We have never been fans of the rating agencies. Not only are they usually late with their analysis but they are often reluctant to call a spade-a-spade (France is AAA but the US is not? who are they kidding?). In fact, one can say that the gigantic explosion in debt over the past 30-years has been fueled by a misplaced comfort in agency ratings. For instance, it is unlikely that the German banks would have bought billions of Greek debt had it not been because S&P and Moody's gave the issuer an investment grade rating. Whether it was an American CBO (those of sub-prime fame) or the European PIIGS, the ratings gave everyone cover to distribute or buy with other people's money. The borrowers were too happy accepting the ratings so long as the bonds could be placed.
The truth, it has been said, is the first casualty in war. Thus, it seems that the formerly democratic governments of Europe have decided to go to war against the rating agencies by banning their opinion on European creditworthiness. As it is often the case, this move will likely backfire as no-information usually means worst case scenario analysis. In addition, fiduciary agents (e.g. portfolio managers) will either be restricted by contract or choose avoid buying/holding any unrated bonds (who wants the career risk?). In other words, not only will the politicians make the situation worse, but they will lose whatever credibility they have left.
George Orwell would be proud.
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