Rating Agencies Believe they are “Misunderstood”

June 27, 2012 by · Leave a Comment
Filed under: International, The Rating Agencies 

In an interview with the Sunday Telegraph, the head of Fitch’s global sovereign ratings David Riley said, “The impression might be that if we downgrade Spain, or whoever, we’re cutting them off and making their situation more difficult. Yet, at the same time, we hear a lot of people saying ‘you’re late to the party, the market’s already there, it’s irrelevant what you’ve done.’ We can’t be both. We can’t be all-powerful and irrelevant.”

He continued to explain the idea that rating agencies, “create the crisis that you’re predicting” was impossible and he denied that any decision could create “a self-fulfilling crisis.” He said, “If you owe 1 trillion and your cost of funding increases permanently by 10 basis points, it adds up. But there’s no evidence that the impact is so great as to push what was a solvent liquid entity into insolvency.”

Frederic Drevon, Moody’s head of Europe, Middle East and Africa, echoed Mr. Riley’s thoughts. He said, “If there is a negative environment and we downgrade, we will be told you are contributing to the events as they are happening. But the reality is we have to make the calls as we see it.” He added, “You will have many people who agree and disagree…That’s the way we operate. We are open to criticism.”

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