Moody’s today announced that the U.S. was not (yet) a Banana Republic and could pay its debts (at least for now). Hopefully Moody’s didn’t use one of its flawed models this time.
Moody’s: Fannie, Freddie woes no threat to U.S. ‘Aaa’ rating – MarketWatch -24 July 08 – Sue Chang
Although extending aid to Fannie Mae…and Freddie Mac…could test the resiliency of the U.S. government balance sheet, it would not endanger the U.S. government’s strong Aaa rating, Moody’s Investors Service said Thursday. The prospective issuance of bonds by the Treasury to cover Fannie and Freddie’s losses would result in a only small percentage increase in gross bond issuance, and a relatively small increase in federal government debt, said Steven Hess, Moody’s vice president, in the report. At the same time, Moody’s noted that there are other risks to the government’s balance sheet although they aren’t likely to be realized. Nonetheless, the ratings agency believes the government has sufficient financial flexibility to deal with these risks and maintain its Aaa rating.
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