F- Mr. Chakrabortty. See me after class

But this is to miss the big point. S&P and its rival Moody\’s have a power……What gives S&P and Moody\’s such immense power is not their brilliant analysis: it is simply the function they perform. Whether prime minister or CEO, if you want to borrow from bond markets you need a credit report to show investors…….It sounds boring and technical, which is why no one gets wound up about the credit rating duopoly…….Why should S&P and Moody\’s earn such vast sums?……. In my working life, the credit-rating duopoly……But not the agencies: since every borrower still needs a rating,……Rather than stick to obscure technicalities, the duopoly……

You do not have to have a rating to issue a bond.

It\’s hugely useful to have one of course. You\’ll be paying through the nose for the privilege of not having one. But there is no legal requirement to have one at all.

But the real proof of ignorance here is that he seems not to have heard of Fitch. You know, the third major ratings agency? The one that makes up the triumvirate. So that what we actually take is not the Moody\’s S&P or Fitch rating, but the two out of three one?

Plus of course there are thirty or forty more around the world, several of them having the same legal status inside the US as the big three (nationally recognised something or others).

To insist that it\’s a duopoly is simply to be ignorant of the world one is describing.

And as to this:

The obvious solution would be to take this public service into public hands. Let\’s have a ratings agency run by the UN, funded by pooled contributions from both lenders and borrowers. It should be the only one to have preferential access to data from corporates and countries. Let\’s make the ratings business a utility, rather than a semi-cartel that intimidates elected politicians and rakes in excess profits. It\’s time to break up the bullying double-act.

Is the man insane?

Sirisly? We\’re going to put Sarkozy, through the Security Council, in charge of France\’s bond rating?

Obama the US one, Osborne the UK?

Fuck me but that\’s nonsense.

Especially as those 30 to 40 other agencies would suddenly see their revenues soar as people turned to them for their views. And if they were banned, to the new companies that would replace them.

Man\’s a loon.

It would appear that, with the honourable exception of Larry Elliott most of the time, the chief qualification to write on matters economic for The Guardian is to be ignorant of matters economic.

5 comments on “F- Mr. Chakrabortty. See me after class

  1. He thinks the system is broken and corrupt and that the UN will fix it?

    (Boggle)

    He whines about huge fees, etc. surely if the agencies were corrupt they could just take huge secret backhanders from the French to let them keep the AAA rating?

  2. Opinions on their own are not power. The power being exercised is that of the state, forcing some people to use ratings from “Nationally Recognised Statistical Ratings Agency”.

  3. What Hugo says. The problem is that certain institutions (banks, insurance funds, money market funds) can only count an asset as a reserve if it’s AA-rated or higher; and in the US that rating has to be issued by a NRSRO. Unsurprisingly, when the investment banks invented AA-rated CDOs, institutions like those listed above rushed in to buy them. Behind the scenes, the investment banks issuing the bonds could shop around for the highest rating. It’s just as corrupt as schools shopping round for the most lenient exam board.

    Nevertheless, his proposed solution is still insane. Buyers of debt should subscribe to a ratings agency rather than sellers of debt paying for their own grades. In a pure market solution, the banks’ regulatory requirements should be eliminated. Politically this may prove difficult, especially where voters’ savings and house prices are at stake.

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