Wednesday, 3 July 2013

Should Europe Have Its Own Rating Agency?


Ratings and Credit Rating Agencies have damaged investors throughout the world as well as the economy of various countries and are continuing to do so while pressure is mounting to bring about a reform of the rating system. Rating agencies are owned by huge investment funds and therefore are not immune to conflict of interest. But ratings are much more than opinions (as the agencies themselves define them) they are also formidable weapons in a global war between currencies that want to keep or gain a dominant position. Europe seems to be the target and the main victim of this war. The US rating agencies has been sending downgrades in the EU's direction over the past months, reshaping not only the economy but also the political landscape of the continent. Recently, China has joined the downgrading spree, hitting both the US as well as the EU. But the EU is not retaliating. Instead, it offers the other cheek by imposing restrictive and growth-limiting austerity measures on its own economies and citizens.
History teaches us (really?) that the Balance of Power is often a means of guaranteeing peace. But what can the EU do to strike back? The logical answer is to start its own Rating Agency. And start sending a few downgrades here and there. However, given the lack of leadership and vision, it is difficult to imagine that Europe's politicians would ever converge on where, how and when to form its own rating agency.

From a purely strategic, balance-of-power point of view, an EU rating agency is a must. However, one must also consider another very important point. With all likelihood, such an agency would employ the very same outdated analytical rating techniques that have contributed so efficiently to creating this global mess. Therefore, it would basically be useless if the idea is to help investors make better decisions. Moreover, given the immense power of a rating, an EU rating agency would probably be run in such a way as to favor some countries at the expense of others. With all likelihood, such an EU rating agency would accelerate Europe's own demise.

Conventional ratings - whereby the Probability of Default (POD) measures the credibility of an issuer of debt - are not only being questioned, in the light of numerous macroscopic mistakes, they are, essentially, irrelevant. Traditional ratings are in fact based on flawed concepts. There is no available science today that would allow anyone to compute the probability of failure of a corporation. Just like turning lead into gold is not possible, the desire to predict if and when a business will fail is, for all practical purposes, a modern high-tech version of circle-squaring.  In the face of reality and hard facts.

Clearly, the war waged against the EU by the organized financial crime is targeting not only the Euro as a currency but the feeble European Union itself. The EU should therefore have its own rating agency in order to "retaliate". This sounds like a solid argument in favor of establishing such an agency. There are however two major issues to consider:
  • It will take a long time for a new rating agency to establish itself and gain credibility.
  • The monopolistic duo Mood's and S&P would do everything they can to jeopardize the project. The same may be said of those who control the rating agencies - US investment funds.
The situation is very complex. Reforms of the rating system have been attempted but, evidently, they have failed. The system is so fantastically complex that it is impossible to design a significant reform. Contemporary ratings are too powerful a weapon to let anyone change them. A totally new approach must be considered. Because finance and financial cartels have crippled EU governments and are dictating national agendas, the solution cannot and will not be the one of an EU rating agency. They would simply not allow it. Even if the EU manages to put together a rating agency, it would be a puppet organization, with negligible relevance and impact. Again, a radically different avenue must be pursued. If you cannot reform the existing flawed and malignant system you must look elsewhere for solutions. More soon.
A transparent, independent, affordable and ethical rating system is already available. Click the image below.