Today, July 6th 2011, I have declared war on rating agencies! Today is the day that marks the beginning of my efforts to destroy these evil corporations. My chances of winning are quite slim, I’m also outnumbered, but I’m committed and that’s half the battle, right?...
First step to every battle – know your enemy. Ok, I have 3: Standard & Poor´s, Moody´s and Fitch. A quick research tells me they have been doing their thing since the beginning of the 20th century, so we are not fighting rookies here. This is also the moment when I acknowledge I don’t know much about finance and therefore much of my hatred for these companies is recent and may be flawed. According to the definition, credit rating agencies are private-sector firms that assign credit ratings for issuers of debt – so basically they into account the debt issuer's ability to pay back its loan and define the interest rate to be applied. So here we are.
Second step – know why you are fighting. It could be out of emotion or patriotic desire to defend my country. To an extent, it is. But it is mostly because I cannot understand how these agencies are so powerful. The fact of the matter is that these agencies issue OPINIONS. Obviously these opinions are based on extensive market research and analysis, made by the most brilliant and well-paid experts around. But they are opinions nonetheless, just opinions. So why is it that when the Agencies issue their opinions – which by the way may not coincide – the markets react so drastically? Is it possible that the whole Finance World is hostage of these 3 agencies? Is it possible that banks and insurance agencies don’t even bother having their own expert analysts and purely use the reports issued by the agencies? But even worse, is it possible that national governments do not have an independent way of assessing the quality of an economy without checking what the agencies have to say?! Apparently that is the case. These 3 agencies made an amazing job at centralizing their market; they have total monopoly of the product that everyone wants, information. My problem with this is that I don’t know who these people are!! When Moody´s cuts drastically Portugal´s rating overnight, who is it that decides this? Based on what? Which criteria are used? The media do not cover any of those issues; they just announce the cutting of the rating. And so the next day the markets react and the efforts of millions of Portuguese are jeopardized because some agency with no face issued a press release with its OPINION!
This is totally unacceptable. It is financial terrorism. It is rape. It is also something that has no comparison. When the UN issues a report – on hunger, on development, on climate change – they are seen as opinions and they may have consequences, but in the long term after much debate and analysis of its conclusions. And this is a global organization! Why the hell would a private company have so much power when it issues its OPINION? Why would a private company (which obviously has shareholders and aims at making profit) be entitled to decide if the economy of a sovereign country is worth the money of investors or not?! I can’t understand why these agencies do not have to substantiate their opinions, why they are not forced to reveal their criteria to the detail and especially why governments are unable of communicating with investors without these agencies.
My battle has just begun. It will be long and it will be hard. But I will find answers!!
PS- Figures of 2010: Moody's operating income was $688m and Standard & Poor's made $762m...
ANC, Brussels
