Credit rating agencies still not very good at rating credit

The University of Cambridge is apparently a safer investment than the UK.

More ratings-agency craziness. Cambridge University is entering the bond market for the first time, and Moody's has rated its debt as safer than Britain's. The Financial Times' Michael Stothard and Chris Cook report (£):

Britain’s richest and second-oldest university issued a 40-year, £350m bond, taking advantage of low yields to fund a new laboratory for stem-cell research and accommodation for postgraduates.

The bond, priced at 60 points over gilts, was well received. Last week, the university was awarded a triple A rating by Moody’s. The agency said the rating reflected Cambridge’s “outstanding market position, significant amount of liquid assets and strong governance structure”.

Yet more evidence that ratings agencies "quite simply don't understand what they themselves are saying", in the word of NIESR's Jonathan Portes. As Matt Yglesias writes, there is no possible situation in which Cambridge bonds, denominated in British pounds could be safer than UK sovereign debt:

When the UK government borrows money, it borrows pounds sterling. The UK government also has the capacity to create infinite quantities of pounds sterling instantaneously. Therefore, the UK government can never be forced by economic circumstances into defaulting on its debt obligations. At worst it could be forced into inflationary policies that erode the value of its pound-denominated debt. If you're an investor, that's a real thing to worry about when buying British debt. But any such inflation would equally impact any pound-denominated debt no matter what the circumstances of the issuer. University of Cambridge debt can't be safer than UK sovereign debt in inflation terms.

The bizarre decisions made by the ratings agencies have always been there – back in 2002, for instance, Moody's downgraded Japan below Botswana – but finally, awareness is starting to become more widespread. If that awareness can penetrate the world of finance, then the end of their influence may be nearer than it looks.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images
Show Hide image

How the Conservatives woke up to the importance of the World Service

After risking its existence, George Osborne has woken up to the importance of the World Service. 

In a change to his usual programming, the George Osborne used the spending review to announce additional funding for the BBC World Service. This would have come as a surprise to anybody paying attention to the BBC, which has spent the last five years weathering the storms of austerity. First the license fee was frozen. Then the government announced that it would no longer be subsidising elderly fee payers or the World Service. Since then, dark clouds have hung over New Broadcasting House, where the newly integrated newsrooms failed to escape from the sinking feeling now familiar to almost every public service in Britain.

With approximately 2,000 journalists, the BBC is still the largest news broadcaster on earth. It is also one of the most highly regarded, and it's hard to find anybody in the business of world news who can name an organisation of the BBC's size with anything even approaching such high standards of trust and impartiality.

The BBC will now receive £34 million over the next two years. It will then be rewarded with £85 million a year to "build the global reach of the World Service." The money will also be spent on digital services and television. So why the sudden change of heart, and why now?

The funding was first announced on Monday, on the 49th page of the government's Strategic Defence Review. Evidently, this U-turn is less about providing a service than it is about projecting a message. Naturally, the headlines focused on the new fighter jets, drones and soldiers. Anybody who kept an eye on the Bush administration will know that security spending reviews in the wake of terrorist attacks are where right-wing notions of smaller government go to die. But buried behind all that was a section on soft power, the politics of global influence.

While remaining a dominant figure in international journalism, the BBC has been challenged in recent years by a new generation of ambitious outsiders broadcasting across the globe in multiple languages. These include Qatari broadcaster Al-Jazeera, who recently established a 24-hour news channel for American viewers and the Chinese state broadcaster CCTV, currently investing in African influence. Alongside them is Russia Today, which specialises in giving a voice to critics of western foreign and economic policy, commissioning shows hosted by George Galloway and Julian Assange. Last year the Russian government launched Sputnik, an international radio service broadcasting 800 hours of Kremlin-approved news in 30 languages every day. While BBC News editors were adjusting to a state of managed decline, these competitors have been finding new audiences, on radio, on television, and online, and on behalf of their anti-democratic proprietors.

Meanwhile, a more insidious rival has emerged. Isis now publish high-quality videos of their appalling crimes on a regular basis. A recent interview with a former Isis cameraman published by The Independent revealed that Isis media teams spend hours recording multiple takes, in high definition, of the group’s various atrocities before delivering their gruesome files to an edit suite outside of Aleppo. It’s a world away from Bin Laden and his grainy Arabic monologues, recorded onto VHS.

Isis have also spent the last year and a half using the shock value of their imagery to pollute social media with their vile ideology while simultaneously encouraging ostracised young Muslims to commit acts of terror in the West. They even publish a regular English language magazine, downloadable as a PDF file anywhere in the world, rebranding war criminals as well mannered public servants. Dabiq Magazine, named after the Syrian site of an ancient Islamic prophecy, was recently used to conduct a glossy interview with Abdelhamid Abaaoud, the wretched ringleader of the massacres in Paris.

As it stands, radicals travelling to fight in Syria now outnumber new Muslim army recruits across Europe, and Putin has more control of the international news agenda than ever before. What's missing is a confident liberal perspective, free from direct government interference.

Back in July, during slightly happier geopolitical times, the Chancellor told Andrew Marr he was worried about BBC becoming "imperial in its ambitions", in relation to online journalism. It's possible that the Conservatives’ long-standing suspicion of the corporation has prevented them from appreciating the corporation's diplomatic potential. But if Broadcasting House can enhance its impression abroad, their relationship with the government could improve just in time to rescue one of our greatest cultural exports. In the wake of Putin's new narrative in Syria and the attacks in Paris, it appears that the international ambitions of the BBC and those of our aspiring Chancellor might not be so different.