Rating agencies, who cares?

25 February 2013 - 19:01 pm

The relatively muted reaction to the UK’s downgrade bolsters the argument that rating agencies simply get too much attention.

Moody’s doesn’t have a souped up Delorean hidden in the basement; it’s simply working off the same indicators and forecasts as everyone else.

Except a trader or fund manager can take a decision, and execute it, a lot faster than an agency typically manages.

Vince Cable, business secretary, dismissed the downgrade as ‘largely symbolic’ yesterday – which was certainly not the tune Osborne has been singing for years (Labour provide a round-up here). But supporters of the chancellor say he managed to protect the AAA when it mattered most.

Back in January 2012, my colleague Aditya Chakrabortty wrote perhaps the definitive take-down of the cult of the rating agency: Time to take control of the credit rating agencies.

Why should S&P and Moody’s earn such vast sums? Certainly not for their oracular genius – the agencies have as much foresight as Mr Magoo. In my working life, the credit-rating duopoly has failed to warn investors about the Asian financial crisis, Enron, the subprime crisis, Lehman Brothers – and Greece.

My particular favourite, Moody’s report dates from December 2009 and is titled “Investor fears over Greek government liquidity misplaced”. Six months later, Athens received a $147bn rescue package.

Not much has changed over the last year, alas. The EU did agree new rules to control the agencies last year, but tougher measures werewatered down.

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Baroda, India.