S&P CHIEF EXPLAINS CREDIT DOWNGRADE

S&P CHIEF EXPLAINS CREDIT DOWNGRADE

Introduction

S&P's powerful chief steps out of the shadows
By Stephen Foley, Associate Business Editor
Monday, 8 August 2011
http://www.independent.co.uk/news/business/news/sampps-powerful-chief-steps-out-of-the-shadows-2333592.html

Mr Beers might be the most powerful man in the world that you've never heard of. He is the head of sovereign ratings at Standard & Poor's, which means that at the world's largest credit rating agency, he is responsible for the grades it slaps on each of the world's governments. And last Friday night, his team decided the US was no longer the risk-free AAA nation that it has been for the past 70 years. That night, Mr Beers changed the financial world.

Yesterday, he was out of the shadows and on Fox News, of all places, explaining to a mystified country who he is, what gives S&P the right to pontificate on the creditworthiness of the US, and why it has stripped the US of its gold-plated rating.

The chain-smoking economist has been at S&P for more than 20 years, after an earlier career assessing government bonds for the Wall Street bank Salomon Brothers.

Although he graduated in international relations from the University of Virginia, Mr Beers lives these days in London, where he studied at the London School of Economics and has endowed a scholarship there in his name.

His emergence into the limelight is overdue, because there is a direct line from S&P's rulings to the cuts that governments around the world are imposing on their citizens. You might not have heard of him, but Treasury officials and finance ministers all over the world certainly have, and they fear S&P's judgement.

No one elected Mr Beers, and S&P's pivotal role in financial markets has grown up only over many generations, but here he is at the centre of the debt storm engulfing the eurozone and now the US – and under fire from politicians on both sides of the Atlantic.

Now that Mr Beers is in the firing line, he is – perhaps unsurprisingly – making a marked effort to play down his importance. On Fox News yesterday he defended the US downgrade and predicted it would have little effect on markets. He doesn't expect "that much impact" when trading resumes today, he said, because S&P's cut from AAA to AA+ represents only a "mild deterioration" in US credit standing.

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Main article

S&P CHIEF EXPLAINS CREDIT DOWNGRADE
Published August 07, 2011
http://www.foxnews.com/on-air/fox-news-sunday/2011/08/07/sp-chief-explains-credit-downgrade-rep-paul-ryan-bill-miller-talk-economic-policy-tim-paw


America's credit rating is downgraded for the first time ever. Here sit Wall Street and Main Street. We'll talk about the hit Washington took Standard & Poor's in an exclusive interview with David Beers, head of the agency's government rating unit.

Standard & Poor's has downgraded the U.S. credit rating Friday night for the first time ever from AAA to AA-plus. That means U.S. treasury bonds are no longer considered the safest investments in the world.

Joining us now, David Beers, head of S&P's government debt rating unit. Mr. Beers, what's the practical effect of your downgrading. If the U.S. debt is now riskier, does that mean that investors can and should demand higher interest rate to buy U.S. treasury bonds?

DAVID BEERS, STANDARD & POOR'S: Well, I guess there two parts to that. One is that in lowering the rating one notch to AA-plus, what we actually are saying is this, that a mild deterioration in the U.S.'s credit standing relative to AAA and we'll find out tomorrow what the market makes with that. But based on historical experience, we wouldn't expect that much financial impact in terms of higher interest rates for example.

WALLACE: Well, let me ask you, though, about the markets. The Tel Aviv stock market, one of the few that is in operation on Sunday morning, closed -- rather opened 6 percent down and then they had to close it for a while because of the volume of trading.
Can we expect the same kind of very strong downward pressure in Asia tonight and in the U.S. markets tomorrow?

BEERS: Well, you know, I'm no better than you in forecasting the stock market. But I think it's important to put this in perspective for your viewers -- because a lot of what's worrying the markets is the unfolding story in Europe and also a perception from a global economic perspective that the world economy may be slowing down.
So, I think the markets are reacting to a lot of factors, not just what S&P said on Friday.

WALLACE: Your downgrade -- and I read it -- focuses much on the political gridlock in Washington as it did on the economic situation in this country. Do you hold Republicans or Democrats more responsible for dysfunction here? And any compromise that they end up coming up with it, do you need to see a mix, a combination, of both entitlement reform also revenue increases?

BEERS: Well, Chris, you know, in this country, Congress and the administration are jointly responsible for the conduct of fiscal policy. And -- so, this is really not about either political party. It's about the difficulty of all sides in finding, you know, a consensus around fiscal policy choices, now and in the future.

WALLACE: But do you need to see the mix? Does any compromise have to have both entitlement reform and revenue increases to be credible? BEERS: Well, we think credibility would mean that would -- any agreement would command support from both political parties because, of course, the composition of Congress and, of course, the administration could change from 2012 onwards. But the key thing is -- yes, entitlement reform important because entitlement is the biggest component of spending and they are the part of spending where the cost pressures are greatest.

WALLACE: The White House, as you know, is not happy with this decision and, in fact, they have accused S&P of amateurism. They say when they went through your numbers, they found a $2 trillion overstatement of what the debt would be. And when they pointed that out to you, they you simply changed the rationale but continued to downgrade the debt.

BEERS: Now, of course, that's a complete misrepresentation of what happened. And here, we're talking about highly technical assumptions about projecting, you know, budget base lines far into the future. And when we made the modifications that we did after a conversation with the treasury, it doesn't change the fact that in our estimation, that even with the agreement of Congress and the administration this past week, that the underlying debt burden of the U.S. government is rising and will continue to rise most likely over the next decade.

WALLACE: I got about a minute left and I want to ask you two questions. So, I'm going to try to get my questions brief and I'll ask you to do the same with your answers.
S&P is widely seen as one of the villains in the housing bubble for the strong rating that you gave for the subprime mortgage securities. Some people are suggesting that this downgrading is an effort to get your reputation back?

BEERS: Yes. Well, that's completely untrue. And as a matter of fact, the group that rate, the one that rates government ratings has an excellent track record in terms of what ratings are designed to do, which is to provide a meaningful indicator of credit risk.
So, as far as the track record of our ratings are concerned, we think they are very robust. Other people think they are robust, too. And we think that will continue to be the case.

WALLACE: And very briefly, Mr. Beers, given the economic and the political situation in the U.S., which will we more likely to see -- an upgrading of U.S. debt back to AAA or further downgrades?

BEERS: Well, we have a negative outlook on the rating and that means that we think the risks currently or the rating are to the downside.

WALLACE: Mr. Beers, we're going to have to leave it there. We want to thank you so much for coming in and talking with us today, sir.

BEERS: Thank you, Chris.

WALLACE: The S&P downgrade was one more blow in a week when the Dow Jones fell almost 6 percent. And the latest jobs report showed unemployment still over 9 percent.

Source :

http://www.foxnews.com/on-air/fox-news-sunday/2011/08/07/sp-chief-explains-credit-downgrade-rep-paul-ryan-bill-miller-talk-economic-policy-tim-paw