Shoot the messenger [updated] | FT Alphaville

Shoot the messenger [updated]

How’s this for an ad hominem:




Incidentally, note the casual lack of a substantive counter-argument on the Greek government’s part.

No rejoinders to Moody’s on fiscal cuts or revenue collection — and no denial that the agency is wrong to begin factoring in a ‘voluntary’ bond exchange. We do get an insistence that Moody’s ignored the eurozone support structure for countries with ‘debt problems’ — but that’s the issue: Moody’s has looked at that support and quite rightly estimated that the post-2013 European Stabilisation Mechanism will neither draw investors to Greece, nor solve that ‘debt problem’

Now, ask yourselves — if this government is apt to shoot messengers so readily, what is it eventually going to do to investors?

What’s even odder is that Greece is already classed as junk by all three main rating agencies; and, of course, the agencies have been well behind investors in responding to the likelihood that the ESM proposal will ruin Greek bonds.

A bit late to shut them up now, no?

Update — Here are some excerpts from the finance ministry’s statement:

The rating downgrade announced by Moody’s today is completely unjustified as it does not reflect an objective and balanced assessment of the conditions Greece is presently facing. Furthermore, its timing and the multi-notch nature of the downgrade are incomprehensible and raise a number of questions.

Moody’s focuses its analysis exclusively on the downside risks and while mentioning the significant progress Greece has made in the implementation of its fiscal consolidation and structural reforms programme it does not actually incorporate in its analysis and ratings decision their upside impact on the economy…

The statement does actually address revenues — but not exactly collecting them, which is what Moody’s is worried about:

Furthermore, Moody’s announcement refers to the delay in the rebounding of budget revenues, yet does not take into account the increase in revenues of nearly 6% of GDP following the execution of the 2010 Budget despite GDP receding by 4.5% the same year. Moody’s continues further in anticipating the failure of policies that either have not been voted on yet – like the draft Tax Bill that is currently in Parliament – or are in the very early stages of implementation.

Finally, Moody’s refers to uncertain conditions in the Eurozone after 2013 and their impact on Greece’s debt, at a time when the European Union and the Eurozone are still formulating their policies and there is an explicit commitment from Member States to agree on a comprehensive solution to the crisis at the European Council in March. Moody’s explanation ignores completely the Eurozone Member States’ unequivocal and united expression of continued support for the sovereigns that face difficulties in accessing capital markets.

Ultimately, Moody’s downgrading of Greece’s debt reveals more about the misaligned incentives and the lack of accountability of credit rating agencies than the genuine state or prospects of the Greek economy. Having completely missed the build-up of risk that led to the global financial crisis in 2008, the rating agencies are now competing with each other to be the first to identify risks that will lead to the next crisis. At a time when the global economy is fragile and market sentiment is sensitive, unbalanced and unjustified rating decisions such as Moody’s today can initiate damaging self-fulfilling prophecies and certainly strengthen the arguments for tighter regulation of the rating agencies themselves.

Moody’s decision in no way affects the financing of the Hellenic Republic as it continues to draw funds from the Greek support mechanism…

So there!

Related link:
Interesting, odd and odious sovereign debt ideas – FT Alphaville