The big change this week was that the UK was no longer rated triple A by the credit analysts at Moody's and there was apprehension at how the markets would react.
We need not have worried. The response was barely visible, but people say this was because the markets had anticipated the move, rather than traders at last learning not to take the ratings agencies seriously.
They were a major cause of the financial excess which led to the crash because of their naïve willingness to rate subprime debt pools as triple A. Without their endorsement those toxic products would not have been sold round the world and a crisis made in the US would have stayed there.
They then had the temerity to downgrade the US because President Barack Obama ignored their calls for austerity and decided to get the economy growing again before attempting to tackle his budget deficit.
George Osborne took the opposite tack and tried to humour them. Their approval has not prevented the failure of his policy. But with no sense of irony Moody's now downgrades the UK too.
The biggest argument, though, is with the whole idea of sovereign ratings. A country either defaults or it does not, you can't be a little bit defaulting any more than you can be a little bit pregnant. This means its rating should either be junk if a default is likely or triple A if it is unlikely, with nothing in between. And when all is said and done, the UK remains so rich in spite of its troubles that a default is no more likely today than it was six months ago – or 10 years ago.
Of course, the value of the debt is degraded all the time by inflation but Moody's does not measure that, or take it into account in its credit assessment, which leads me to the conclusion that the true genius of the organisation, and others like it, is the ability to persuade people to take them seriously.
- More about:
- Barack Obama
- Loans And Lending Market
- Moody's Corporation
- Serious Fraud Office