WHY THE RATINGS AGENCIES SHOULD BE CLOSED DOWN
Iremember walking along outside a prominent Rosebank hotel, trying to find my car after a night out. Standing on the street corner were two ladies, dressed to the nines in tight skirts, thighhigh boots and bust-popping blouses. I stopped in my tracks, wondering how to avoid the cringe-worthy exchange that was surely to follow. Prostitutes are definitely not my thing.
I needn’t have worried, however. The two were embroiled in a heated exchange and didn’t even notice me. As I walked past, I heard the one say: “You did what?!” The other held up her hand in the first one’s face and looked away, rolling her eyes. “I can’t believe you did that,” the first one continued. “You’re such a slut!”
I found my car and drove off, leaving the two of them still bickering on the corner. There were two thoughts dominating my mind as I drove along. First, what could the second prostitute possibly have done to make the first one so incredulous – though in hindsight, perhaps I don’t want to know? Second, the whole argument was dripping with irony – one whore calling another whore a “slut”. It was actually quite comical.
I observed the same irony a week or two ago when I read an article about how one of the largest ratings agencies downgraded the rating of one of the other ratings agencies. Moody’s cut the debt rating of Standard & Poor’s parent company by two levels from A3 to Baa2, mainly as a result of a lawsuit filed by the US Justice Department against the company. This is chutzpah in the extreme, especially since I don’t believe that either of the two companies has a right to exist in the first place. Ratings agencies are the sluts of the corporate world.
WHY DO RATINGS AGENCIES EXIST IN THE FIRST PLACE?
On the face of it, the ratings agencies actually serve a very useful function. Let’s say that a company wants to raise money to fund expansion into a new market. Instead of raising more money on the stock exchange, it decides to go the debt route. So it issues a corporate bond, promising to pay investors a fixed monthly interest payment in return for a capital sum upfront (which is then returned at the end of the loan period).