Credit Rating Agencies Under Fire

“Euro Zone, too, Feels Rating Pain”, Wall Street Journal Europe, 8 August 2011

European officials haven’t pulled any punches in their criticism of rating agencies. European Central Bank President Jean-Claude Trichet has called for an end to the “global oligopoly” of the three main agencies, saying the firms’ actions amplify swings in markets.

The judgments of the largely US-based rating agencies have more of an immediate effect on the euro zone than the US. The ECB’s collateral rules depend largely on the ratings given to assets banks post as backing for ECB loans, including government bonds.

Requirements that government bonds have at least an investment-grade rating to be accepted as collateral at the ECB pushed Greece and Ireland to the brink of insolvency last year. The ECB eventually suspended those rules, but not before Greece and Ireland, and later Portugal, agreed to massive austerity programs with strong conditions.

“Credit-rating agencies: Judges with tenure”, The Economist, 13 August 2011 (despite all their faults and skewed incentives, finding alternatives to the much-maligned credit rating agencies could prove tricky).

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