France Blames Ratings Agencies for Aggravating Greek Credit Woes

Rating agencies have successively downgraded the sovereign debt of Portugal, Greece and Spain and this has, in part, led to a sharp devaluing of the euro. The European Union has protested that the lower ratings assigned to Greece, in particular, ignore the fundamental indicators of the Greek economy as well as the aid plan created by the euro zone and the International Monetary Fund.

When speaking on French radio Europe 1, French Economy Minister Christine Lagrade said that France will reinforce control over the rating agencies. “I think certain rules should be fixed … because we don’t degrade a country under the conditions that its rating has been degraded, that’s to precipitate purchases of sales 15 minutes before the close of trading, deplorable for the solidity of the market,” she explained.

In an interview with Le Monde, she also said that the downgrade 15 minutes before markets closed was “crime inducing” because it created a panic among those holding Greek bonds who thoughtlessly offloaded the investments before markets closed, driving values down even further.

Previous European Commissioner for Internal Market Regulation Michel Barnier expressed the opinion that rating agencies should be “disciplined and responsible in their evaluation process.” Mr. Barnier, also of France, had also mentioned that the European Union was considering creating Europe’s own rating agency to balance the valuation opinions of the American agencies.

Vive la France! This is like blaming the thermometer for the heat.

Buffett Defends Rating Agencies

Speaking at Berkshire Hathaway Inc.’s annual meeting, Chairman and CEO Warren Buffett defended the company’s maintenance of its stake in Moody’s Corporation.

Mr. Buffett said rating agencies “made the same mistake” that everyone else did in overvaluing the health of the housing market. However, he countered, Moody’s — as well as McGraw-Hill, Standard & Poor’s and Fimalac SA’s Fitch Ratings — possess strong pricing power and require little in capital needs.

“There is obviously a backlash against rating agencies,” he said. “If they are not forced to change the whole structure around them … in some dramatic way, [they are still] a pretty darn good business.”

Mr. Buffett also pointed out that Berkshire has “never paid any attention” to credit ratings for bonds. “We don’t think we should farm out — outsource — investment judgment,” he said.

Angelides Backs Senate Ratings Clearing House

Phil Angelides, chairman of the Financial Crisis Inquiry Commission, said that he supports a provision included in a Senate-approved bank reform bill that creates a government clearinghouse for structured-finance products that need to be rated.

An investment bank that needed a rating for a structured mortgage product, for example, would submit a request for a rating agency to the credit board.  The board would then assign which rating agency would do the work.

The idea has been controversial. The goal is to break up the cycle of credit rating agencies providing inflated ratings to get repeat business. Opponents object to the intrusion of government and its bureaucracy into the ratings process and claiming that the process would still not necessarily lead to more accurate ratings.

A government ratings assignment board would slow down credit formation and make it more expensive. All market participants know that issuers “shopped” ratings. This is only news to D.C. The government ratings assignments will only slow down the process, for the worse.

Moody’s Cooperates with Financial Crisis Panel Subpoena

Moody’s Corporation began handing over documents one day after the Financial Crisis Inquiry Commission issued the company a subpoena for failing to comply with requests for documents. Moody’s missed a March 23 deadline to release documents that the panel requested months earlier.

The panel’s chairman, former California state treasurer Phil Angelides wouldn’t specify what the documents were, stating only that they were “essential documents and emails relevant to our investigation.”

The commission had cause to worry about how quickly documents were supplied: They only have until December 15 to complete their investigation and report on the causes of the financial crisis.

Moody’s said in a statement that it “continues to devote substantial resources to producing documents and making our people available” to the committee.

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