My reading of Quiggins article was that he was saying that credit ratings should be applied with consistency. I didn’t read his as saying that the rating agencies should go soft on governments. I agree that his usual ethos is pro-public sector for just about everything but I prefer to deal with the specifics of his article.

I know that credit ratings matter and I know they are for the wholesale market. However my point was that if they confuse me it is of no real consequence as I don’t use them. However if they confuse the bankers and market makers that I rely on then that is a concern. You and Pommy work in the finance sector so if you two are either wrong or confuse that is a bad sign. If Quiggin or Terje is confused or wrong then that would be a point of note but not such a worry as neither of us are operatives in this sector of the economy. So the question in my mind is “are those that use credit ratings clear about what they mean?”. One would like to hope so. Quiggin seems to suggest that some fund managers and some regulators that rely on credit ratings are confused.

You’ve confused me. As far as I know sovereign debt has different meaning. It has to as it can’t be analyzed in the same way as say GE.

We’re not talking about ratings that consumer’s use in deciding which banks they use, we’re talking about wholesale type of insto’s figuring out valuations etc. for securities or credit lines between themselves etc.

Quiggin’s suggestion that people move away from corporate bonds to sovereign supported debt is the biggest problem. Taking his suggestion to it’s abused conclusion would probably cause the collapse of the western world’s financial and most of Main Street as well, as it would mean even prime borrowers like GE are locked of the corporate bond market.

When it’s all said and done the real fault with this credit mess can be put right back to the governing authorities in the US for causing this mess. They allowed interest rates to remain to low for too long. They pressured the banking system to lend to people that couldn’t afford to repay loans accusing the banking system of racist lending practices thereby planting the seed of destruction by loosening credit standards. Finally the semi government institutions distorted the market such as Freddie Mac etcetera. There was no bloody market failure. This was government failure.

Of couse it wouldn’t be the first industry to adopt obscure terms filled with pitfalls and contradictions ready to trip up the unwary. It reminds me of the term flamable versus imflamable.

But in his next paragraph he mentions this himself, saying “Defenders of the current system say that sophisticated investors understand that the letter grades assigned to corporate bonds and municipal debt mean different things”.

It seems as though JQ is aware of this issue and was using his first paragraph as a bit of rhetorical flourish to spice the interest of the reader. You were right to pick him up on it.

He goes on to make the relevant point that some investment requirements and advertisements fail to make the distinction, and this is potentially a problem. That’s a fair point.

Though if JQ knows of the difference between sovereign and corporate assessments, his introductory paragraph is wrong, and he seems to be contradicting himself.

I understand them to have a different classification when it’s to do with sovereign debt compared to the rest.

Then again i always tried to nod off at friday afternoon credit committee meetings. Ever go to one of those meets, pom. It’s how I envisaged hell. I never thought of hell as frightening. I always thought it would a credit meeting on a summer day on Friday in NYC…….. for eternity.

Quiggin is suggesting a move away from corporate debt which is of course bonkers.

However, from memory, i do believe that the agencies rate in a uniform manner across different classes of debt, whether sovereign, bank or corporate. A rating is simply the probability of you not being paid on time.

He’s bascially comparing corporate to sovereign ratings in the above comment. You can’t compare. This is basic stuff.

Moreover he’s actually suggesting as I said earlier that people ought to move away from corporate debt. This is a truly unique assertion to make even for Quiggin.

And why do you think I was changing the topic? What I said seems entirely relevant. If I’ve got it wrong I’m happy to have it explained.