Why do we credit the rating agencies?
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The Democrats and anti-government groups were jubilant when Moody's said it may downgrade Thailand's credit rating because of losses from the rice-subsidy programme. I wonder if anyone still gives Moody's credit these days.
Credit rating agencies are like the mafia who extort protection money from securities issuers for favourable ratings. Companies pay rating agencies to be rated. What happens if they don’t? In 1998 Moody’s offered a free rating to Hannover, a German insurer giant. The company refused, but Moody’s rated it anyway. Hannover kept refusing. In 2003 Moody’s downgraded the company’s debt to junk status. Shareholders panicked, dumped their stock and Hanover lost US$175 million (Bt5.4 billion) in a few hours.
Moreover, when rating agencies downgrade a country’s debt, that country must pay a higher interest rate to borrow, and when they downgrade a financial company’s debt, then it is forced to post more collateral. This is blackmail!
Moody’s is like an uninvited guest who comes to your house, makes a vulgar joke about your family and you are too polite to tell them to leave.
Somsak Pola
Samut Prakan
