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‘Vindicating’: An Analyst Who Lowered the U.S.’s Credit Rating in 2011 on Fitch’s Downgrade


When Nikola Swann heard that Fitch Ratings had removed the United States from its list of risk-free borrowers this week, he felt a sense of satisfaction.

“It was vindicating,” he says.

More than a decade ago, Swann played a key role in a similar decision: He was Standard & Poor’s primary analyst for its sovereign credit rating on the United States when the agency became the first ever to downgrade the nation’s long-term credit rating amid a debt ceiling standoff in 2011.

At the time, the move was controversial, in part because the Treasury Department pointed out that S&P had overstated the federal debt by about $2 trillion. Bloomberg called the reasons for the downgrade “fundamentally political” in 2011, while others argued that it appropriately reflected a worsening debt crisis.

Both a decade ago and this week, partisan politics were cited as one reason for the downgrade. S&P cited “the gulf between the political parties.” Fitch, which made the call two months after the United States narrowly avoided defaulting on its debt, cited “the repeated debt-limit political standoffs and last-minute resolutions.”

DealBook asked Swann over email about what had changed since S&P’s downgrade, and what had not. The interview has been edited and condensed.

What did you make of the timing? Would it have been better to cut the U.S. credit rating during the debt ceiling debate?

The recurring debt-ceiling brinkmanship highlights the structural weaknesses in U.S. fiscal governance — so the more acrimonious they are and the closer they come to the cash-flow precipice. The credit rating agency’s job is to analyze all relevant information, with the two aforementioned variables among the more important indicators of the seriousness with which Washington treats U.S. federal payment obligations. It is natural to update your assessment soon after the latest debt-ceiling data point.

Does it make sense to downgrade the United States if you don’t downgrade all the other AAA rated countries? After all, if the United States sneezes, so do all these other countries, right?

Many countries that were rated AAA in 2011 have since been downgraded by one or more credit rating agencies; examples include the U.K., France and Canada. The U.S. remains the world’s most influential economy, but the strength of a country’s economy, while important, is only part of a sovereign rating assessment. Fundamentally, a sovereign credit rating is not an opinion on the country’s economy, per se, but on the likelihood that holders of the government’s debt will be paid on time, in full, and unconditionally.

A strong economy helps enormously, but dysfunctional fiscal governance can outweigh that strength. The remaining AAA countries have stronger track records than the U.S. when it comes to fiscal governance.

When you downgraded the United States in 2011, were you surprised the other ratings agencies didn’t follow suit?

I expected the others to follow, eventually. It took longer than I expected, but it is happening.

S&P’s model had a mathematical error, which the U.S. Treasury pointed out. Why didn’t you change it?

S&P’s unprecedented 2011 downgrade of its U.S. sovereign credit rating was no error. The weaknesses we then pointed to, compared to AAA countries, in terms of Washington’s ability to build bipartisan consensus on key policy questions in a timely manner, especially regarding fiscal management, have only worsened since. The same is true of U.S. fiscal outcomes.

Do you see a day when the U.S. rating goes back up?

That will happen when the U.S. significantly shrinks its structural fiscal deficit, putting government debt on a multiyear downward trajectory in terms of G.D.P., and more generally develops a track record for credible, medium-term fiscal discipline underpinned by multiparty political consensus — inasmuch as, by then, the U.S. economy remains strong and the U.S. dollar remains among the world’s most important currencies. — Sarah Kessler

Donald Trump was indicted — again. The former president was charged in connection with trying to overturn the 2020 election, adding to a growing list of legal charges against him. Trump pleaded not guilty in a Washington court appearance on Thursday and remains the leading candidate for the Republican presidential nomination next year.

Disney’s Robert Iger taps former lieutenants for advice. The C.E.O. of the media giant brought back two former executives once touted as potential successors: Kevin Mayer, the former head of M.&A., and Tom Staggs, the ex-financial chief, will advise Disney on what the company should do with its legacy TV businesses.

Tom Brady becomes the latest North American star to invest in the other football. The N.F.L. legend took a minority stake in Birmingham City, the English soccer team, joining the likes of the Hollywood actors Ryan Reynolds, Rob McElhenney and Michael B. Jordan, and the basketball player LeBron James to invest in the sport.

“She’s the C.E.O. of one of the biggest direct-to-consumer brands on the planet,” said Nathan Hubbard, the former C.E.O. of Ticketmaster and current chief of the music company Firebird. (By comparison, the direct-to-consumer brand Warby Parker reported about $600 million in revenue this year.)

