European Union: opinions to be made illegal

This is more than a little odd.

BRUSSELS Mar 31 (Reuters) – Credit rating agencies have warned the European Commission they could stop rating risky countries if the EU executive goes ahead with plans to make them legally liable for flawed downgrades, industry sources said.

The threat, which one expert said could remove stricken European countries from the investor map, marks an escalation in a row between the agencies and EU officials whose efforts to tackle a debt crisis have failed to stem rating downgrades.

What a ratings agency does is give an opinion. And that\’s all a ratings agency does. We think that, based upon the feeling in our water and a few sums, that this bloke/company/country is more or less likely to repay the money he\’s borrowing/borrowed.

Leave aside the lunacy of trying to determine how or when such an opinion is flawed for a moment (the obvious method to be used is when politicians say it\’s flawed, which way lies madness).

Concentrate rather on that requirement for legal liability. It will effectively make having the wrong opinion illegal: and if you\’re not allowed to have wrong opinions then you\’re effectively stating that having opinions at all is illegal.

Why they\’re doing this is obvious: the political types don\’t like the opinions currently being expressed. But I\’m pretty certain that we really don\’t want politicians being able to determine which opinions may be expressed in public, eh?

7 thoughts on “European Union: opinions to be made illegal”

  1. Ratings agencies are already legally liable for their opinions surely – that’s why they stuff them full of caveats.

    The issue this is attempting to hide is the dolts who run businesses and Governments these days not taking notice of said caveats and instead seeing (or being regulated to see) ‘A++ great ebayer’ ratings as a sure bet and piling in. The ratings do not remove the need for investors to be diligent.

    Is this is something that precipitated out of the banking kerfuffle? Ratings agencies were getting slated for rating crap as good but the ratings were contingent on having insurance. The weak spot was the insurance not the rating. Same with banks – banks getting good ratings depended on liquidity. Remove the liquidity and a bank then falls over. A rating is not for life and the rating is dependent on circumstances not changing.

    This move is insidious. It is the Emperor decreeing that no one can have an opinion on his new clothes *after* the child pointed out he was naked.

  2. The good old shoot-the-messenger approach.
    Noticeably, the rating agencies were attacked for being too over-confident, contributing to the crisis, but not they’re being threatened only over downratings.

  3. I’d be more in favour of making them liable for flawed advice which didn’t downgrade. Remeber that right up to the banking collapse all the “official” rating agencies were rating them AAA.

    A rating agency is supposed to be working for the custmomer, not the to be a state claque. As such it should be responsible for reccomending a lousy product.

  4. A rating agency that downgrades an investment is surely admitting it was wrong the first time round. At least with respect to investors who failed to bail out before the downgrade.

    So why should you take its second opinion any more seriously than the first?

  5. JamesV:

    Changes do occur (the rated entity may have become weaker or stronger); it would be mistaken not to have noted such changes.

    That said, there’s simply no known way to preclude human error; to err IS human. And so is the entirely reasonable practice of reassessing when when new circumstances (including the discovery of past errors) shall have arisen.

  6. I was driving my bagnolle (jalopy) up a mountain road today when I saw a new roadside ad. 2.95% AER fixed for 3 years from Credit Agricole for buying a new car. Hmmm, I thought, that’s three times cheaper than the Greek, Portuguese or Irish governments can get. So surely I must have even more tax raising powers than them.
    Now give me all your money.

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