Saturday, January 31, 2009

Time to Downgrade the Rating Agencies

Is it me or is there something a bit rich about the so-called ratings agencies - Moody's, Fitch and Standard & Poor's - threatening to downgrade Ireland's credit status. Are these not the same geniuses who graded 'toxic waste' as triple-A top grade products for investment? I would have thought the words 'toxic' and 'waste' (regularly used by those in the industry to describe what they were selling) were fairly strong clues to the true nature of what was being sold?

The credit rating agencies are US regulator empowered bodies - or Nationally Recognized Statistical Rating Organizations (NRSROs) - and so can be dis-empowered as well. Worryingly they are supervised by the SEC - another organisation that hasn't exactly covered itself in glory. It's even worse than the Madoff debacle according to some.

I like the recommendations by James Quinn in this brilliant analysis of what needs to be done - but won't be - to get the world out of this mess:
  • Moody’s and S&P should be banned from the rating business. They proved that a AAA rating could be bought. Pension plans, governments, companies, and individuals relied on their ratings. They colluded with the investment banks and must be punished. Their monopoly needs to be ended.
  • The SEC needs to be disbanded. We need to push the start over button. They are in bed with Wall Street. They are unable to enforce their vast array of regulations, ignore proof of ponzi schemes, and are a revolving door to top Wall Street jobs. The organization has failed miserably. An agency that does not work needs to be scrapped.
We appears to be days or weeks away from the news that Ireland has been downgraded from AAA by one or more of the ratings agencies. Though as the chart shows we are not as exposed as countries such as the UK (though an earlier version of the chart, since corrected, had me much more worried!) Nevertheless, I don't think discredited organisations should be allowed to wield that much power and to lumber me, my children and grand children with the extra cost of servicing the national debt. They are unfit for purpose: definitely grade C or D.

No comments:

Post a Comment

Related Posts Plugin for WordPress, Blogger...