>> just a very small point. >> i think one thing that's very dangerous is to link legal alcohol with illegal drugs. they should be dealt with separately. the fact that some drugs are illegal should be repeatedly stressed. and to confuse the legal and the illegal drug is actually to confuse the mind of a child. >> i certainly think that the idea that legal sanctions have no impact is of course not true. and i think the risk of removing those sanctions would definitely be a significant increase in use. and as paul hayes said to your committee the other week, at the moment, 0.6% of the population use heroin and crack and it's a declining proportion. that means 98.94% do not. we know only a few percent use cannabis. 2% use cocaine. the idea that you would risk increasing use and therefore increasing the demand that would then impact on countries abroad

to which we also have a moral responsibility i find extraordinary, that you would be at this point of still fairly low usage but disproportionately damaging usage, that you would i thinking of putting the white flag up to use and risk it ricing to levels of something like smoking. i find this a very sort of strange way to think all. certainly i think with education for children on cannabis, i think the most important thing now is that we should be focusing on the domestic stunk market which is in our power to deal with. we have blithely stopped protecting children. we know stunk now causes psychosis. we don't know what's happening in gangs in south london and what role psychosis is playing there. this is something i think should be the pressing concern of the committee. this is something we can deal with here at home. >> the committee is going to deal with all these issues. this is a long, detailed

inquiry. that's very helpful. >> thank you, chairman. if along the lines of this debate more people are being convicted and sent to prison one of the big problems we have is the wider availability of drugs in prison which is reported and rumors. now i understand the policy published a report in january which claims that one of the big problems was corrupt staff. in particular, alleging that around 1,000 corrupt members of staff were involved in this issue. which is about seven prison officers per prison. do you think this is accurate? do you have any evidence to support these claims? >> the center for policy studies prior to that paper, we also published our own paper about keeping drugs ouch pre s out of. there are a number of issues involved that could be addressed. one very big one is a consistent

and constant use of sniffer dogs. at the moment there are not that many teams of dogs. they're laid off. it can be judged when they're on or off. there are so many holes in the system for keeping drugs out of prison. what we've done over the last few years is spent more than 100 million pounds introducing methadone into prisons as the first-line treatment. there have been huge worries that that itself is adding to the illicit currency, drugs currency, putting prisons at risk. we should be or maybe you'd like to ask the question, how would it have been in those years that 100 million pounds were spent on plugging the holes, whether it's over the wall, whether it's corrupt staff, lack of sniffer dog, lack of control over mobile phones. if the money had been spent to toughening up all those things it would have been interesting to know what would have happened in prison since then. >> thank you. >> it's a measure of the moral and legal disarmament of this

country in the face of drug use, that in prisons which above all should be under the controls of the law and government we have serious drug abuse. i think it tells you more clear than anything else how far the de facto decriminalization of drugs has gone in this country, that they are prevalent in our prisons. you're absolutely right, prisons are one of the areas that this committee will look at very, very carefully. and you're absolutely right to raise it with us. do you want to add anything to nikola blackwood's question? >> not really but i've got a few burning points. >> i have the home secretary hanging around in the corridor any longer. >> you're putting me under pressure. >> you can always write to us with these points but the main points if you could tell us what they are. >> can i just say a few points if cannabis which are not understood. one is the strength. there's a lot of myths about the strength of it. now, the last proper home office

potency study was in 2008. at that time squung, 80% of our drugs cannabis market, was 60.2% thc, a psychoactive drug. cannabis in the '60s and '70s, 1%, 2%. frank says it's -- skunk is two to four times stronger than cannabis, wrong. the other 20%, you can hardly get now. the other 20% of the market is hash, which is 4% to 6%. now, with this huge strength, thc strength from skunk, this is doing an awful lot more damage. the dutch have just banned any thc over 15% because they are now looking at skunk as a hard drug. we should be doing the same. >> that is extremely helpful. and i think on the other points that you raised with us, if you

could write to us, that would be extremely helpful indeed. i'm afraid i'm going to have to call the session to a close because, as i say, we have other witnesses. thank you very much for coming in, all three of you. mr. hitchens, mrs. brett. we may well write to you again. and please feel free to write to me if you think the committee is going off in the wrong direction. we're very keen to know this because we want to make certain this is a very thorough yes, sirry and it will go on for several months. thank you very much. >> thank you for asking. >> alder, we now switched subjects and we have the home secretary. >> more from london now. representatives from the three major sovereign credit agencies recently testified before british parliamentary committee on the political implication of credit ratings and banking scores. members from the british treasury committee asked

witnesses about the recent downgrades of the united states and other eurozone countries. this 90-minute hearing also examined the role of the credit agencies and disclosing negative ratings around political events. >> thank you very much for coming to see us this morning. this second hearing we've held on the rating agencies. can i begin, mr. kramer, with the decisions that have been taken on the u.s. downgrade?

