Wednesday, May 12, 2010

RATING AGENCIES


As posted by Dr. Mahathir Mohamad at Che Det on May 12, 2010 9:29 PM

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 Justify Fullitself 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.