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Value in Limits

July 6, 2011

Under the title of “Shooting the Messenger,” Andrew Stuttaford notes this from the Wall Street Journal.

The European Union’s top official questioned the objectivity of major credit rating agencies Wednesday just hours after Moody’s Investors Service downgraded Portugal, intensifying Europe’s debt crisis. “It’s quite strange that the market is dominated by only three players,” said Jose Manual Barroso, president of the European Commission, the EU executive branch. He was referring to Moody’s, Fitch Ratings and Standard & Poor’s Corp. “It shows that there might be bias in the market when it comes to evaluation” of Europe, Barroso said. His remarks at a news conference came in response to questions about Moody’s decision Tuesday night to downgrade Portuguese debt to junk status.

I note this with a bit of amusement, and maybe some dread.  Noise in the system like this often leads to the creation of a “new market” for rating things, and I don’t necessarily think that’s a good idea.  I could envision a point where someone cooks up a “need” for more players in the credit rating business, which would unleash several of the big financial institutions to apply and pick up the perceived slack.

I don’t follow the stock market all that much.  I do note that there are many ratings agencies for stocks, and they selectively track and grade stock values.  None of the terminology is consistent.  Most of the analysis is as much influenced by the companies who’s stock is being rated as it is in careful analysis.

So does the EU really want to pop this particular genie out of the bottle?  Wait, what am I saying?  The whole EU government system is designed to employ functionary buerocrats who server mostly to talk and push paper.  A whole new set of sub-agencies could spring up to influence Goldman Sachs to upgrade Greece’s credit while at the same time a separate sub-agency sues GS over some cooked-up unfair banking practice.  It’s government in action.

So I don’t know if this is as much shooting the messenger as creating a whole new Bureau of Message Control.  I can’t wait to see the results if this springs to life… it’s blog fodder for years.

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