Michel Barnier, the European commissioner in charge of regulation who helped broker a deal on the new law, said it aimed to reduce the over-reliance on ratings and establish a civil liability regime. The new rules should make it easier to sue the agencies if they are judged to have made errors when, for example, ranking the creditworthiness of debt.
The agencies came under fire for giving top-notch AAA credit scores to debt that later unravelled and they provoked more criticism by downgrading countries at sensitive moments of the crisis. The EU PTB need to make up their collective minds. If the agencies are to correct the (purposeful) errors made in giving entities AAA ratings that didn’t deserve them, then those very same entities will (and should’ve) been downgraded at sensitive moments in the crisis. This is the kicker, and the statement really should make the EU officials regret they did this, as well as bring back true returns on fundamental analysis realistic market pricing:
The EU's executive said that the new rules ensured that a rating agency could be held liable in cases of negligence or intent that damaged an investor.
You see, if you can really sue the agencies for being wrong, slow or negligent, then the Pan-European Sovereign Debt Crisis is a civil litigators 30 year capitalized Christmas present come true (even if they are Jewish). Let’s look at how this would have played out with the Greek debt and banks which should have traded as junk nearly 3 years ago as foretold by BoomBustBlog:
The primary balance looks at the structural issues a country may have.
Government expenditures have outstripped revenues ever since 2007 and have gotten worse nearly every year since, despite 3 bailouts a restructuring, austerity and a default! Simple addition and subtraction shows that there's no way in hell Greece can service its debt, defautled debt, or even its redefaulted debt or the round of debt after that.
We don't have to dwell in the past to prove this point either. Why hasn't Italy been dramatically downgraded? It's a wonder they finally got around to downgrading France (The Beginning Of The Great French Unwind…), after all of the evidence that I put forth - reference Italy Woes Lead To French Lows. Believe It… Let's stay on topic, about Italy? The 10 page BoomBustBlog report (subscribers, download the full report here Italy public finances projection, click here to subscribe) excerpted below is approaching 3 years old and it clearly outlined the tumult that is today's Italy and did so well in advance. My analytical staff is small in than Moody's stamp licking staff, yet somehow they fail to warn what I unequivocally cautioned on years ago. What was it did that EU official proclaim? Oh yeah...
"The EU's executive said that the new rules ensured that a rating agency could be held liable in cases of negligence or intent that damaged an investor."
Italy public finances projections Page 01Italy public finances projections Page 02Italy public finances projections Page 03
Subscribers (click here to subscribe) can dig in the archives for this still highly relevant and profitable Italy research:
Continuing my rant on the effectiveness (not) of the ratings agencies, I bring to you an interesting documentary on the rating agencies' effect on the sovereign debt crisis in Europe, produced by VPRO Tegenlicht out of Amsterdam. You can see the full video here, but only about half of it is in English. I appear in the following spots: 4:00, 22:30, 40:00...