All Moody’s fixations on Italy
The article by Mario Lettieri and Paolo Raimondi
Here they are again. The three sisters of the rating return to make themselves heard with their superficial report cards on the Italian economy and politics. The first is the Moody's agency and the other two, Standard & Poor's and Fitch.
We all know that Italy has a high public debt. Just as we know of the other problems of a political and economic nature. Of course we also know the positive sides of Italy, including the propensity to save, entrepreneurial ability, its excellence in the fields of science, technology and culture in general. Things that are obviously neglected by the critics.
Moody's repeats the same old litanies of the past years. For example, there will be a weakening of the growth prospects if the reforms are not implemented, today also those foreseen by the NRP. Then, that the geopolitical uncertainties and the energy crisis are an aggravation of the economic and social situation all Italians who pay the bills for electricity, gas and the increased cost of living know.
The agency "gives us" a Baa3 rating with a negative outlook. This means that Italy is at the bottom step of the investment grade (level of investment reliability). At this stage, long-term bonds are subject to moderate credit risk, with speculative characteristics. Below this step is the non-investment grade, where the risks are higher, lower and lower to the threshold of true failure.
It is intolerable that their assessments of states are essentially of a political nature. When, however, they had allowed themselves to question the reliability of US Treasury bonds, they received a loud slap in the face from the then Obama administration and chose silence. Not for Europe.
Their ratings have important consequences for national finances and economies. For example, a BBB-rated government bond cannot be bought and held on the balance sheet by many private financial institutions, such as insurance companies and pension funds.
More seriously, states and governments would not be able to pledge these BBBs to obtain credit, for example from the European Central Bank. This is contained in a directive of the ECB itself.
Once again we ask ourselves the reason for so much masochism on the part of Europe and its governments. The president of the council of ministers, Mario Draghi, knows this problem better than anyone else, having long been president of the ECB. He had even raised doubts about their reliability, but to no avail.
On the other hand, the reason for credibility is given to the opinion of agencies that played an actively negative role in the great financial crisis of 2008. At that time, the investigative commission of the US Senate had ruled that they had been jointly responsible for the crisis, having distributed extremely high AAA ratings to securities and financial derivatives that would soon collapse.
Agencies wouldn't make big profits with governments. With private companies, on the other hand, they would do many. But being able to judge the behavior of governments and states gives them enormous power. Their market is always thriving. Moody's controls about 40%, follows with slightly less S&P and more distant Fitch. Not surprisingly, executives from all major American and international banks sit on their boards of directors and management committees.
They are private American corporations whose share capital is controlled by private firms and funds. For Moody's, 13.4 is in the hands of the holding company Berkshire Hathway of the banker and speculator Warren Buffet, then come the investment funds Vanguard and Blackrock. The latter two are also the largest shareholders, each with over 8%, of S&P.
Vanguard and Blackrock, with the other SSGA fund, are the top powers of the so-called non-banking financial institutions (nbfi) sector, with assets estimated at $ 14 trillion in 2019 and with significant equity investments in major American corporations.
The rating agencies have been subjected to many investigations. But they seem sportier than ever.
What are the European authorities missing to put the brakes on their raids? We would not like these to play the part of the three monkeys who do not see, hear and do not speak.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/tutte-le-fissazioni-di-moodys-sullitalia/ on Sun, 16 Oct 2022 05:31:59 +0000.