Saturday, 9 July 2011

Moody's lazy screw up

Moody's has really taken a beating in the last few days in Europe. Their hard to understand, sudden, and dramatic downgrade of Portuguese debt has had people, from the FT and policymakers all the way down to blogs and facebook accounts, calling Moody's analysts names that range from incompetent to dishonest.

I don't agree, since I tend to see Moody's as a serious company that does a good job with often little information in tough circumstances. But the downgrade of Portuguese debt in 4 ratings to junk on Tuesday, is far from its best moments. Actually, it is a moment that the people there should be embarrassed about: it is hard to avoid the conclusion that, at least, they are lazy.

The downgrade decision was justified by Moody's on two accounts. First, the low growth of the Portuguese economy, the high budget deficit, and the political uncertainty on the government's ability to change things. But, these problems are years-old news, and nothing in the past week made them look worse. In fact, with recent elections giving 80% of the vote to parties that are committed to the IMF program, and the announcement of a surprise tax hike, the news has been moderately positive on those concerns. The only backing I can find for this Moody's argument is the revision down of growth forecasts and poor numbers on government spending in the first quarter. But these are week-old news. So, at best, Moody's analysis are right, but lazy, taking weeks to digest simple news.

Second, Moody's points to the new plan to "voluntarily" restructure Greek debt, and the suggestion that this plan could be offered to Portugal's creditors as well. This makes a lot of sense to me, although the Sarkozy plan is very far from likely being adopted. As Alvaro puts it below, it puts the blame of the downgrade squarely on the EU's too-frequent grand announcements and retreats. But if this European shock justifies a 4-level downgrading of Portugal, how can it not involve an even modest change in outlook for Ireland, Spain or Italy? Again, the only explanation that I can come up with is that Moody is being lazy, and will downgrade those ratings too but only in the next few weeks, when it gets around to it.

A downgrade a week or two earlier I could understand; a downgrade later for a group of European countries, including Portugal, would be a gamble, but hey that's forecasting. A downgrade last Tuesday just seems like laziness.

Incomplete information is a fact of life. Poor economic models are a trap for anyone who ventures into forecasting. But laziness is an embarrassing attribute for people monitoring credit.

More on this in Portuguese in today's Expresso.


  1. "In fact, with recent elections giving 80% of the vote to parties that are committed to the IMF program"

    Not quite, I would say 45,5%, and NOT all those electors are committed to the IMF program.

    All electors.............9.624.133
    Percentage................ 45,5%

  2. Dédé, you need to read it properly. It says 80% of the VOTE. Not all possible voters have voted on the last election. By your figures, we wouldn't even have a Government with two of those political parties.

  3. The slight probability of Portugal in the future having difficulties needing some help from creditors to extend payment deadlines is no reason to justify a downgrade to junk. About the economy being stagnant, as well pointed out, old problem which has brought us to the current rating level.
    At most, the two justifications they gave plus the extra tax and the measures already taken by the new govern would justify keeping the rating, never a downgrade to junk. Portugal can still pay and is paying.
    I would probably go into some of the conspiracy theories: a speculative fight against the Euro picking up on the most vulnerable countries; a speculative attack of Portugal's biggest companies market value, and companies being privatized, so they are cheaper to buy*; a way to rip off more interest rates from a debt junky.

    *- Capital Group, which owns part of Moody's also has a 10% participation in Portugal Telecom, for instance.

    @DéDé, please rant about abstention elsewhere. People that don't want to vote, don't vote and that's it.

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  5. Same shit different day.... Nothing has changed. This week our beloved prime-minister, or that's what he calls himself, said that the Moody's upgrade on Portugal was a positive sign... a positive sign for who I wonder! After all of this we still take in consideration these international mercenary finance companies who work for the highest bitter (Moody, S&P and so on). Where were these cocained yuppies in 2008 when the yankee subprime bubble busted... AIG with an AAA+ note... please. The economic war is global and we were the weakest link along with Greece and Spain. However it's true that Portugal has many economic and structural problems that have to be solved starting with a working justice system that will incarcerate corrupt politicians, battle tax evasion, end the parallel economy and put the banking corporations in its place. In no other country in the world we would a have an idiot like Paulo Portas lie to the Portuguese by giving a new meaning to the word "irrevogável". This idiot almost brought Portugal to its knees in mid-2013 because he didn't get what he wanted. What I don’t understand is how Portuguese emigrants are seen as hard working people all over the world... but here nothing works, nothing gets done. I wonder why?
    Another thing is our media, which is completely sucked in by the system (and in some cases part of it). How is it possible that our main opinion makers that grasp the prime-time audiences are made by ex-politicians, politicians, 5th level economists and other idiots... elitists commenting on the crap they did. In no other so called civilized country would this be possible. People would simply not accept this.
    We do have honest and serious economists, journalists, sociologists and scientists with valid theories and opinions on how to overcome this situation caused by this brainless so called elite that is more concerned in protecting each other’s interests, than in developing the country.

  6. In Portugal I am the customer, the buyer and the manufacturers will not send me the goods or send me a short order or very often they would tell that they shipped to the wrong warehouse or even the wrong city. And so I am forced to wait for a few more week and sometimes after waiting for 3 or 5 months I am told that my order simply can not be fulfilled. If the country was run by communists, I would understand... Thanks for quite friendly people in Portugal which makes things a bit easier. Don't worry, I will wait, I love waiting and finally receiving at least part of my order, even if some of it is damaged. After all, it is a nice country.