Mr. Hubbard called Ms. Swift “Steve Jobs-ian” in her focus on detail and end-user customer experience. Here’s what else she may have in common with corporate titans.

She has full control over her brand. Beyond writing, singing and performing her own songs, she has a sharp understanding of her customers, said Manisha Thakor, a financial wellness expert.

Thakor likened Ms. Swift to Home Depot’s founders, Bernie Marcus and Arthur Blank. “They were walking the aisles of the stores, they were talking to customers,” she said, indicating that Ms. Swift had responded to feedback in a similar way when she dropped a new version of the song “Snow on the Beach,” after fans had complained that the song’s guest artist, Lana Del Rey, wasn’t featured enough.

The remake’s title: “Snow on the Beach (featuring more Lana Del Rey).”

She understands the importance of employee recognition. Ms. Swift recently reportedly gifted “life changing” $100,000 bonuses to truck drivers who worked on her tour, which is about 10 times the norm. She’s also included truck drivers’ names in the credits of her Netflix documentary on the last tour.

“Recognition, like money, like power, is not evenly distributed,” said Loran Nordgren, a management professor at the Kellogg School of Management at Northwestern University. “Most people in any company know it only fleetingly and are hungry for it.”

Her leadership style may also come with risks. Ms. Swift has created such a powerful brand for herself that she risks being called inauthentic if her actions stray from that mirage. One example of the pitfall: the backlash that Salesforce’s Marc Benioff received when he laid off employees after espousing the company’s familial “Ohana” culture.

There’s also potential for overexposure, a challenge Ms. Thakor said was exemplified by Jack Welch. “We all hung on every single word during his G.E. years,” she said. But when he left, and created concepts like the Jack Welch Management Institute, “we got fatigued by them, like we just didn’t want to hear from him anymore,” Ms. Thakor said.

We will definitely be hearing from Ms. Swift, at least until 2024. She announced new concert dates this week.

“Barbenheimer” isn’t the only surprise hit at the box office: One of the biggest movies of the summer is a small-budget thriller about anti-child trafficking heroics that has been praised by both mainstream conservatives and the far-right.

“Sound of Freedom” has grossed more than $155 million domestically, beating rivals with much bigger budgets, like “Mission: Impossible — Dead Reckoning Part One.” Controversy about the film’s content, which critics say appeals to the baseless QAnon conspiracy theory about a global cabal of pedophiles, very likely helped stir interest. But a novel promotion system has also played a role.

The movie’s distributor, Angel Studios, took “word of mouth” marketing to a new level. It deployed a system called Pay It Forward to help bolster awareness. Here’s how it works: At the end of the movie, audiences are urged by its star, Jim Caviezel, to tell others to see the movie to spread its message.

They’re also shown a QR code that leads to a website where audiences can buy additional tickets for strangers — and, the hope goes, continue the cycle.

Angel has used Pay It Forward before, including for the hit Jesus-focused streaming series “The Chosen.” The distributor first tested the model for theatrical releases this year with the overtly religious movie, “His Only Son,” which grossed $12.2 million worldwide.

But the system hit new levels of success with “Sound of Freedom,” according to Brandon Purdie, Angel’s head of theatrical distribution. (He declined to specify how many tickets were sold via Pay It Forward, saying only that it was “significant.”)

The success of Pay It Forward came into doubt after reports on social media claimed that there were empty seats in supposedly sold-out showings of “Sound of Freedom.” But Pay It Forward doesn’t buy tickets before someone has claimed them. Instead, someone who wants to see the movie visits the Angel website and requests a coupon code that they can use when buying a ticket for a specific showing from a booking site like Fandango.

Brock Bagby, the executive vice president and chief content and development officer of B&B Theaters, which has 55 theaters, mostly in the Midwest, says the movie has drawn crowds.

He said that B&B audited its showings and couldn’t find any instances of phantom tickets, and that it hadn’t seen any drop in concession sales per ticket sold — an important metric, given that cinemas collect more profit from selling popcorn and drinks than from seats alone. “There are actual humans in the seats,” Mr. Bagby said.

It’s unclear whether other movies can adopt this model. Paul Dergarabedian, a senior Comscore analyst, said that more studios could seek to adopt the marketing strategy, since it both gets the word out about a movie and can lead to more ticket sales.

But according to Mr. Bagby, such a system requires the right kind of movie and message: “Pay It Forward needs a message that people feel strongly about,” he said.

Thanks for reading! We’ll see you Monday.

We’d like your feedback. Please email thoughts and suggestions to dealbook@nytimes.com.



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