Credit where it's due

The late lamented newspaperman Frank Haden once reportedly castigated a subordinate for presenting to him the predictions of an economic forecaster: "You'd do better reading the entrails of seagulls, just like the Romans did," he is supposed to have said, dismissing the foresight of all such seers with his scathing mix of ascerbic exuberance and low comedy.

One of New Zealand's most prominent veteran journalists and editors, Mr Haden would surely be revolving rapidly in his grave at the revelations now emerging from the world of global economics, and international finance, and the manner in which they have been and are being reported.

Much attention has focused on the failure, particularly in the United States, by mainstream financial journalists to reveal the scandalously shaky foundations upon which global finance's house of cards has, in recent decades, been built.

As has been pointed out by, among others, Professor Eric Alterman in The Nation magazine, it took a couple of stand-up comics - The Daily Show's Jon Stewart, and Stephen Colbert - to begin to sheet home some of the inadequacies of contemporary US business reporting - in particular the extent to which some television networks, and CNBC especially, allowed themselves to evolve into "an unpaid PR service for the same CEOs whose financial shenanigans and deceptions brought us economic catastrophe".

That a couple of comedians are being compared with a bygone era's great defenders of fearless journalism and an independent fourth estate, Edward R. Murrow and Walter Cronkite, is of course no laughing matter.

It only emphasises the complacency and incompetence of the commentators who served as little more than cheerleaders for the banking and financial services sectors for so long.

We can be thankful that we have been much better served in this country.

Those investors who have lost their life savings in the collapse of various finance companies might argue, but it is generally accepted that our banks and financial services industry by and large kept away from the stampede to gorge on the market for specialised "financial instruments" - which we now understand to be a glorified high stakes game of "pass the toxic parcel".

Likewise, we still have a number of well-informed and independently-minded business, financial and economic commentators and, Mr Haden's reservations notwithstanding, it was an economic forecaster who last week demanded attention to an ongoing anomaly in the global credit industry on the business pages of this newspaper.

Berl's Ganesh Nana was cautioning the Government on being overly concerned about credit ratings downgrades, making the point that the credit ratings industry was complicit in the crises that have overtaken the world financial systems.

"Put bluntly, the credit rating agencies have blood on their hands. They gave positive ratings to the collateralised debt obligations and other instruments that are now sitting as toxic assets on the balance sheets of many financial instituttions," he said.

"That officials and commentators here and across the globe continue to value the pronouncements of these agencies, defies belief."

Dr Nana was talking about agencies such as Standard & Poor's, Moody's, and Fitch, whose pronouncements, upgrades and downgrades can significantly affect national economies.

Downgrades increase the cost of raising funds and can be taken as a signal to investors to shy away from such economies.

New Zealand is particularly vulnerable as it considers how to balance fiscal stimulus packages against a burgeoning national deficit.

Dr Nana's point was the standard Keynesian view that the middle of a recession is not the time to embark on a "balancing the books exercise", and he is far from alone in this.

Gerald Epstein, Professor of Economics and co-director of the Political Economy Research Institute at the University of Massachusetts, is equally scathing of the credit ratings agencies both for their part in enabling the crisis, but also for their "credit warnings" to governments over increasing fiscal deficits.

"Yet, increasing spending and fiscal deficits in the short run is exactly what these governments should be doing," he says.

"And now, after helping to cause the crisis, the credit ratings agencies are blocking the way to the solution. The actions by Standard & Poor's are therefore profoundly misguided and potentially destructive."

Naturally, there will be counterviews, not least from the agencies themselves, but as the events of the last 18 months and the almost unheralded gobal financial crisis illustrate, a degree of straight-talking and transparency on such matters is long overdue - and as such it is to be commended.