{"id":4484,"date":"2011-07-07T05:32:50","date_gmt":"2011-07-07T11:32:50","guid":{"rendered":"http:\/\/www.jasonapollovoss.local\/?p=4484"},"modified":"2018-09-21T02:05:44","modified_gmt":"2018-09-21T06:05:44","slug":"credit-ratings-independence-tested","status":"publish","type":"post","link":"https:\/\/jasonapollovoss.com\/web\/2011\/07\/07\/credit-ratings-independence-tested\/","title":{"rendered":"Credit Ratings Independence Tested"},"content":{"rendered":"

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You might have heard that the debt of the country of Portugal was lowered to “junk” status on 5 July, 2011 by Moody’s, one of the three major international debt ratings agencies.\u00a0 Now various European governmental officials are criticizing the credit ratings agencies, challenging their independence and independent voice<\/a>.<\/span><\/p>\n

Here are three quotes from European officials:<\/span><\/p>\n

Greek Foreign Minister Stavros Lambridinis said: “The agencies’ actions in the debt crisis [had] been ‘madness.’ “<\/span><\/p>\n

German Finance Minister Wolfgang Schaeuble told a news conference he wanted to: “break the oligopoly of the ratings agencies and limit their influence.”<\/span><\/p>\n

European Commission spokesman Amadeu Altafaj: “The timing of Moody’s decision is not only questionable, but also based on absolutely hypothetical scenarios which are not in line at all with implementation.\u00a0 This is an unfortunate episode and it raises once more the issue of the appropriateness of behavior of credit rating agencies.”<\/span><\/p>\n

European Commission President Manuel Barroso said that the move by Moody’s: “added another speculative element to the situation”.\u00a0 He also said it was strange that none of the ratings agencies were based in Europe.\u00a0 “[This] shows there may be some bias in the markets when it comes to the evaluation of specific issues of Europe,” he said.<\/span><\/p>\n

Folks this is absolutely outrageous!\u00a0 Why?<\/span><\/p>\n

    \n
  1. Independent voices are one of the things in short supply in financial markets.\u00a0 Do we really want gun shy independent voices in the long run?\u00a0 Hell, do we really want gun shy independent voices ever?<\/span><\/li>\n
  2. The lack of independence on the part of credit ratings agencies was one of the things that led to the Great Recession<\/a>.\u00a0 Effectively the folks issuing terrible mortgage backed securities were the same folks paying the agencies for the rating.\u00a0 Due to the huge volume of transactions taking place, for an agency to issued an unfavorable rating would have hurt future revenues from these heavy issuers of MBS.<\/span><\/li>\n
  3. Credit ratings agencies have come under tremendous pressure from international authorities for their lack of independence<\/a>.\u00a0 Now when the heat is on the various governments who dole out the criticisms of credit ratings agencies they want a less-independent credit ratings agency community?\u00a0 This is duplicitous and inexcusable.<\/span><\/li>\n
  4. The debt covenants that are the contractual obligation between a debt issuer (e.g. Portugal) and investors are very explicit about what constitutes an event of default.\u00a0 Additionally, the various ratings agencies don’t just arbitrarily and immediately downgrade debt.\u00a0 Instead, downgrades are progressive and measured.\u00a0 Downgrades are also accompanied by a lot of analysis and disclosure as to what has led to a downgrade.\u00a0 Lastly, downgrades are accompanied by a list of criteria, which if not adhered to, will result in further downgrades.\u00a0 Portugal’s debt has been downgraded continuously for the past year.\u00a0 What would constitute a further downgrade was public information!\u00a0 But instead of the Portuguese doing anything about it, or the Europeans who would bail them out doing anything, they didn’t do anything.\u00a0 So a downgrade should not have been a surprise!\u00a0 Argh!<\/span><\/li>\n<\/ol>\n

    Just two days ago I was lauding Standard & Poors for its independence in challenging the French-led resolution to the Greek debt crisis<\/a>.\u00a0 Now we have a very strong and public rebuke coming from a very important political body, the European Commission.\u00a0 First, kudos to the credit ratings agencies.\u00a0 Second, keep your fingers crossed that the credit ratings agencies continue to defend their independence.<\/span><\/p>\n

    Me?\u00a0 I become less a fan of the way the Europeans do business on a daily basis (as if it is much better here in the United States)!<\/span><\/p>\n

    Jason<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

      You might have heard that the debt of the country of Portugal was lowered to “junk” status on 5 July, 2011 by Moody’s, one of the three major international debt ratings agencies.\u00a0 Now various European governmental officials are criticizing the credit ratings agencies, challenging their independence and independent voice. Here are three quotes from […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[3],"tags":[],"class_list":["post-4484","post","type-post","status-publish","format-standard","hentry","category-the-blog"],"_links":{"self":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/4484","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/comments?post=4484"}],"version-history":[{"count":0,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/4484\/revisions"}],"wp:attachment":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/media?parent=4484"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/categories?post=4484"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/tags?post=4484"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}