Rating Agencies Too Trigger Happy? - Page 2
These rating agencies are doing nothing to help the European economies; everything they do is just making things worse. They are downgrading the ratings of European bonds unnecessarily, which makes it more expensive for the economies to seek funding from the private market. It may even shut them out completely from the private market as many institutional investors, such as insurers and pension funds are usually prohibited by government regulation from owning debt below a particular rating. It is clear why the EU has proposed a tough clampdown on the world's ratings agencies, including a ban on ratings for countries covered by international rescue packages and possible legal action.
Coincidentally, Standard Poor's, Moody's and Fitch were the same suspects guilty for issuing high ratings for the subprime instruments responsible for the financial downturn. They were the ones who gave AAA ratings to junk bonds which allowed the mortgage backed securities to be insured by AIG and distributed to many institutional investors. When all these securities became worthless and the banks and insurance companies fell, did anybody hold these rating agencies responsible for their lousy work? Now when the European Union is desperately working on solutions, these rating agencies do their best to prevent the European economy from getting on their feet.
The problem is when times are good, the rating agencies and research companies compete feverishly to boost revenue by assigning bloated ratings; and when times are bad, the firm that is quicker to cut its rating of dubious debt safeguards its reputation better, so that it can stay on in business when the credit cycle turns and it can go back to issuing inflated ratings. A full structural revamp of the rating agencies and research companies have to take place for these companies to be of any real value to the market.
It seems like the real winners here are not listed here. The speculators, the traders who short the economies, are only more than happy for the rating agencies to continue to bash the countries. It’s hard to say if there is any relationship between them, but they are definitely profiting from all this uncertainty. Many of these traders come from investment banks like Goldman Sachs, which incidentally was the one who also taught Greece how to hide their debt. After which, they short the Country’s bonds knowing the structural deficit. Coincidence?