A chocolate teapot, the Pope’s balls and an AAA rating from S&P

by Daniel on May 22, 2009

Standard & Poors have issued a Very Serious Warning to the UK, with regard to its AAA credit rating. I reach into the archives and pull out John’s excellent article on the general subject.

{ 31 comments }

1

ajay 05.22.09 at 9:11 am

The practice of rating agencies judging municipal debt far more harshly than corporate debt, mentioned by JQ in the earlier post, is the subject of a bill going through congress at the moment.
I understand that credit ratings count as “speech” and are protected in the US by the first amendment, but I wonder if they could be attacked in England under our famously weird libel laws? A downgrade is, after all, obviously damaging…

2

John Kozak 05.22.09 at 9:15 am

Time once more to invoke that Anti-Terrorism Act used against the Icelandic banks, perhaps?

3

Nick Valvo 05.22.09 at 9:28 am

Ajay: The history of credit ratings and libel in the United States is also a bit vexed. Their first amendment protection was not inevitable. The early credit rating agencies (like The Mercantile Agency) kept single copies of their reports, so that they could be destroyed if the Feds showed up. Those in need of information would come to the shop to look in the books. There was a court case, the name of which eludes me at present, dismissed on technicality in the middle 19c. Before another challenge was leveled, credit reporting had become such a widespread institution as to be self-legitimating.

4

Ginger Yellow 05.22.09 at 10:51 am

You can’t libel a public body in England – see Derbyshire County Council v Times Newspapers.

5

Barry 05.22.09 at 12:28 pm

Considering that the three big rating agencies in the USA rated the ‘toxic waste’ as Good Stuff right up until the end, the solution is not civil, but legal. As many people in those agencies as legally possible should be put into prison for as long as legally possible.

Twenty years from now, if some big shot at a successor company sees a minor item in the NYT or WSJ about some S&P at age 70, after doing 20 hard years, while others are still looking forward to another decade behind bars, it might put a damper on the next bubble.
If not, expect a worse buble next time, because the major lesson will be that We Can Get Away With It.

6

Barry 05.22.09 at 12:34 pm

I give in – google, wikipedia, wikiquotes, bartelby’s – none have the original reference for the title. I’m guessing the original named three useless things. Am I right?

7

Tim Wilkinson 05.22.09 at 12:46 pm

@4 – Legal speculation from man in pub: I suppose the relationship between HMG and S&P is not one of sufficient proximity for a claim in negligence along Spring v Guardian Assurance lines? Injurious falsehood a possibility if only they could establish malice?

8

Righteous Bubba 05.22.09 at 12:56 pm

9

Barry 05.22.09 at 12:57 pm

From what I (not a lawyer, and an American) have gathered from the media, is there actually *anything* that the UK government can do which would open it’s executive to civil or criminal charges? I really think that Great Britain needs a revolution.

10

praisegod barebones 05.22.09 at 1:15 pm

Barry at 9:

The usual things are: Levy taxes without consulting parliament, arrest MPs (or try to), and make the church of England Catholic.

But in my experience, you normally have to have a revolution before you can have the trial.

11

Gdr 05.22.09 at 2:06 pm

I really think that Great Britain needs a revolution.

We had one already, but thank you anyway.

12

ajay 05.22.09 at 2:25 pm

Two, if you count the Civil War as separate from the Glorious Revolution.

4: Very interesting. I did not know that.

is there actually anything that the UK government can do which would open it’s executive to civil or criminal charges?

Any breach of international law would leave members of the executive open to prosecution by the ICC, if UK courts refused to prosecute. And certainly the Crown can be sued – sovereign immunity ended in 1947. And the members of the executive aren’t immune from prosecution for any offence. Not quite sure what point you think you’re making here.

13

praisegod barebones 05.22.09 at 2:46 pm

Gdr, Ajay: that’s what I was trying to say, in my indirect manner. Of course, James Stuart didn’t get indicted, unlike his father.

14

dsquared 05.22.09 at 3:07 pm

6: I bowdlerised it for the headline; the original line is from the Lionel Blair character in “Absolute Beginners” and refers to the three most useless things in the world as being “the pope’s balls, a nun’s tits and a good review in the Record Mirror”

Other titles considered but rejected included references to “Anne Frank’s drum kit” and “a marzipan dildo”, the last one being taken from “The Thick Of It”

15

Ginger Yellow 05.22.09 at 4:18 pm

ajay: I should probably add, before you start defaming left, right and centre, that while you can’t libel, say, the Department of Health, you can libel the Secretary of State for Health acting in his official capacity.

16

Hidari 05.22.09 at 6:07 pm

‘Glorious Revolution.’

I think you will find the so-called ‘Glorious’ so-called ‘Revolution’ was in fact an invasion by the Dutch.

Incidentally, not particularly on topic but there is a good article in the LRB about Britain’s economy: http://www.lrb.co.uk/v31/n10/lanc01_.html

It contains the prediction that we (the British) are about to get ‘fucked off a cliff’ which conjured up a particularly disturbing visual image, in my mind at least.