does s&p accept it made a $2 trillion mistake in assessing the size of the u.s. budget deficit reduction plan? >> good morning. the u.s. downgrade in august last year was based on three main factors. the first one was the high level of debt -- >> i'm just asking you very -- >> no, i come to that. the answer is no. we don't accept it. i don't accept it. >> okay. >> i was about to explain what happened. >> what don't you accept of what was set out by the assistant secretary for economic policy on 6 august 2011? what is it that you don't accept? >> okay. >> about the $2 trillion? i'm not asking you about whether it was right to downgrade or not.

>> correct. >> first of all, i'm just ask you about this $2 trillion alleg allegeded error. >> right. the discussion with the treasury department in washington was about which of the scenarios, which were published by the congressional budget office which as nonpartisan institution, which be underlying the analysis. originally, the s&p team was of the assumption or was following the alternative scenario of the cbo, the fiscal scenario, which in terms of expenditure trajectory did foresee a growth in spending in line broadly with nominal gdp. following discussions with the treasury as they are habitual interactive relationships with the issuer, s&p agreed with the treasury that the baseline scenario of the cbo would be the appropriate scenario to use. now, this is an entirely normal process of interaction and

discussion about future policy measures taken by a sovereign government. the $2 trillion alleged error -- the $2 trillion is the following number. the $2 trillion is the difference in the net debt ratio in 2021, depending on which scenario you use. under the alternative scenario, which we had initially pursued, the debt ratio in 2021 would have come up at $22 trillion, using round numbers. $22.1 trillion. which is $2 trillion higher under the baseline scenario. the baseline scenario is the one that the committee looked at, that was presented to the credit committee after the discussions with the treasury. and it was on that basis that the decision in august was taken.

approximate i'm just trying to get to the heart of it. he is alleging, and the u.s. government is alleging, that a serious mistake was made. and you're saying they're the people who have made the mistake. >> no, there was no mistake made by either side. there are different scenarios. these are measures about the future. which, you know, you have to have an lat call debate on what is the likely strategy of fiscal consolidation the government might take. the cbo is -- these are all cbo scenarios we used. it's not an s&p scenario. the question is which of the various scenarios published should be underlying the rating assessment. we did agree with the treasury that it should be the baseline scenario which would lead to $20 billion rather than $22 billion. there was no mistake on their side, there was no mistake on our side. >> you just made a mistake

writing an article saying there was a mistake. what he says, and i'll read you what he said. he said standard & poor's presented a judgment about the rating based on a $2 trillion mistake. after treasury pointed out this error, a basic math error of significant consequence, s&p still chose to proceed with their flawed judgment. he thinks you've made a mistake. >> well, i just represented to you -- >> there's no mistake on either side? >> yes. >> you must have made a mistake in thinking you made a mistake. >> i can only describe to you the turn of events from the time back then and the turn of events as i describe. this is a normal discussion that you have with governments when you meet the government officials to discuss what is the likely turn of policy choices that will be taken. clearly in the future you can

have various scenarios. happily there were various scenarios on the table published by cbo. it's a natural process to discuss which is the most likely scenario that should be our base case which we assess the credit risk in this case. at treasury and s&p we're in agreement the one we used is the proper one. >> you didn't change the scenario after you heard about the $2 trillion? >> well, the scenarios are in the public domain. we knew about the various scenarios -- >> you didn't change the base case scenario? >> as i said earlier -- >> with the $2 trillion -- >> did you change the basis scenario after you heard about the $2 trillion? >> no, we did not hear about the $2 trillion by the treasury, this was the outflow of the published scenarios by the cbo. what happened in the discussion with the treasury is that the treasury did make a credible statement and a credible stance

that the base case scenario of the cbo is the proper one to adopt and we agreed to that. although originally, we were planning to use the alternative scenario. this is the value added of an interactive relationship that you hear the view of the government and we thought made a credible statement on that -- >> u.s. treasury will be listening to this and they can submit evidence if they choose. to us on that point and to congress. was the rating committee reconvened to discuss this $2 trillion issue? >> the rating committee discussed the various scenarios. under both scenarios that we discuss here, the outcome according to our published criteria -- >> getting back to the question. i mean, there's a sequence of events here. when the treasury, when u.s.

