7th February 2008, British newspapers carry pictures and stories of the Munich air crash on 6th February 1958 and the commemorative services held 50 years later for the 23 people who died.
8th February 2008, British newspapers carry stories about the Premier League's plans to play fixtures overseas.
And I thought bankers had short memories - although memory is an inconvenience when money is involved. However, at least banks and other financial institutions now operate policies that limit the number of employees that can fly on any single aircraft - a lesson learned the tragic way by UBS as a result of the Swissair MD-11 crash of September 2, 1998.
As for the Premier League's plan, I haven't even started on carbon footprints, the potential alienation and loss of domestic audience etc.
Saturday 9 February 2008
Friday 8 February 2008
Where next for AAA ratings?
As the rating agencies announce reviews of their methodologies, it goes without saying that there will be more tinkering and more rating scales rather than a return to the simplicity of the single trade-based credit scale borrowed by the original bond rating agencies.
The main problem is that AAA is not what it says on the label. Obviously therefore, "AAA" should be sub-divided into AAA1, AAA2 and AAA3. This would give the agencies more potential rating moves on which to comment and users of the ratings would then be aware of which entities were "weakly positioned in the AAA range" rather than simply being a "risk-free" investment.
However, some might feel that, like the UK's school examination system, this is a dumbing down of the top standard. A solution to this concern would be to create "AAAA", the new top standard which, in polo shirt-sizing jargon, we could perhaps call "4XA".
Alternatively, we could introduce the prefix "s" to a rating thus adding to the existing 30+ rating scales that Moody's, for example, currently operates. The "s" would stand for spreadsheet and would alert investors to the fact that the ratings have been derived from models recently dreamed up by quant PhDs and the newly created entities are simply boilerplate companies run by small back office teams. These "s.AAA" ratings could then be distinguished from earned, tangible AAA ratings. How can a CDO be sensibly compared to the likes of Germany, Singapore, General Electric and Toyota, whose enduring managements can demonstrate a 15+ year track record of consistent performance and, in the case of the two companies, are supported by net worth of over $100bn.
And what of the USA? Investors have accepted AAA as representing the "gold standard" of ratings and US Treasuries, rated AAA, are the ultimate risk-free investment, Unfortunately foreign currency-based investors in money-good UST have still lost some 7% p.a. over the last seven years when the USD is measured against a global basket of currencies. Perhaps if the USD currency was a reliable store of wealth and behaved more like a gold standard then the quality of the rest of the USD-based financial system might also improve.
The main problem is that AAA is not what it says on the label. Obviously therefore, "AAA" should be sub-divided into AAA1, AAA2 and AAA3. This would give the agencies more potential rating moves on which to comment and users of the ratings would then be aware of which entities were "weakly positioned in the AAA range" rather than simply being a "risk-free" investment.
However, some might feel that, like the UK's school examination system, this is a dumbing down of the top standard. A solution to this concern would be to create "AAAA", the new top standard which, in polo shirt-sizing jargon, we could perhaps call "4XA".
Alternatively, we could introduce the prefix "s" to a rating thus adding to the existing 30+ rating scales that Moody's, for example, currently operates. The "s" would stand for spreadsheet and would alert investors to the fact that the ratings have been derived from models recently dreamed up by quant PhDs and the newly created entities are simply boilerplate companies run by small back office teams. These "s.AAA" ratings could then be distinguished from earned, tangible AAA ratings. How can a CDO be sensibly compared to the likes of Germany, Singapore, General Electric and Toyota, whose enduring managements can demonstrate a 15+ year track record of consistent performance and, in the case of the two companies, are supported by net worth of over $100bn.
And what of the USA? Investors have accepted AAA as representing the "gold standard" of ratings and US Treasuries, rated AAA, are the ultimate risk-free investment, Unfortunately foreign currency-based investors in money-good UST have still lost some 7% p.a. over the last seven years when the USD is measured against a global basket of currencies. Perhaps if the USD currency was a reliable store of wealth and behaved more like a gold standard then the quality of the rest of the USD-based financial system might also improve.
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