October 2, 2022

Players in a Greek Drama

Not only does he have the power to effectively put a “sell” on Uncle Sam, but on Friday he roiled global markets after he said the Greek rescue package would constitute a limited default on the country’s debt.

The analyst, who is based in London, oversees the 30-person government bonds team inside Fitch Ratings, which could soon downgrade the debt of the United States government from its historical, gold-plated, triple-A rating if politicians in Washington cannot agree to raise the debt limit.

And after two days of whirlwind conference calls with colleagues in London and New York to weigh what the Greek restructuring proposals might look like and how Fitch would respond, Mr. Riley and his team stamped a “restricted default” on Greece Friday morning. The details of the $157 billion bailout plan were announced Thursday by European leaders.

The reverberations of a downgrade by Fitch or its competitors, Standard Poor’s and Moody’s Investors Service, often send borrowing costs soaring for the affected governments while typically putting equity and debt markets into a tailspin as investors run for cover.

That power and responsibility has made Mr. Riley and his team figures — and often targets for critics — in the debt drama sweeping the globe this year.

“People don’t know who is selling Italian bonds or who is going short Spanish securities or who is betting on a Greek default,” Mr. Riley said in an interview. “But a headline that says ‘Greece downgraded’ is a simple one to understand and you can point the finger at who did it very easily.”

His team recently received hostile e-mails labeling them “idiots” or blaming them for the harsh austerity measures many European countries have adopted. He is on the speed dial of European policy makers and United States Treasury Department officials who are eager to convince him that their belt-tightening plans are sufficient to avoid a negative report. His days are filled with calls from managers of pension funds, sovereign wealth funds, insurance companies and other asset managers trying to gauge what might spur a downgrade or a default and how that would affect their holdings of that country’s bonds.

All the while, Mr. Riley and his staff are running internal “war games,” exploring what might happen to money market funds, financial institutions and even individual state finances if the United States were to default on its debt.

Some of the agencies’ harshest critics, however, wonder why the rating agencies still wield so much power. Are they acting like disinterested parties in the American debt-ceiling talks or driving the discussions and their own agendas through their demands, they ask. Standard Poor’s, for instance, has said that if any debt-ceiling deal did not include an agreement to reduce the nation’s deficit by $4 trillion over the next decade, the United States was still at risk of losing its triple-A rating.

“No nation, agency or organization has the authority to dictate terms to the United States government,” Representative Dennis J. Kucinich, Democrat of Ohio, said in mid-July after Moody’s placed the United States on review for possible downgrade. “Moody’s and its compatriot S. P. were the direct cause of the near-collapse of the economy of the United States.”

Mr. Kucinich and others place significant blame on the rating agencies and their conflict-ridden business models — they are paid by the issuers they rate — for much of the financial crisis around mortgage-related securities. The agencies put gold-standard ratings on mortgage-related securities that held increasingly risky home loans while raking in fees from Wall Street banks. Investors bought those securities on the belief that the triple-A rating made them as safe as United States Treasuries.

Others, however, say the agencies may simply be forcing governments, including the United States, to take some strong medicine.

“They do see their job as looking down the road” in asking that whatever debt deal is struck that it addresses the huge United States deficit, said Cornelius Hurley, director of the Boston University Center for Finance, Law and Policy.

Mr. Riley, a 45-year-old Briton and father of two, has spent the last decade inside Fitch evaluating governments around the world. He worked as a senior economist at UBS Warburg and, before that was an adviser inside Britain’s Treasury department.

To relieve some of the pressure, Mr. Riley says he tries to play with Fitch’s soccer team at lunchtime on Tuesdays and that he occasionally plays PlayStation games with his 17-year-old son.

He says he and his team at Fitch have developed thick skins to deal with the pressure.

Article source: http://feeds.nytimes.com/click.phdo?i=7c405b9823b3cd6f08a8f1683559db9a

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