Moody’s Affirms U.S. Rating, Warns of Downgrades

[xchrom]

http://www.bloomberg.com/news/2011-08-02/u-s-aaa-rating-faces-moody-s-downgrade-on-debt-economic-slowdown-concern.html

Moody’s Investors Service and Fitch Ratings affirmed their AAA credit ratings for the U.S. while warning that downgrades were possible if lawmakers fail to enact debt reduction measures and the economy weakens.

The outlook for the U.S. grade is now negative, Moody’s said in a statement yesterday after President Barack Obama signed into law a plan to lift the nation’s borrowing limit and cut spending following months of wrangling between Democratic leaders and Republican lawmakers.

The compromise “is a positive step toward reducing the future path of the deficit and the debt levels,” Steven Hess, senior credit officer at Moody’s in New York, said in a telephone interview yesterday. “We do think more needs to be done to ensure a reduction in the debt to GDP ratio, for example, going forward.”

JPMorgan Chase & Co. estimated that a downgrade would raise U.S. borrowing costs by $100 billion a year, while Obama said it could hurt the broader economy by increasing consumer borrowing costs tied to Treasury rates. The ratio of general government debt, including state and local governments, to gross domestic product is projected to climb to 100 percent in 2012, the most of any AAA-ranked country, Fitch said in April.

[rucky]

1. I have one question.

Who are Moody's customers? How do they get paid?

[xchrom]

2. here's what i found:

http://en.wikipedia.org/wiki/Credit_rating_agency

CRA business models

Most credit rating agencies follow one of two business models. Originally, all CRAs relied on a "subscriber-based" business model where the CRA would not distribute the ratings for free but would instead only provide the ratings to subscribers to the CRA's publications. Subscription fees would provide the bulk of the CRA's income. Today, most smaller CRAs still rely on this business model, which proponents believe allows the CRA to publish ratings that are less likely to be tinged by certain types of conflicts of interest. By contrast, most large and medium-sized CRAs (including Moody's, S&P, Fitch, Japan Credit Ratings, R&I, A.M. Best and others) today rely on an "issuer-pays" business model in which most of the CRA's revenue comes from fees paid by the issuers themselves. Under this business model, while subscribers to the CRA's services are still provided with more detailed reports analyzing an issuer, these services are a minor source of income and most ratings are provided to the public for free. Proponents of this model argue that if the CRA relied only on subscriptions for income, the vast majority of bonds would go unrated since subscriber interest is low for all but the largest issuances. These proponents also argue that while they face a clear conflict of interest vis-a-vis the issuers they rate (as described above), the subscriber-based model also presents conflicts of interest, since a single subscriber may provide a large portion of a CRA's revenue and the CRA may feel obligated to publish ratings that support that subscriber's investment decisions.

[DonCoquixote]

3. were these not the same people

That blew the credit bubble that made the crisis?

[SpiralHawk]

4. Thanks a pantload, RepubliBaggers (R)

This is your shit, dumped on America and Americans...

[DCBob]

5. and reports coming out that S&P will do the same..

even though they said earlier the debt package had to be at least 4T in cuts.

[tularetom]

6. In an ideal world Moody's would have zero credibility

Since they kept giving AAA ratings to worthless mortgage bonds for much of the last decade and thus contributed in a big way to popping the real estate bubble and bringing on the current recession.

The US treasury needs to do what Lehman Bros. and other crooked bankers did - pay a little bribe to Moody's in return for a AAA rating.