Rating Agencies

RATING AGENCIES
By Dr. Mahathir Mohamad on May 12, 2010 9:29 PM | Permalink | Comments (61) | TrackBacks (0)
1. We are not conscious of it but the rating agencies have apparently become a factor in the failures or success of businesses and even whole countries.

2. Their rating can make or break even big corporations. A huge European corporation finds itself unable to invest for fear that it would be downgraded and its shares would plunge. The losses would run into hundreds of millions.

3. Perhaps the rating agencies were only doing their job - letting the investing public know the situation the corporations are in. But they can be wrong or they can be influenced.

4. Time magazine describes the rating agencies as "lap dogs" because they were clearly involved in wrongly rating certain hedge funds so as to hide the misdeeds of the management.

5. On the other hand European leaders are reported by Financial Times to be angry with rating agencies for their role in Europe's debt crisis. They and the United States are now calling for tough measures to curb their influence over markets.

6. These are cherished institutions in the Western financial and business systems. So we must have them as well. And so we do.

7. But like all the systems and institutions conceived by the rich western countries, they are far from perfect. If we must follow them, we should be more circumspect. Rating agencies wield power and as they say power corrupts. We should take their ratings with a grain of salt. We must be told the real basis for their ratings. Otherwise we may suffer the same fate as the European and the Americans.

61 Comments
By aziz fikry on October 26, 2010 1:12 AM
Dear Tun,
Rating agencies and similar 'number merchants' aka consultants are flourishing even in our country. During economic crises or periods of uncertainty, each will pronounce their own set of figures. At any point of time, there will be an array of numbers to represent our GDP growth. Each source will stubbornly defend the superiority of their number. A popular methodology is to get the average of the numbers proclaimed by members of a selected panel of such experts, while in less 'fortunate' countries the political leaders will have the final say on what numbers to reflect the state of their economy - the quality of primary data is of secondary importance. In the UK,the newly established Statistics Authority is entrusted to safeguard the integrity of official statistics.A role for our National Integrity Institute?