treasury pointed out what they considered to be, and they still seem to consider to be this $2 trillion mistake, this was still prior to your decision to issue the downgrade, was it not? >> the discussion between s&p and the treasury was prior to the credit committee -- >> that's what i've just asked you. you've answered that yes. now, when that discussion took place and you learned about their view of this $2 trillion mistake, did you reconvene the credit committee? >> again, i reviewed the main mistake in this context -- >> i said their view. >> their view but i want to make clear it's not our view. we did convene a committee which discussed the mutually agreed scenario, which is the cbo base cased scenario leading to a

$22.1 trillion net debt in 2021. so the answer is yes. >> okay. since the downgrade, the u.s. government bonds has fallen by more than one-fifth. how does that square with your judgment? >> it does square with the judgment. what we have to understand is that the yields and the capital market developments depend on many, many factors. one of them being an opinion issued by a rating agency. the -- my interpretation of market developments is the following. that there has been not only in the u.s. but more generally globally, an investor flight to quality and safe papers. and there are a number of those available. one of them being the u.s. treasury bond. >> yes, so they've moved broadly together, i expect, haven't

they? germany being another beneficiary of the flight to quality, along with the u.s.? >> correct. >> all right. and so you've got -- and the uk. you've got a number of countries that you've not downgraded sitting there that have benefitted from this flight too quality. one you have downgraded is also benefitting. why do you think that might somebody. >> that might. first of all, we need to keep things in perspective. the sovereign credit rating of the united states is double a-plus, which is signaling our belief there is an extremely small probability of default. >> higher than before? >> marginally higher than before, that's correct. so i think the flight to quality phenomenon that we're observing is something that you need to look at the various alternative assets that are at the disposal of the investors.

and investors take the view that this is a safe place to put the money. now, you need to remember that ratings and market yields do correlate over a very long term and over the whole spectrum of the ratings. but it's not the case, although it's sometimes perceived as such, that if a rating agency lowers or raises the rating, that automatically the refinancing costs of that particular issuer would change. >> do you really believe that the u.s. capacity and willingness to repay is lower than that of, say, finland? >> i do. >> and you take into account there that finland has huge exposure as a small country, not least to rush shark but regional factors and the country's

heavily exposed to one industry, unlike the huge diversification of the united states, and still you come to that view? >> we rate sovereigns and we rate all 127 sovereigns that we rate according to a published and transparent methodology. one of the key elements in the methodology is the political environment and also has to do with public finances. on both accounts if you want to compare the u.s. with finland, you will notice two things. first of all, that the debt ratio in the u.s. is much higher. you'll find the debt trajectory is more adverse. most importantly, you will find it has been our finding, at least, and people may come to different conclusions on that, but we felt that the government's challenges that the u.s. political system is facing in generating a coherent strategy of getting the public finance challenge under control are more pronounced than they are in finland.

and the -- specifically last summer, the u.s. government got extremely close to a really liquidity crisis because the washington establishment could not agree on the way that would have been required to raise the debt ceiling. >> would you think that there is any truth too, in a point put to us by a sovereign risk expert many, many years experience in the field at a high level, who said -- who has given us advice, i quote, like journalists looking for a splash, each agency will wish to be the first to hit the headlines anew developments suggesting the rating should be reviewed or changed rather than seen to follow competitors? sovereign risk -- sovereign rating generate a lot of publicity for the agencies. in other words, this is partly a marketing operation.

do you think there's any truth at all in that? >> no. i think there's no truth at all. we do apply criteria to all the sovereigns, and we do assess all sovereigns according to this criteria, which, by the way, has generate add very satisfy result in terms of the abilities of default and ranking within sovereigns. it is our view and our duty to the marketplace consists of assessing in a timely way the credit characteristics of various sovereigns and if we believe they have changed we consider it as our duty to inform the general public of this changed opinion as soon as possible, and that's exactly what happened in this case and it happens in all other cases. >> thank you. >> mr. wilson, does moody's think that standard & poor's was right to downgrade the american credit rating?

