Here comes the demand to ‘downgrade’ the Ratings Agencies
Rating Agencies have been going through a rough patch in terms of their reputation and creditability of ratings. Credit rating agencies have been criticized for fueling the 2007-2009 financial crisis by assigning gold-plated ratings to securities that proved to be far more risky than advertised.
According to a report by Reuters:
Representative Maxine Waters, a California Democrat, on Wednesday called for the House Financial Services Committee to hold a hearing on the implications of the S&P downgrade.
She also wrote to the Securities and Exchange Commission, asking it to investigate whether Standard & Poor’s, a unit of McGraw Hill, selectively disclosed information about a downgrade of U.S. government debt to certain financial institutions before it was publicly released.
Waters said she was concerned by news reports that banking industry executives met with S&P on Thursday and Friday, before the downgrade, especially given heavy trading volumes and a large sell-off of equity securities during the day on Friday before S&P formally announced the news on Friday evening.
S&P declined comment.
The Senate Banking Committee has also said it is looking into the S&P downgrade.
John Hunt, a law professor at the University of California Davis, noting that the S&P downgrade was prompting even more anger than the 2008 housing crisis, particularly given allegations by the Treasury that the company based its decision in part on a $2 trillion error.
S&P denies it made an error but acknowledged it later changed its assumptions.
There are debates going on to improve the quality of ratings by the agencies and to have some kind of transparent rating system which is widely accepted by the government and investors. All this never happened till rating agencies were giving highest ratings to junkest financial products and even after the crisis fell in, the rating agencies were criticized but never came under regulations. It is when they ought to bring out the financial mess of government in US and EU that they are being criticized.
Isn’t it more important for the policy makers to improve the quality their debt/bonds rather than trying to improve the quality of the rating agencies? For several decades rating agencies were doing a good job and the moment they downgrade US from AAA to AA+, they need to be regulated. Well well, this is not free market capitalism. I would suggest policy makers to maintain that distinctive line between capitalist and communist states, if you, so called, consider yourself to be better than communists.
This shows the fear of the policy makers of the mess they have created. Markets and investors have shown that they still consider US bonds to be safe and the rating agencies are just the independent opinion givers.