Wednesday, 14 March 2012

Fitch joins Moody's in shooting itself in the foot, again

Fitch have now followed Moody's in putting the UK's credit rating on negative watch, with just as little excuse. This may be perceived as somewhat embarrassing for the government, coming as it does immediately after the Chancellor announced plans to take advantage of "market confidence" in the UK to issue a 100 year bond or even a perpetual gilt. 


I discussed here why UK interest rates are indeed likely to rise at some point. But this has nothing to do with the ratings agencies.  As I explained in this post, whatever one thinks of the government's economic policy, their opinions should be ignored by commentators and the public; and will, I believe, be ignored by the markets. For anyone who is tempted even for a moment to take what Fitch says seriously, I highly recommend reading this, from July 2007:
"Subprime mortgage bonds carrying the highest, "AAA," rating have not eroded in quality despite price declines in the securities in recent days, Fitch Ratings said."
Equally, of course, the Treasury's attempts to claim that Fitch's actions in some way vindicate the government's approach fiscal policy defy both logic and economics. We should be making policy on the basis of what's right for the UK, not on the basis of the opinions of completely discredited organisations. 

2 comments:

  1. Always good to read someone having a go at pompous rating agencies (though I enjoyed the one on moodys more). I wonder what they will say when (if?) the economy starts recovering, and interest rates go up (and gilt prices down). Will that be a vindication for them, or will they shut up and leave us alone?

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  2. "Discredited" hardly does it justice. They should have been prosecuted for the sub-prime mortgage scam.

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