Now, you all know that I have my own reservations about Kodak's future. So you might think I'd be alarmed seeing Kodak's name on a list that Moody's put out called "The Bottom Rung" that contained companies that Moody's thought were at high risk of defaulting on their debt.
Bwaaa ha ha!
For those who don't know what Moody's is, it is a debt rating agency. It's job, along with Fitch's and Standard and Poor's, is to estimate the risk of default on debt instruments. Fair enough - the list represents Moody's doing its job. That's not what's so funny.
What disturbs me a little bit in the current economic environment, between Liberals blaming the bankers and Conservatives blaming the government, is how little blame the ratings agencies have gotten. I have heard the analogy "The banks behaved like alcoholics and the Fed ran an open bar.", which seems about right: The banks destroyed themselves with a myopic focus on short-term profit and the Fed happily enabled them. If we continue the analogy, though, then the ratings agencies were reputable doctors saying that alcohol is safer than water.
Thought about another way, if I am a customer of Wells Fargo or Goldman Sachs, I can still get my money out. While they've taken losses, they're still doing their main job. Similarly, the Fed's mandate is to promote price stability. While they've done a miserable job of that with asset (e.g., house) prices, I can still go down to the store and buy groceries for more or less what I paid for them last year. Again, continues to do its main job reasonably well, in spite of everything.
Meanwhile, the ratings agencies have totally, totally failed. Their main job was to predict debt default, and they have failed as hard as anyone has ever failed at anything. Completely failed at their main job. Why does anyone care about them anymore?
In summary, Kodak may someday default on its debt (unlikely in the near term as we have 2 billion in cash and 1.2 billion in debt, with no payments due until next year). But let me tell you what won't matter one bit: Anything that Moody's says, ever.
This is more cleverly stated in this article:
Moody's List of Riskiest Companies Forgets to Include Moody's
1 comment:
Good points, Charlie...
One of my thoughts is that at that high a level, the top people at Moody's are probably close personal friends with several of the execs working for the businesses they rate. When personal friendships exist, taking people at their word can take precedence over going through the comprehensive rating program.
This is what happened to a lot of talking head financial analysts on networks like CNBC, most famously the "Mad Money" host Jim Cramer.
Obviously TV talking heads are (at least in principle) a much different animal than a Moody's, but perhaps some of the same relationships tainted those ratings.
Either way, there should be some serious shaking up going on with the raters, as they clearly failed their only job.
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