My Photo

Blog powered by Typepad


« March 30th Afternoon: The Recession Diaries | Main | April 2nd Afternoon: The Recession Diaries »

March 31, 2009


Gerard O'Neill

"credit rating agencies – ironically the beneficiaries of a US government licensed and protected oligopoly"

Kinda significant point there Michael that you slipped by. Maybe a case for less government intervention for a change?

And yes, let's get rid of all rating agency licencing and let the market figure it out for itself.

Longman Oz

The general reaction today to the one notch downgrade is quite disproportionate to what it signifies and suggests a lack of understanding of what credit ratings actually mean.

For example, some economists have been predicting that we will be bankrupt within months. If S&P in anyway agreed with that view, we would have been cut several more times over already. Instead, they see AA as only being a small bit different to AAA (source - their website).

In context, Ireland retains the second best place on a 22-notch scale, where only the last place means that a payment default has already occurred.

Moreover, the truth is that the market has long ceased to view Irish debt as being AAA-equivalent, given that our borrowing costs have been higher for months now compared to other AAA-rated countries.

Indeed, the fact that the FT reported it as a two-inch story in its news digest tells you how "old news" this downgrade is in terms of the international perception of Irish sovereign risk.

What the downgrade will mean, though, is that certain types of low-risk investors will no longer be permitted by their internal regulations to invest in Irish debt.

Anyway, a 1 or 2 notch downgrade has seemed like an inevitability ever since that deficit began to bloom and the banks risked collapse last Sept/Oct. The real question to ask is where will these downgrades end? Again, watch our debt pricing against those of other countries of a similar rating for a heavy clue on that.

Pavement Trauma

If the credit ratings agencies really had it in for us, they would have downgraded us a lot faster and a lot more notches than they have. God knows there is evidence enough of the deterioration in our credit worthiness.

For all their evident faults and conflicts of interest, I don't think it is credible to say credit rating agencies have a distinct 'political' agenda as such. They support 'fiscal conversatism' because that is what benefits their customers - those institutions that provide credit to others, whether sovereign or otherwise.

Does anyone really believe that Ireland or any other Eurozone country will, or be allowed to, default on its debt?
I don't think it is likely, but it is possible. We don't know how long or deep this recession is going to be.


1. S&P are at the centre of the financial complex that created this mess.
2. The abstraction of "the international markets" is being used as a bogey man to frighten us into accepting austerity. Again, it was "the markets", at home and away, that caused the crisis.
3. Interest is money for having money. Big interest is a form of theft. Increasing interest charged in proportion to the borrowers difficulties is increasing extraction in proportion to weakness.
4. A resolution to crises is not the satisfaction of "the international markets" but the ending of dependence on "the international markets" (the international bankers and financiers) and of their economic power.

Pavement Trauma

D_D: We have a large budget deficit, that means we need to borrow a large amount of money. To a large extent we borrow this money in "the international markets" that is from pension funds, banks, insurance companies, mutual funds etc. They do not have to 'risk' their money by lending to us, they risk it to get a return - the interest. The higher the perceived risk of lending to us, the higher the interest we pay.


PT: This is a description of the situation which I suggested needs to be transcended if it is not to be continually repeated.

The large budget deficit did not just happen either. It is the result of a low-tax (to big business and big earners) economy, the collapse of revenue from a construction and building bubble and the recessionary effects of the international crisis of which the listed institutions are a direct cause.

'We' seem to have dealt with the banks' deficits without the need to borrow. Is there more of that money to help with the budget deficit?

Pavement Trauma

The way to end our dependence on the "the international markets" (the international bankers and financiers) - to use your phrase - is to run government surpluses until our national debt is reduced to a neglible size. Good luck with making that argument in the current environment.

--'We' seem to have dealt with the banks' deficit without the need to borrow.
'We' (recklessly in my opinion) gave explicit guarantees over the banks' debts that if any substantial proportion of them were ever to be called in, we'd be bankrupt quicker than I can spell check 'Reykjavic'. The banks' deficits are not nearly sorted out yet.

I don't particularly disagree with you about the causes of the various crises. For now the market of matching lenders and borrowers is conducted by many of the same institutions culpable for the mess the world is in. We would still be in the same fiscal pickle if it was the Salvation Army dishing out the loans. The fact is people lending out money want to be paid back - and with interest. We could choose not to pay them back by defaulting on our national debts but the consequences of that would be worse again. Any alternative suggestions you might have are welcome.

Michael Taft

Yes, Gerard, I thought you might pick up on that. But don't forget, I helped write the ATGWU document calling for electricity prices to be set by the market (and we were labeled left-wing!). I have never made the mistake of confusing neo-liberals with doctranaiire fiscal conservativism or pro-competition. Finance and multi-national capital is quite willing to argue for large government spending (bail-outs, Iraq war contracts) and limit competition when it suits them. Ultimately, the argument is about power.

Longman Oz, excellent points. This is a long-game - it would help if we could change managers at half-time.

D_D - excellent synopsis, brief and to the point. You should write a blog of you own. We need more clear-headed analysis like that out in the world - even the blogging world. I'd link to you.

Pavement Trauma - I don't doubt the problems this will create for us. After all, this is the man's world. You state 'They support fiscal conversatism because that is what benefits their customers'. That may be true but as the US Congressional hearings showed, their first interest wasn't their clients nor probity. Their sharp practices were such that it was difficult to determine who benefitted - except, of course, their collective bottom line. Yes, we will have to borrow - but financial perception is as much political perception as anything else. We need a politics that is concerned with ending the recessionary decline, put people back to work and bring the banks into public ownership to sort out financial system (and be seen to be doing so). That would help not only the NTMA but more importantly - everyone living in this country.

The comments to this entry are closed.