Although Moody’s fully expected political wrangling prior to an increase in the statutory debt limit, the degree of entrenchment into conflicting positions has exceeded expectations. The heightened polarization over the debt limit has increased the odds of a short-lived default. If this situation remains unchanged in coming weeks, Moody’s will place the rating under review. [WSJ]
The U.S. is the only large AAA-rated country that saw its debt rise during the crisis that until recently had no plan that would reverse the trend, said Steven Hess, senior credit officer at Moody’s. Budget cuts would mean the U.S. wouldn’t likely sell as much debt, which has grown to $9.13 trillion in marketable Treasuries from $4.34 billion in mid-2007 as the government boosted spending to pull the economy out of recession. “It seems both sides of this debate are now targeting lower debt and lower deficits,” said Hess, based on the president’s speech today. “We do see this as a turning point in terms of the debate. We would view that as a positive, but we’ll have to wait to see the outcome.” [Bloomberg]
The ratings agency is good for something! Read more »
Warren Buffett called rising prices on everything from houses to Internet stocks “a narcotic” that blinds people to all kinds of risks in the system. He suggested Moody’s, which was supposed to be watching out for these risks, simply took too much of the drug. But, shit, everyone was shooting up during the bubble.
“They made the wrong the call,” Buffett said. But he added: “The entire American public was caught up in the a belief that housing prices could not fall dramatically. “When your next door neighbor is making money very easily by buying a second home, you start thinking ‘maybe I should do that too.’” Read more »