The world has been disappointed with rating agencies since the 2008 global crisis broke out. Mass media started questioning the reliability of the information provided by those agencies.
How reliable and unbiased is the information provided by major rating agencies - Fitch, Standart&Poor's and Moody's? Let’s ponder on this question.
Rating Agencies – Indicators and Drivers of Global Economic Sentiments
According to Maxim Gun, an expert from , rating agencies has turned into indicators showing us the financial stability of any country around the globe, whether it is the USA, Russia, China, Great Britain, Greece.
However, a natural question arises: Can rating agencies be trusted?
Well, there is a whole lot of rating agencies around the world these days. Conventionally, all of them can be divided into local and international ones. Obviously, the list of international rating agencies is scanty. Actually, there are only 3 major rating agencies - Standard &Poor's (S&P), Moody's Investors Service and Fitch Ratings. These agencies have become “masters of destinies” for a number of corporations and even countries.
Their work is based on a fairly simple scheme. Basing on their own analyses, these rating agencies give a company, bank or company a certain credit rating, which is perceived as the major indicator in financial and business sectors. The rating itself is represented by letters – from D (default) up to A (the highest level of credibility). They can also use + and – or extend the rating up to 3 letters in order to specify it. Simple and easy to read, isn’t it? Yet, is it reliable?
Complaints
Experts and politicians started questioning the status of rating agencies during the 2008-2009 financial crisis:
Before the crisis, Lehman Brothers used to enjoy the highest rating (ААА+). Moreover, the bank holding company lost its rating a few hours before it was officially announced bankrupt. This is what started a wave of bankruptcies throughout the globe, which later turned into a global financial crisis.
Obviously, the rating agencies knew about the financial giant’s problems long before it went broke. Therefore, the information was deliberately withheld so that someone could benefit from it.
He who pays the piper calls the tune. Keeping in mind this saying, we should take into account who are the sponsors of the rating agencies in order to find out cui prodest:
Most of the sponsorship is represented by the payments made by those companies and financial institutions that want to be rated in order to earn and /or confirm their status.
However, each of those rating agencies were started and backed by major financial institutions. In particular, S&P is actually owned by several companies, which are owned by the powerful Rothschild clan. Fitch was founded by the Rothschilds’ rivals. Berkshire Hathaway, which is owned by Warren Buffet, is a major shareholder of Moody's.
As we can see all of the 3 major rating agencies are owned by financial tycoons. Obviously, they cater for their owners’ needs.
Therefore, if the “truth” matches their objectives and interests, the rating agencies reflect the real state of affairs and seem unbiased. Otherwise, any rating can be distorted. Obviously, this doesn’t help those rating agencies to improve their status. Some experts say that the rating agencies have turned into weapons of making big money in the hands of major financial speculators. This may sound exaggerated. Anyway, those who got their fingers burnt are unlikely to trust those rating agencies ever again.
Rating Agencies And Forex
After the latest global crisis, the 3 major rating agencies increased their impact on the global economy (and the European economy in particular).
According to , European financial giants keep suffering from major losses due to difficult economic situation as well as the agencies’ actions aimed at undermining the European financial system: Their rating cuts undermine the stability of the European financial system and make investors get rid of European assets.
The chart below, courtesy of , can show us several perfect examples of how rating agencies can influence the EURUSD exchange rate:
On December 17th, 2012, Moody's may cut Cyprus ’s rating to junk. The reason is that the local authorities cannot agree with international lenders. Analysts express their concerns about the possibility of a bigger-than-expected deficit in 2012. The outcome remains to be seen…
