Although it might seem that economy and film isn’t so much related, the financial crisis is a concern to all of us and since preparing a pitch was an assignment I had to do anyway, I will write a little article about it.

Having read this article by Alistair Osborne in The Telegraph, I came up with my point of view on the issue of rating agencies and how we should treat them:

It’s time to ignore the rating agencies

For those of you who don’t know it yet: we’re in “The most serious financial crisis
we’ve seen at least since the 1930s, if not ever.” At least that is what governor of the Bank of England, Sir Mervyn King, says. And if he is saying it, it means we should take it very seriously.

The current financial crisis is a direct result of an earlier crisis dating back from 2008
when it turned out that many mortgages in America were not good debts to invest
in. Since the whole financial system is linked together, the problem spread to
all continents. The banks that invested in these junk debts couldn’t handle
this, so governments helped them out and now we are in the situation that the
banks are relatively safe, but the governments are in danger.

The two crises have been caused by inadequate supervision on the financial markets by
governments and politicians. And of course, naturally, by the greed of the banks. Or should there be another actor in the game?  Yes there is! The rating agencies: Moody’s, Standard & Poor’s and Fitch. And we should start ignoring them. Here is why:

First: there are only three of them, so there is hardly any competition and therefore they can’t and do not ’control’ each other;

Second: they are all based in America;

Third: they all rated the toxic mortgages with a triple-A before they appeared to be – indeed – toxic;

Fourth: they are stock-exchange listed companies that want to make profit: they are not objective by any means.

At lot has changed since 2008, except for the reputation of the earlier mentioned rating acencies. They seem to be unimpaired by the big mistakes they made.

Greece and other countries in Europe, such as Spain, Portugal and especially Italy get into trouble and are let down by investors because buyers of government bonds still believe in the ratings these agencies give them. But why would they, since they’ve had it wrong before? And there is even a fifth reason to  not believe them anymore: it is very likely that they are too cautious in rating debts because they don’t want to be wrong
again! Now it is true to have serious doubts in Greece paying back the money, but the situation in Italy and Spain is said to be of a whole different kind.

So are rating agencies all that bad? I would say we need them, otherwise the financial markets will become a chaos. But some things need to be changed:

Either they are continuing as profit companies, but with a lot more geographical spread (so there should not be only American, but also European, African, Asian rating agencies;

Or there should become one big impartial agency, for example as part of the IMF that rates all debts.

Both options have their cons and pros. Neither of them can be realised in a short
period of time. I am leaning toward the first option because private parties in general tend to be more efficient than governments or government-like organisations, it costs less money for the pay payer and also it would be a more liberal solution and thus more ‘democratic’ solution.

But you might not agree with me! Please discuss in the comments what you think is best!