Who are these credit rating agencies? (2)
That was the question I asked in my posting yesterday and today the “Guadian” devoted three and a half pages to a feature addressing precisely this issue.
Patrick Kingsley points out:
“More people would trust the agencies if they hadn’t got so much so wrong so recently. In 2009 Moody’s issued a report titled “Investor fears over Greek government liquidity misplaced”; within six months, the country was seeking a bailout. Meanwhile, S&P’s sovereign debt team miscalculated US debt by as much as $2tn when it downgraded America’s credit rating last August.”
He explains that:
“In the run-up to 2008, a staggering proportion of mortgage-based debts were rated AAA, when in fact they were junk. The same goes for groups such as Enron, Lehman Brothers and AIG. Days before they went bust, Moody’s, S&P, and Fitch all still rated these failing companies as safe investments. Shockingly, more than half of all corporate debt ever rated AAA by S&P has been downgraded within seven years.”
Is there an alternative to the stranglehold by three dominant credit rating agencies?
” ‘The obvious solution would be to take this public service into public hands,’ Aditya Chakrabortty has argued. ‘Let’s have a ratings agency run by the UN, funded by pooled contributions from both lenders and borrowers … Let’s make the ratings business a utility, rather than a semi-cartel that intimidates elected politicians and rakes in excess profits. It’s time to break up the bullying double-act.’ “