It ends: ‘the current model has failed. The brakes-off, deregulate or die, privatise or stagnate, lunch is for wimps, greed is good, what’s good for the financial sector is good for the economy model; the sack the bottom 10 per cent, bonus-driven, if you can’t measure it, it isn’t real model; the model that spread from the City to government and from there through the whole culture, in which the idea of value has gradually faded to be replaced by the idea of price. Thatcher began, and Labour continued, the switch towards an economy which was reliant on financial services at the expense of other areas of society. What was equally damaging for Britain was the hegemony of economic, or quasi-economic, thinking. The economic metaphor came to be applied to every aspect of modern life, especially the areas where it simply didn’t belong. In fields such as education, equality of opportunity, health, employees’ rights, the social contract and culture, the first conversation to happen should be about values; then you have the conversation about costs. In Britain in the last 20 to 30 years that has all been the wrong way round. There was a reverse takeover, in which City values came to dominate the whole of British life.’

Discuss.

17

Clarity 05.22.09 at 6:11 pm

Gd, no, that was the French.

I don’t see how people expect us Brits to start a revolution. Perhaps we should bash teapots about and speak about the weather in an extremely loud tone.

18

chris y 05.22.09 at 7:02 pm

is there actually anything that the UK government can do which would open it’s executive to civil or criminal charges?

The influence of the crown has increased, is increasing, and ought to be diminished.

19

sash 05.22.09 at 10:09 pm

I’m confused. Isn’t the sovereign debt of the UK issued in pounds sterling? How and why would the UK ever default on pound denominated debt? Aren’t mature UK bonds the equivalent to the UK currency? Admittedly, there may be an inflationalry risk, but I didn’t think the rating agency expressed a view on that. just timely paymenet.

(Obviously the situation would be diffenernt for a national or local government that didn’t have the right to print currency in the denomination of the bond issue.0

20

vivian 05.23.09 at 1:10 am

Daniel@14: Your rejected images make good names for garage bands.

21

Watson Aname 05.23.09 at 4:47 am

@20 besides, there are myriad uses of a marzipan dildo, for starters.

22

chris y 05.23.09 at 12:30 pm

I think you will find the so-called ‘Glorious’ so-called ‘Revolution’ was in fact an invasion by the Dutch.

I think you will find it was actually a successful conspiracy by one faction of the ruling class to reduce the influence of anoth by replacing the king with his nearest adult relative, who happened to be married to his nearest adult male relative.

23

dave heasman 05.24.09 at 1:29 am

“the pope’s balls, a nun’s tits and a good review in the Record Mirror”

Absolute Beginners was, Ibelieve, set in 1958. (I’ve not read it nor seen the film)
In 1958 a good review in Record Mirror was indeed worthless; looking at it a couple of years later I can’t imagine who’d have read it – there were 4 weekly record business papers then & the RM was so stuck for content it actually printed the chart returns from individual record shops, and still noone went round to fix the charts. It all changed in 1961 when it took on Ian Dove & Norman Jopling and started being the English R n B rag. The change was practically overnight. Didn’t stop it folding, of course.

24

g 05.25.09 at 12:59 am

@21: … or, perhaps better, for dessert.

25

Ginger Yellow 05.25.09 at 8:57 am

“I’m confused. Isn’t the sovereign debt of the UK issued in pounds sterling? How and why would the UK ever default on pound denominated debt? Aren’t mature UK bonds the equivalent to the UK currency? Admittedly, there may be an inflationalry risk, but I didn’t think the rating agency expressed a view on that. just timely paymenet.”

Well, that may be why the rating agency hasn’t downgraded the UK, and if it did would do so only to another rating that expresses an extremely high confidence of repayment.

The reason countries that only issue domestic currency debt are rated below AAA is that fiscal and monetary constraints may in dire circumstances make non-payment of debt a better (or more palatable) alternative than printing money. It was only 30 years ago that the UK had to go cap in hand to the IMF, after all.

26

ajay 05.26.09 at 10:49 am

15: and one could libel, collectively, the members of a sufficiently small government agency. I probably could say “the Department of Health is full of corrupt incompetents” because it’s too big for any individual employee to be damaged, but if I said “office X is full of corrupt incompetents” and office X had only six people in it, then that’s actionable. This has come up in cases involving, for example, the CID at one particular police station.

17: clarity, I think the Civil War counts as a revolution. Given it ended up with a completely new system of government and a bisected monarch, I don’t see what else it could be. Point taken on 1688, though I think the Bill of Rights and the Act of Settlement are worth a mention…

27

Ginger Yellow 05.26.09 at 1:10 pm

26: It also came up with one of our sister publications. Thankfully we had no assets in the jurisdiction in which we were sued.

28

lemuel pitkin 05.26.09 at 1:34 pm

Isn’t the sovereign debt of the UK issued in pounds sterling? How and why would the UK ever default on pound denominated debt?

My reaction exactly. I find it far more plausible that a rating agency would issue a bogus warning to advance the interests of the financial sector, than that a major industrialized country would default on debt in its own currency.

29

Chris Williams 05.26.09 at 2:27 pm

Didn’t the UK default between 1797 and 1821, by suspending gold payments – in effect running a rather large war on a series of IOUs?

30

lemuel pitkin 05.26.09 at 2:36 pm

Chris Williams-

I have no idea but (1) a debt denominated in gold is not a debt denominated in your own currency — that’s the whole point; and (2) in the absence of modern tax system fiscal capacity was low and inelastic.

31

john b 05.26.09 at 3:57 pm

Re: 25, can anyone confirm whether it’s fair of me to assume that anyone who uses the phrase ‘cap in hand to the IMF‘ to describe the UK’s actions in the 1970s is pushing some kind of dishonest Thatcherite agenda?

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