Head over to our T
The ratings treadmill
Read more about: Economy 
In what will be seen as an unpleasant start to the holiday weekend by the government, rating agency Standard and Poors has put Bank of Ireland and AIB on review for a possible debt downgrade. This follows S&P’s indication that they weren’t especially impressed with the sovereign debt either. The specific concern is lack of clarity about how NAMA will work (highlighting again that announcing it before having legislation even remotely ready to go was a mistake) and in particular what shape bank capital will be in after NAMA buys the bad property stuff. Not least because there’ll still be a recession and still lots of loans that could go bad, even if the NAMA haircut hasn’t already put a major dent in capital. The Irish Economy experts will no doubt see this as their main fear being confirmed, since the S&P logic invites NAMA to overpay for bank assets. Incidentally, S&P also criticised Dubai on similar grounds — lack of clarity about bailouts. That’s the company we’re in now!
A little rich from the likes of S and P considering they were handing out AAA ratings like smarties to subprime lenders during the “boom time” for fear their competitors would get their first.
If you get a chance, take a look at the “How we blew the boom” episode of Dispatches which should still be on Channel 4′s 4oD.
That thought came to my mind squid. I think the breathless way in which S&Ps analyses are received as if self-evident truths from the mountain (and I’m not suggesting that’s you P O’Neill, but it is the Irish media) is absurd… These guys aren’t objective bystanders, they’re part of the problem…
Agreed. That’s why I called it a treadmill. But the problem is that these ratings still influence the cost of financing for banks and the government. Which makes for a self-fulfilling element to what they say.
That’s absolutely true P O’Neill. What astounds me is that governments are willing to allow themselves to be critiqued in this way by agencies whose m.o. has been proven to be incorrect, particularly in the last two to five years. I’d have thought that some sort of agreed response by EU govts would be in order, but of course that probably doesn’t benefit the views of the ECB as to how markets should operate etc. etc .