Wednesday, July 13, 2011

Rating agencies

Maybe someone can help me out here. I have been looking for a chart that provides a quick comparison of countries like the US, Ireland, Portugal, Greece, Italy, etc. to get a better understanding of why a particular country gets in trouble (pretty much every EU country listed) with rating agencies and another (the US) doesn't.

There is some material out there, such as the chart to the left from here, showing that the US is one of the worst performers according to a single parameter (national governmental debt per capita in euros – the figure reportedly rises to around 250,000 euros per capita if we include debt at all levels of government and include private debt [see the second chart below from here]), but part of the problem is that the criteria on which the three major rating agencies, all of which are based in New York City incidentally, are not actually known, so it would be hard to come up with an exhaustive chart.

I can tell you that the general sentiment over here in Europe is that these rating agencies are run mainly by a number of large US investors with a preference for their interests in the US – hence the double standard. It is hard to come up with financial figures demonstrating that the United States is currently in a much better financial position than the European countries currently under attack. But if you know of any such articles, feel free to drop me a link in the comments below.

It is worth keeping in mind an article from the Washington Post from 2004, which essentially describes these rating agencies as a kind of mafia. They go door to door to companies offering to give them a free rating along with a request that the company should pay for these ratings at some point in the future. If the company repeatedly refuses to pay, the rating agency goes into full-attack mode and severely downgrades the company's stock. Such attacks are especially egregious when the rating agency that the company actually pays continues to give the firm a good rating.

1 comment:

  1. Nice objective analysis!

    This is the way the US makes others pay their own spilling bills: sell your own shit as chocolate by putting it in a box with a gold-looking label on it.

    I fully agree rating agencies are like maffia. From the moment of the outbreak of the credit crisis it was clear that they utterly misjudged the repackaged US mortgages that had been sold to European banks as highly safe investments. Their response was to look for beaten dogs - PIGS in anglo-saxon jargon - and beat them even harder just to make themselves look as masters of the universe. And whenever European politicians try to nurse the beaten dogs, they just slap them again. At the same time ill-informed European public is loosing confidence in their own politicians, in the European institutions and project. Ultimately this will threaten our democracy.

    What I don't understand is that Europe doesn't stand up against this geo-political game of a few corporate institutions.