Fri, 27th May 2016

Anirudh Sethi Report


Rating agencies, who cares?

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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