RATING AGENCIES :
Moody's threat over French AAA
The rating agencies, including Moody, one of the most famous ones, are really taking their mission to heart. This mission consists in observing, rating and, by doing so, informing investors of the 'creditworthiness' of private and public actors. For all we know, they are doing it well. But what do we know? Try to find an exact definition of the criteria they use on the Internet : the rating 'is based on qualitative and quantitative' criteria ; it is based on the evaluation of 'political risk, economic performance/projections, structural assessment, debt indicators, access to banks, access to capital markets and other credit ratings'1, and, of course, they vary from an agency to another. In two words: nobody knows.
In addition to this obvious lack of transparency, the rating agencies' statements are always acknowledged as true, as if they were the 'Divine Words' of capitalism. The fact is that we simply just don't question these ratings. Yet the consequences of what appears to be a very subjective decision are tremendous.
Moreover, we cannot doubt agencies’ noble intentions towards the countries they are rating. The online Wall Street Journal says 'France is being pushed to get its public finances in order and avoid getting caught up in the debt crisis of the periphery'. What if the government doesn't succeed? France would 'simply' lose its AAA rate. In practical terms, that means a growing debt : today, France can take out loans with a 3,5% interest rate ; tomorrow, if the country takes out loans with a 4,5%, it would therefore lead to a 3 billion-Euro increase of the national debt. Besides, a 'triple A' loss for one of the largest European economies would have a knock-on effect on the entire Union. A Union that is already in trouble, as Germany (the largest and most stable economy of the area) is already facing difficulties to borrow money on the markets. Not to mention the effect on populations.
The 'Guignols de l'info' may be joking about that every day; our future is now in the rating agencies' hands.
Sarah Fragoso
See more about this topic :
1 http://www.creditratings101.com/ : the website is supposed to make you understand how credit rating works.
In my opinion these agencies are just playing with the countries like a cat with a mouse. They know their power and the effect they can have on the economies of the countries. A day they talk about changing the AAA rate in AA, another they say "it's fine, no more problems". They are playing with us and the variations of the stock exchange made by their statements without never care about the social impact. And of course, they certainly take a huge amount of money by doing that.
ReplyDeleteNicolas V.
I totally agree with you Nicolas, and I think this is just one more example of how ridiculous is their power.
ReplyDeleteThey have already been protests in Europe against those rating agencies with slogans such as "Rating kills". Sadly, we all know the credit European countries have been giving to their populations' opinion - we just have to remember the governments' reaction when the Greek Prime Minister G. Papandreou talked about a poll asking whether Greek people wanted to stay in the Eurozone or not.
I forgot to sign it, but the previous comment was my answer to Nicolas' one.
ReplyDeleteSarah Fragoso