Do Credit Ratings Matter Any More?

After completely whiffing on the sub-prime mortgage crisis (among other gaffes), it appears to us that the credit rating agencies have been so discredited as to be rendered irrelevant. Two news items of the past week caused us to stop and ponder.

If a ratings agency issues a report, does anyone listen?

Yesterday, Standard & Poor's cut Japan's sovereign debt rating for the first time in nearly a decade, bringing it down even with China's.

That cut's gotta hurt.

From S&P:

In our opinion, the Democratic Party of Japan-led government lacks a coherent strategy to address these negative aspects of the country’s debt dynamics.

More on this from the Financial Times here: S&P Downgrades Japan on Debt Worries

The other story was Moody's announcing it was amending its credit analysis metrics for states when assessing relative debt burdens. Instead of comparing states' debt burdens and pension liabilities separately, Moody's will heretofore compare those figures on a combined basis.

The report is available only to subscribers but the announcement can be read here: Moody's Report Dimensions the Pension and Debt Liabilities of US States

From the announcement:

Of the 50 states, those with the highest debt and pension funding needs include Connecticut, Hawaii, Massachusetts, and Illinois.

As a resident of the state, I am relieved to see that Arizona is not among the four highest debtors. In fact, upon reviewing the report, we find that Arizona, California and New York are not among 15 states with the highest liabilities compared to the four metrics* Moody's uses in their analysis.

If not outright "good" news, that's at least some not so bad news for a change.

*The four metrics of states' combined debt/liability burden are percentage of personal income, percentage of GDP, percentage of revenue and per capita.