>> [ inaudible ] it is largely different. >> so do you -- do you share their concern that the united states might, in fact, be marginally less credit worthy than able and willing to pay its debts than the uk or finland and you have the u.s. on watch presently, don't you? >> yes. the rating are the same, implying the same broad view of the probability of default. finland's aaa rating remains stable for now. >> so with your negative watch on the u.s., you consider that the u.s. could become more likely to default than finland. is that the implication of that? >> the implication of a negative watch is that the downside risks become marginally higher. >> and so do you think it is plausible and credible that the

u.s. might have the desire not to repay its debts or the inability to repay its debts? is that really what your thinking is, and moody's? >> i think it's important to always bear in mind that these very high ratings, particularly aaa, whatever the outlook, that represents a view that there is a very strong willingness and ability to repay debts. so the negative outlook on the aaa does not reflect that view that there is significant risk of lack of willingness or goodness. >> right. and mr. riley, do you think that it's reasonable for a ratings agency to effectively hold a government to ransom saying unless they do something about their debt ceiling then they will lose their aaa status? is that a reasonable way for a credit rating agency to behave? >> i don't think it's reasonable for a credit rating agency to, as you suggest, hold a

government to ransom. i think it is reasonable for a credit rating agency to express an opinion as to what might influence the credit rating, and if that is a failure to reach agreement on raising the debt ceiling which could result potentially in a missed payment on a debt security, it would be remiss, frankly, of a rating agency not to express an opinion as to the likelihood of such an event and what that might imply. >> to what extent should rating agencies take into account the public nature of sovereign debt ratings at such a very sensitive time in the immediate aftermath over a of a global financial crisis? what credible in sovereigns? of crisis? what credible in sovereignof a crisis?

what credible in sovereign of a crisis? what credible in sovereign of a? what credible in sovereigns? >> i think it's incumbent upon all of us, including the rating agencies, to do the role that we play, in terms of each of the participants within the market. in the case of the rating agencies, our role is to provide a third party independent assessment of relative credit worthiness including of national governments. that's what we say we do. that's what we seek to do, according to our published criteria. and i think in terms of helping to -- issues about sort of the post-crisis or during the global financial crisis or the current crisis in the eurozone and financial market volatility, then i think where we can help adjust that is not by pretending those issues aren't there but to try to address them in terms of ratings in a very timely transparent manner. i think that's the reasonable thing for us to do. >> and do you worry that ratings

agencies all move in the same direction at the same time? i mean do you have any completely -- can you give us any examples of where you all completely disagree and have rated an entity completely differently? because we've heard from previous witnesses that the idea of several different credit ratings agencies is you're completely independent and would come to separate conclusions, yet in the case of the u.s. market, we've clearly seen the entire market disagrees with s&p's downgrade. so that does suggest that either s&p and fitch and moody's were wrong to be so negative about the u.s.' ability and willingness to repay or that you're all guilty of group-think and the market is actually working in the opposite direction. so can you give us an example of where you will completely disagree in ratings completely differently?

>> in the sovereign space? >> in any space. doesn't matter. anything where you all completely disagreed? >> the definition of completely disagree. we have different ratings. i would say we do have a different rating. >> let me be specific. do you have an entity that you are on credit watch to upgrade where another agency has its own credit watch to downgrade, for example, where you're setting the direction in completely opposite ways? >> i'd have to check, but if my memory is correct, i think we'd move to a negative outlook on south africa and i think during that time i think moody's may have taken a positive rating action. there certainly have been instances where each of the rating agencies have certainly maintained different ratings during different courses of time and have taken different rating actions. i think it is relatively rare for each of the three major rating agencies represented here to be moving in opposite

directions, and i think that's because the fundamentals of our credit analysis is sufficient overlap, though they do differ, but sufficient overlap such that, you know, of rating opinions are likely to be, suffice some common factors. i don't think that implies where each is following the other. it's that there are some common factors which influence the credit worthiness of sovereign governments. >> so that might, then, question what point is of having so many credit ratings agencies or commercial companies who are charging significant sums of money and all drawing the same conclusions. you're saying the results of obvious. so there's no need to draw different conclusions? >> i don't think you can infer that from the response that i've given. >> so what's the value of having the three of you there, if you all agree, bar margins, very occasionally?

neither you nor mr. wilson are making a passionate defense of the u.s. economy and the fact of downgrade ing why run making that impassioned them. defense? >> well, you've not asked us to make defense of particular rating. so it's not really for me to speak to -- the rating of another agency. >> i've asked mr. wilson if he thinks s&p were right to downgrade. he said they just don't agree. what's your opinion? >> we don't share s&p's judgment both in terms of the size, the commitment under the budget control act in terms of deficit reduction or in terms of the ability of the u.s. to sustain a high level of debt than a number of other sort of peer sovereigns because of the role of the dollar and the size and diversity of the u.s. economy. we do have a negative outlook, however, on the u.s., us