Rating for U.S. economy

A 'ZZZ+'

June 06, 2008|By JAY HANCOCK

A news story we might read soon:

Moody's and Standard & Poor's have downgraded the entire U.S. economy.

Effective immediately, the agencies said, America is assigned a score of "ZZZ+," a new category that more accurately captures the financial characteristics of consumers, businesses and politicians.

"Rather than taking the trouble to research thousands of companies and downgrade them one at a time, we figured we'd just get it over with," said Seymour Riteoff, a spokesman for the rating companies. "Our innovative bulk downgrading policy saves us money and, frankly, gives better results than our old system."

The U.S. economy had received the coveted "AAA" score along with other blue-chip credits such as Merrill Lynch mortgage bonds and the government of Iceland.

Now, however, the rating companies have determined that the economy's risk profile is similar to that of Las Vegas McMansions and Hummer dealerships.

Merrill Lynch and Iceland haven't fared so well, either.

The worst rating used to be "D," which meant somebody had defaulted and would never pay back what was owed.

"We now realize that was inside-the-box thinking," said Riteoff. "Today's toxic debt doesn't just default. It burns holes in the floor and stalks your children. So we knew we had to recalibrate."

Relying on their sophisticated databases, the agencies detected a disturbance in the force when they read in The New York Times that consumer confidence had hit its lowest level in 28 years in May.

The last time consumers felt this bad was when Jimmy Carter had just left the White House and unemployment was 7.6 percent.

The companies also calculated that, with $9 trillion in debt and $50 trillion in unfunded liabilities, the U.S. government is fixing to make subprime mortgage deadbeats look like Ned Flanders, Homer Simpson's wholesome and solvent neighbor.

Inflation is on track for its worst year since 1990. The economy has been losing jobs since December.

There were empty restaurant tables in New York's Hamptons over Memorial Day weekend. Congresspeople and major-league baseball players are walking away from their mortgages.

Stamps are 42 cents. Sales of Spam (the old-fashioned kind, a meatlike product made by Hormel) are sizzling.

America got sold on the economy's virtues the way real estate agents hawked Orlando, Fla., condominiums.

Said President Bush at various times last year: "The state of our economy is strong." Or, "The fundamentals of our nation's economy are strong." Also, "This economy is strong and is setting all kinds of records."

Everybody else knew the economy was in the outhouse months ago. Everybody, that is, but the Wall Street rating agencies.

"We realize our America-wide downgrade comes way too late to actually do anybody any good," said Riteoff. "But we wanted to keep the quality of our analysis consistent with the kind of information we sold to mortgage-bond investors. Our motto is: It's never too late for a ratings adjustment to reflect the blindingly obvious."

It would be a mistake, however, to conclude that the whole economy is in huge trouble.

Sovereign wealth funds in China and the United Arab Emirates are reported to be investing billions into U.S. bankruptcy law practices.

"We're pretty bullish on repo men," said Heywood U. Lonadime, chief market strategist for New York-based Ethanol Farmers Bank & Fiduciary Trust, which recently took over Citigroup. "We do worry, however, about overseas competition. U.S. repo operations are being outsourced to Bangalore. They do it over the Internet."

T. Rowe Price's Locksmith Sector Mutual Fund also is doing very well, as lenders swap out hardware on seized houses. One in every 100 mortgages fell into foreclosure during the first quarter. That's the highest quarterly level ever, says the Mortgage Bankers Association. (One of those records the president was talking about.)

"Our best advice for consumers is to take a pointer from Jose Canseco, who walked away from his mortgage," said Riteoff. "Drop your keys to America in the nearest mailbox, addressed to Washington. Seek employment and investment where the ratings aren't so dismal.

"Maybe Iceland."


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