Alex Hern reports on the calls from the Party of European Socialists to regulate the credit ratings agencies, and considers what the problems with such regulation may be.
The Party of European Socialists, the European political party which Labour is a member of, has hit out at the power of credit ratings agencies following S&P’s decision to downgrade nine Eurozone states on Friday.
The President of PES, Sergei Stanishev, of the Bulgarian Socialist Party, said:
A dozen anonymous analysists with no shred of legitimacy and a proven track record of gross inefficiency, effectively decided on Friday to make life much harder for millions of Europeans. This agency, like the others, is acting subjectively, politically and irresponsibly. This is an international scam that has to stop.
Commenting on proposals for regulation of the agencies, Stanishev continued:
Either we accept the domination of CRAs and we continue to weaken our societies, or we rebuild democratic standards in our society.
We can ban the rating of states: banks are more than adequately equipped to do their own assessment of risk. We can force CRAs to be held accountable and to act in a transparent and predictable way. We can rate CRAs and link their assessment to their past performances.
Most importantly, we can create a European Independent Credit Rating Agency, which would be the only one allowed to provide rating for regulatory purposes.
Writing on Left Foot Forward in advance of S&P’s downgrades, Ben Fox argued:
While S & P’s threat is certainly a massive over-reaction it is scarcely surprising. It fits into the pattern of behaviour by the rating agencies – too generous in the boom years, swinging to being far too severe in the hard times.
The main problem has been that credit ratings have increasingly tended to become a self-fulfilling prophecy rather than a sensible assessment of creditworthiness.
Downgrading the credit rating of Greece, Irish and Portugal to junk status made it much harder for those countries to service their debts and made bailouts inevitable. If Spain, Italy or, indeed, any country were to suffer a downgrade it would push them into further difficulty.
The problem the EU has is that regulation of CRAs is, at heart, a free speech issue. While it is true that they have huge power, disproportionate to both their record and their accountability, so too do other organisations – to pick just one example, News International.
If Stanishev can navigate this issue successfully, the threat to democratic governance from the CRAs could be reduced. But, just as with dealing with our dodgy press, the desire to come down hard with regulation and censorship may be counterproductive.
See also:
• Politics vs Economics: setting the scene for the Fabian’s Next Economy conference – Marcus Roberts, January 13th 2012
• Eurozone crisis: A threat or a promise from the credit rating agencies? – Ben Fox, December 6th 2011
• If the right cares about sovereignty, why the silence on credit agencies? – Alex Hern, November 22nd 2011
• The current crisis: brought to you politician by inaction and unaccountable credit rating agencies – George Irvin, August 8th 2011
• Rating agencies: The unaccountable oligopoly that can destroy economies – Mark Anderson, March 11th 2011
32 Responses to “European socialists call for regulation of the ratings agencies”
Duncan Hugh Reid
RT @leftfootfwd: European socialists call for regulation of the ratings agencies and want findings hidden. http://t.co/Ft1tRewa
Chris Bowden-Smith
Via @leftfootfwd: European socialists call for regulation of the free flow of information http://t.co/SbmkgRaG
awake!
I agree that there have a notorious cases of speculators forcing consumers to pay up, but the most notable was enron, and it was an inside job- guys at the power stations were getting paid. This fallacy that speculators destabilise marhets forgets the important fact that the trade has to be correct to come off- if i keep selling £5 notes for 4.99, well i won’t change the value of a fiver…
Now lefties will auto jump to this guys defence- remember, your local council might invest in investments that this eurokok clown led rating agency determines a s safe on political grounds.
French debt and others that got downgraded were trading at levels that implied a LARGER downgrade for quite a while now-these agencies tend to follow, not lead (mostly).
Ring up a lawyer, ask him for his opinion and see how you get on suing him if he’s wrong…
CUCKOO!!
And finally, the euro clown said
‘A dozen anonymous analysists with no shred of legitimacy and a proven track record of gross inefficiency, effectively decided on Friday to make life much harder for millions of Europeans. This agency, like the others, is acting subjectively, politically and irresponsibly. This is an international scam that has to stop’
Now, replace analyst with politician and you’ve pretty much got the truth.
Awake!
FITCH EXPECTS RATING REVISION OF 6 EURO ZONE STATES WILL END WITH DOWNGRADE OF 1-2 NOTCHES IN MOST COUNTRES – SENIOR FITCH ANALYST
Stangely, this French owned entity has said it’s unlikely it will downgrade France
Anonymous
Is it easy?
For example, if you and I have as bet on the Man Utd match this Saturday, does our bet affect the result?
After all, you’re betting one way, supporting Man Utd, and I’m betting the other way. It’s balanced.
So for every seller, there is a buyer.
The cause of the poverty and hardship isn’t the speculators, its governments. Governments who have run up massive debts, primarily to their own citizens, that they can’t pay.
As for fuel poverty, look to the Greens. If you force people to pay 800% more than the cost of electricity from other sources, its going to cause problems.
It’s just state cronyism, the real problem. Get the state to protect you so you don’t compete. (Greens) Get the state to bail you out (British Leyland to failed banks). Get tax perks like the film industry that aren’t offered to others. Steal directly like MPs and peers.
Where are the higher prices caused by speculation? Its higher prices because demand is up, or supply is down. Are you saying that the oil producers should be forced to sell below market cost? How are you going to make that happen? We have no more gunships to send in.