that the US and other governments have provided them; thus, the same conflicts of interest that led the rating agencies to mis-rate toxic assets may lead them to postpone for a long time the necessary downgrade of the US public debt. But investors should start doing their own homework – and assess the medium term unsustainability of current US fiscal policy rather than rely on rating agencies that are always doing "too little too late" and whose ratings are biased by the US government being the effective and official source of their rating power. This US government has already effectively bullied rating agencies in being lenient on US state and local government ratings in spite of the sharp deterioration of their fiscal balances. So one cannot expect rating agencies – that are effectively captured by their political masters - to provide unbiased ratings of the US public debt.Not bad work on my part, eh? And what kind of sucker wholeheartedly trusts rating agencies anyway?
