Politicians try to have it both ways on ratings agencies
Published 07/07/2011 | 05:00
Just as Greek debt woes were starting to wane this week, it was inevitable someone awkward, someone bullheaded, would emerge to shout stop.
But on Monday morning, Standard & Poor's (S&P), the New York-headquartered agency, became the first major capital markets participant to declare that the Greek debt rollover plan was akin to default, ignoring the wishes of Europe's politicians who prefer the quainter phrase, reprofiling.
Of course it is hard to argue with S&P's logic.
How could converting one-, two-year or three-year bonds into 30-year bonds (plus cash) be anything other than a default?
The blunt response to this question was provided subsequently by German Chancellor Angela Merkel, who seemed to suggest a default is not a default if she says it's not a default.
But the role of S&P itself is the more fascinating. It was the most bruised agency of the subprime crisis, mainly because of the sheer number of mortgage-backed securities it ended up rating -- almost twice the amount of Fitch, for instance, and almost a third more than Moody's.
For whatever reason, those issuing subprime securities preferred to have an S&P rating over a Moody's or Fitch rating, in a process which eventually became known as ratings shopping.
Now we're here again but in a different European context. This time the ratings agencies are accused of being inflexible, rigid, strict, too literal and unaccommodating.
In essence, the politicians appear to want the agencies to do their bidding.
Many of these politicians will no doubt complain a few years from now, when the next financial crisis erupts, that the ratings agencies are pushovers, only too willing to give the benefit of the doubt to companies (and countries) who are carrying far too much debt. Can they really have it both ways? Probably.