Taylor Criticizes Euro Zone’s 3-Day Warning Plan

October 4, 2011 by · Leave a Comment
Filed under: International 

PFitch Ratings President Paul Taylor addressed the feasibility of a three-day warning period before changing a country’s sovereign debt ratings. Among other issues, Mr. Taylor worried about insider trading. He told a panel of British lawmakers from Britain’s upper chamber of parliament, “One of the leakiest areas in our business is sovereign ratings…if you inform the Greeks of a rating decision you get phoned up by the French. Countries tend to talk to each other.”

Taylor also claimed that the ratings agencies’ power is overstated. Instead the lawmakers should focus on the business press. Reuters reports Taylor saying, “It’s overstated, the power we have in markets. A lot of that comes from the press. The financial press in particular loves the idea we wave our wand and magic things happen.”

Currently countries are given 12 hours to challenge any factual errors, however the Europeans are exploring the possibility of expanding that to three days. The politicians are looking for a longer grace period to avoid wild swings in bond prices while bailout packages are being negotiated.

This is pure folly. You can never regulate volatility.

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