The Corner

Inconvenient Truths

You don’t have to be a fan of the rating agencies to be unimpressed by this (via Reason):

On this side of the pond, the Securities and Exchange Commission is putting pressure on Moody’s, and Sen. Al Franken (D-Minnesota) is introducing regulation of rating agencies into the stalled finance bill.

Note that the rating agencies are not getting dinged in response to their legitimate failures — the famously too-high ratings awarded to Enron, Lehman Brothers and the universe of junk debt instruments. They’re being punished for doing the right thing: sounding the alarm on Europe’s manifest sovereign debt crisis and America’s looming one. By coincidence, Moody’s recently issued a widely publicized warning that the U.S. could be looking at a serious public debt emergency by 2013. No wonder Franken wants to rein in the raters that were considered jim-dandy back when President Obama first introduced his financial regulation bill. The agencies have gotten themselves into trouble by trespassing on government property.

Needless to say, the EU is in on the act too:

“There are too few agencies in too few hands,” says Michel Barnier, European Commissioner for Internal Market and Services. “We’ll work with the players of the sector to increase competitiveness.” That is simply not true. The plan as of now is not to increase competitiveness but to put the “few hands” under tighter control by the governments they’re supposed to be rating.

Of all the reasons to disdain ratings agencies, the Western governments have managed to find the bad one. To blame short sellers or S&P or hedge fund managers or “speculators” is to condemn your only friends, the people telling you to stop gorging, now, and go on a diet.

Read the whole thing.


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