The US and EU authorities have started a big-scale campaign against Standard & Poor's, Moody’s and Fitch. The reason is obvious: the 3 rating agencies have turned into a supra-government union, that can easily change the investment attractiveness of any country in the world by upgrading or downgrading the country’s credit rating, thus making it lose or acquire multi-billion investments. Finally the affected finance ministries and central banks started questioning the competence and objectiveness of those rating agencies and decided to strike back.
What do MinFins blame Standard & Poor's, Moody’s and Fitch for?
According to the US-Canadian Association of Traders and Investors of , the US media started a big-scale campaign against the agencies blaming them for:
· Provoking a global crisis. The start and aggravation of the latest global financial and economic crisis (2008-2009) is connected with Standard and Poor’s. In 2008 it rated the US mortgage securities as “AAA”, thus initiating the 5th (last) wave of the rally, which was followed by a strong market collapse. But why did Standard and Poor’s failed to anticipate the bankruptcy of Lehman Brothers?
· The subjectivity of the ratings. The agencies are blamed for their biased assaults on the eurozone’s states in 2010-2011.
· The US rating cut in early August 2011 provoked another collapse in the global stock market. As a result some financial groups earned billions of dollars while others lost them.
· “Accidental” insider rumors in the markets. There was a strange info leak about a forthcoming cut in the ranting of France, which was later disproved by the raters themselves.
According to the experts of Nordfx (one of the top 3 broking companies in the international rating of FX brokers by ), the list of claims against the “Big 3” can be continued:
· As a result, the rating agencies have made a lot of enemies worldwide - Japan, USA, EU, China and other states.
· In the past the rating agencies caused serious damage to numerous big-scale banks and investment funds around the world as they lost dozens of billions of dollars (while others earned these billions).
· The US and EU authorities now have an opportunity to make Standard & Poor's, Moody’s and Fitch scapegoats for all the financial problems and instability around the world.
· It is crucial to put those agencies in their place as the incident with France’s credit rating indicates that even a country’s authorities can be helpless against some “anonymous” analysts from Standard & Poor's, Moody’s and Fitch.
Are Standard & Poor's, Moody’s and Fitch really so unprofessional?
According the experts of , previously these credit rating services used to be blamed by the EU alone. Now the US has joined Europe.
1. The EU’s arguments. After the incident with France’s credit rating the French joined the army of “Big 3” haters (Greece, Portugal , Spain , Ireland, Italy). According to an independent survey conducted by the French tabloid «Liberation», the respondents blame the agencies for being non-competent and biased: they are too fast in their estimations and rely on some shady sources of information.
2. The USA’s claims against the rating agencies. After the unprecedented and unexpected cut in the US rating the White House instantly gave up its ostentatious detachment and jumped on Standard and Poor’s, blaming it for considerable miscalculations (about $2 trillion) in the US debt forecast for the next 10 years.
3. The US Department of the Treasury worked out new requirements for credit rating agencies (a 517-page document). The US authorities want those credit raters to reveal their methodology of research and to make them publish warnings about "significant errors" in how they calculate their ratings.
4. The best defense is a good offense. Standard and Poor’s reacted to the criticism in a very tough manner. S&P’s experts reviewed their calculations and didn’t find any mistakes. Moreover, S&P cut the long-term rating of Fannie Mae and Freddie Mac, the USA’s biggest mortgage agencies (they were called the starters of the global crisis in 2008).
5. Standard & Poor's sent an 84-page letter to the Securities and Exchange Commission (SEC).
6. Who is to be blamed? Indeed, the 3 rating agencies have made a lot of mistakes so far. But it was the USA and EU authorities who elevated them to the throne. Numerous investors around the world started using the raters’ data to make their investment decisions. So one shouldn’t suddenly come down to those rating agencies, calling them non-competent and blaming them for all the economic misfortunes. To err is human, raters are no exception. Yet they value their good names and are very unlikely to go down to slapdash work.
On whose behalf are Standard & Poor's, Moody’s and Fitch said to be acting?
The EU authorities (and even common Europeans) blame Standard & Poor's, Moody’s and Fitch for acting on behalf of the US (the rating agencies are headquartered in the US) in order to weaken the eurozone:
· Common Europeans. During numerous protests and demonstrations in Greece and Portugal the participants blamed the raters from being biased. Some Portuguese hackers attacked Moody's website. They restored Portugal ’s credit rating to the highest level (A++) and left a message saying: "Here at Moody's we are paid to say what our $ friends want. We are powerful. We sell some hunches and everyone believes them. It's the mood of the day…Yet, we have trivial security vulnerabilities on our website.”
· Politicians. After Portugal ’s credit rating was cut to “junk” Brussels’ patience ran thin:
ü Jose Manuel Barroso, President of the European Commission, said that with all due respect to the US-based rating agencies, the local raters were more competent about the real situation in Portugal .
ü Wolfgang Schäuble, German Minister of Finance, said that "We must break the oligopoly of the rating agencies".
ü According to Angela Merkel, German Chancellor, lenders should make their own assessment regardless of what the credit rating agencies say. She assumes that “It is important in the medium term that Europe has its own rating agency…”
ü Steven Maijoor, Chair of the European Securities and Markets Authority (ESMA), said that S&P, Moody’s and Fitch may be deprived of their licenses to work in the EU once they fail to “play according to the European rules”.
ü In Milan, Italy, the local police raided the offices of Moody's and Standard & Poor's to make sure that those rating agencies "respect regulations as they carry out their work". The EU is going to create its own rating agency on the basis of the European Association of Credit Rating Agencies (EACRA).
The SEC vs Standard & Poor`s:
· The US regulator has already started a preliminary investigation to find out whether there was any insider trading done by employees of Standard & Poor’s in advance of the US rating cut.
· Congresswoman Maxine Waters addressed the SEC to check whether some representatives of Standard & Poor's met with the representatives of some financial institutions in advance of the US rating downgrade.
· S&P still hasn’t provided any comments.
Conspiracy: truth or fiction?
This is the most “exotic” accusation, which may well become the most popular one:
Michael Moore, a scandalous US filmmaker and the author of “Fahrenheit 9/11” wrote in his Twitter: “Pres Obama, show some guts & arrest the CEO of Standard & Poor’s. These criminals brought down the economy in 2008 & now they will do it again”.
Market Leader and would appreciate it if you could participate in a survey. Please, visit the Academy’s forum form traders and investors and answer the following question:
Will the US and EU leaders succeed in “breaking the oligopoly of the rating agencies”?
