And another goes down?

To the extent that misery loves company (fn1), this speculation from a blogger at Portfolio (fn2) that Berkshire Hathaway could potentially face a ratings downgrade in sort of a cascade of self-fulfilling prophecies is excellent news for AIG. (fn3)

There's this interesting bit at the end:

On the other hand, I'm not comfortable with any company -- not even Berkshire Hathaway -- having a business model which requires a triple-A rating. Triple-A ratings should be the consequence of a company's profitability, not a cause of it. If Berkshire lost its triple-A and started playing on a level playing field with everybody else, that might be more sustainable, in the long term, than an attempt to shore up the triple-A at all costs. Certainly there's something very weird going on when CDSs are at 450bp and the credit is still triple-A: one or the other has to be wrong.

The last line is indisputably true: if two indicators are giving you radically different information, one of them is wrong. I could see arguments being made for either (briefly: irrationality in the market for CDS's mean they're wrong verses slowness of updates by the ratings agencies mean that they haven't reflected the most up-to-date information thus they're wrong).

But his overall point about not trusting business plans that rely on a AAA rating seems less obvious to me. I'm not sure it's wrong but it seems suspect. I'd have to think it through. Sadly, I don't have time to do that just now. But someday, someday...


(fn1) Not actually all that great an extent, in my experience. Though that could just be me, I'm not much of a people person at the best of times.

(fn2) Portfolio magazine, which I was only very dimly aware of just a couple of months ago, has crossed my radar many times recently. First, I saw their notice that they were cutting back and thought, "there's another magazine I don't read and never will". But then a friend called my attention to Michael Lewis's excellent piece on the Great Collapse, mere days after that I ran across this older but interesting piece on the troubles facing the traditionally technologically savvy and recession proof(ish) porn industry, and now this fun-filled guess at a potential calamity falling on Berkshire. They're on a roll!

(fn3) As you'll recall from previous posts (if, that is, you like long, rambling discourses...) it was a ratings downgrade that felled AIG.