Japan is the latest country to begin severing the global vice grip of the 3 major credit raters. Make no mistake, the ”Keystone Cops' ( Moodys, S&P and Fitch) once powerful influence over nations, corporations and individual investors is coming to a major fork in the road.
Japan’s effort to pull the rug out from beneath the credit raters appears to be a result of nations defending their economies. The credit raters are being taken down a few notches as Japan basically kicks them out of te country by enacting their own financial regulations that “are too risky to comply with”. The same thing happened here in the US when the FINREG bill signed into law in July 2010 caused a complete standstill for new bond issuance. The new law regards bond-ratings firms as “experts” and holds them liable for the quality of their ratings (imagine that?) The ratings agencies’ refusal to stand behind their own ratings shut down the $1.4 trillion market for asset-backed securities for the past few days.
The credit raters are their own worst enemy. These Big 3 have lost credibility due to conflicts of interest in how they run their own business, stale ratings, wrong ratings (ie, Lehman has a solid rating months before they imploded. Surely if there opinions/predictions turned out to be accurate they wouldnt be in this mess.
And now the credit raters are fielding their own set of operational problems: lower revenues, nations circling the wagons to break the monopolistic choke hold , hundreds of lawsuits from investors, corporations and sovereign states.
And to add to the lunacy, In August 2010, Moodys discussed downgrading the USA’s debt the same week that S&P assigned Moodys a ” BBB” rating (Now thats funny!) saying their rating reflects litigation risk for Moody’s due to the recently passed financial reform legislation, which could lower the bar for investors to file securities fraud cases against ratings agencies. This is already happening for all credit raters.
Lets just say that the credit rating business is undergoing ground shifting changes that will result in a free and open competitive marketplace for ratings rather than government sanctioned monopolies.
Good Luck to All
Disclosure: no positions