We rate Moody’s as ’junk’
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Oluşturulma Tarihi: Haziran 17, 2009 00:00
If we were trying to determine our health or wellness, our first choice would certainly be to consult a doctor. If a qualified physician were not available, we would probably work our way down a list of medical professionals: nurse, paramedic, veterinarian. If nothing else, we might hear the advice of a witch doctor shaking amulets. But we would be cautious about accepting it.
The role of ratings agencies in the world economy generally, and toward the Turkish economy specifically, is almost precisely analogous to the imaginary scenario described above. Except for the caution part.
Absent a better alternative, the world has relied too long on ratings witchcraft. Ratings agencies are notoriously poor at both diagnosis and prescription. Even before they served as midwives to the sub-prime mortgage crisis in the United States that ultimately dragged the world into its vortex, Fitch, Moody’s and Standard & Poor’s had earned their share of black eyes.
One eye-grabber was the collapse of Enron, the energy giant that evaporated in 2001 along with $62 billion in other peoples’ money. CEO Jeffrey Skilling was ultimately sentenced to 24 years in prison in 2006.
And guess what? The day that Enron entered bankruptcy, it was still sporting an investment-grade rating from these internationally respected arbiters of financial soundness.
Many, including us at the Daily News, have long complained of the hegemony of ratings agencies. Does the world need some handy guide to good and bad investment? Sure. But the methodology that, for example, establishes a ceiling on a company’s credibility that can be no greater than the "sovereign rating" of the country within which it is domiciled has always struck us as inherently unfair.
Pick a respected Turkish company: Alarko, for example. It might be much more sound than many Swiss companies and probably is. But it can’t be rated any higher than the "sovereign" rating given Turkish bonds. The Swiss competitor, meanwhile, may be more indebted and carrying greater risk, but it can access cheaper credit.
This is just an example, of course. We could provide others. Even the familiar Aaa or Bba- or bbA+ of ratings jargon is no more scientific than a witch doctor’s charm bracelet. They all use the same 21-point scale; they just differentiate their symbols to make the analysis look more impressive.
So we were heartened the other day by our report that Timothy Ash of the Royal Bank of Scotland finally called it straight. Latvia, posting a 15 to 20 percent GDP contraction, a budget deficit nearly twice that of Turkey and other woes that make Turkey look comparatively like an investor’s paradise, was awarded a rating three notches above Turkey. "Rating agencies... never seek to amaze me," said Ash in an investors’ note.
They never cease to amaze us either. It’s time to move beyond witchcraft and into economic diagnosis.
Absent a better alternative, the world has relied too long on ratings witchcraft. Ratings agencies are notoriously poor at both diagnosis and prescription. Even before they served as midwives to the sub-prime mortgage crisis in the United States that ultimately dragged the world into its vortex, Fitch, Moody’s and Standard & Poor’s had earned their share of black eyes.
One eye-grabber was the collapse of Enron, the energy giant that evaporated in 2001 along with $62 billion in other peoples’ money. CEO Jeffrey Skilling was ultimately sentenced to 24 years in prison in 2006.
And guess what? The day that Enron entered bankruptcy, it was still sporting an investment-grade rating from these internationally respected arbiters of financial soundness.
Many, including us at the Daily News, have long complained of the hegemony of ratings agencies. Does the world need some handy guide to good and bad investment? Sure. But the methodology that, for example, establishes a ceiling on a company’s credibility that can be no greater than the "sovereign rating" of the country within which it is domiciled has always struck us as inherently unfair.
Pick a respected Turkish company: Alarko, for example. It might be much more sound than many Swiss companies and probably is. But it can’t be rated any higher than the "sovereign" rating given Turkish bonds. The Swiss competitor, meanwhile, may be more indebted and carrying greater risk, but it can access cheaper credit.
This is just an example, of course. We could provide others. Even the familiar Aaa or Bba- or bbA+ of ratings jargon is no more scientific than a witch doctor’s charm bracelet. They all use the same 21-point scale; they just differentiate their symbols to make the analysis look more impressive.
So we were heartened the other day by our report that Timothy Ash of the Royal Bank of Scotland finally called it straight. Latvia, posting a 15 to 20 percent GDP contraction, a budget deficit nearly twice that of Turkey and other woes that make Turkey look comparatively like an investor’s paradise, was awarded a rating three notches above Turkey. "Rating agencies... never seek to amaze me," said Ash in an investors’ note.
They never cease to amaze us either. It’s time to move beyond witchcraft and into economic diagnosis.