Credit rating agencies make merry eitherways

Today’s eurointelligence edition has a nice comment from the Portugese financial minister:

Jean Quatremer has an interview with a defiant Jose Socrates, PM of Portugal, who says he has brought down his country’s budget deficit before, between 2005 and 2007, and he can do it again. He was particularly critical of the rating agencies, who now criticise governments for spending too much money, which, lest one forget, they did to save the global financial system, and thus the rating agencies own income sources.

🙂

In this crisis, rating agencies role has been pivotal. It has been a colossal failure, nasty comments leading to soul seraching. Their overall track record predicting sovereign risks is pretty bad as well.

And now as this crisis eases, they could be making it worse for economies as well. The ratings are procyclical. The question of who rates these agencies is as important as restructuring financial regulation.

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2 Responses to “Credit rating agencies make merry eitherways”

  1. Germany and Greece…history repeats itself « Mostly Economics Says:

    […] crisis. And now the financial firms start penalising the govt asking for higher interest rates, credit rating agencies lower ratings etc. Eitherways , govt is pushed into a corner. How do we end all […]

  2. Greece Prime Minister takes on financial speculation « Mostly Economics Says:

    […] biggest irony in all this is as Papandreou and others point out, the sovereign debt crisis is a result of saving financial firms and economic activity […]

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