Belfast Telegraph

The little ratings agency that could cause chaos

T his is getting ridiculous. Only the other day we were happily wondering through the lush fields of recovery which had sprung from much talked-about green shoots. Now we're staring into the abyss of the second leg of a double dip recession.

We were chomping at the bit to get a piece of the action through a well-oiled export market. But where's the demand for our products going to come from now that the world's stock markets are pointing out that the sand on which the global economy has been rebuilt on is disappearing faster than a banker's bonus (that's a little harsh because this time it's actually not the banker's fault).

So who pulled the rug out from under the once sturdy feet of recovery?

Well, first up the dithering of US politicians in trying to reach agreement on upping the level of their debt ceiling didn't help. You can't help feeling that while they swaggered and postured like boys fighting for the affections of the pretty girl in 5K they drew a bit too much attention to the substance of their own economic foundations.

The credit ratings agencies saw the headlines and saw the market's slump in reaction to the political stalemate. Was this 2007 all over again? Well if it was to turn out to be the year when boom turned to bust then they weren't going to be caught sleeping again. After all, they were castigated for missing the start of the global recession, not a good thing when that's what you're paid for.

Some agencies - Moody's and Fitch - stood strong in the face of one of the worst weeks on record for stock markets but Standard and Poor's seemed a bit trigger-happy.

Rumours swirled all last week that S-amp;P had the decided to cut the US's credit rating to AA+ from the coveted AAA which the US Treasury had worn on its lapel like a badge of honour.

On Friday it confirmed, leaving traders with long positions with a sweaty weekend until markets reopened on Monday.

Monday's action was pretty predictable as traders dumped stock and share prices tumbled. Although the markets recovered a little there's still a big question mark over how an agency such as S-amp;P could become so powerful in determining the health of the world's economy.

"It's only doing its job," I hear you cry. But is it?

The US government was keen to find out how S-amp;P came to its conclusion to downgrade, so set about some counter analysis.

What it found was a $2 trillion hole in S-amp;P's calculations.

At this stage the well-worn plot would suggest that S-amp;P held its hands up and took itself off to a quiet corner. But this isn't any old plot and S-amp;P maintained that an AA+was all the US merited using some fancy Dan calculations.

"I beg your pardon," said the US Treasury. "Do you know who we are? We're the world's biggest economy."

"We're not shifting," said S-amp;P.

Boom. The Treasury launched an unprecedented attack on S-amp;P, accusing it of changing the rules to suit its new rating.

But with the markets spooked, trillions have now been lost in the value of the world's biggest companies, pensions and investments have been eroded and the very fabric of the economy has been rocked.

And if you don't think that'll have a big impact on Northern Ireland then look at the share price of Citigroup, one of the biggest employers on these shores. It fell 16% on Monday and although it recovered ground, there are worries that further losses could be on the cards for US bank shares, which can only be bad news for outlying branching like ours - not to mention other multinationals based here or indeed the multitude of ways in which a global slowdown would impact us.

All precipitated by a ratings agency trying to show it can stand up to the big boys.

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