Tuesday 17 Jul 2018 | 10:29 | SYDNEY
Tuesday 17 Jul 2018 | 10:29 | SYDNEY

Credit rating agencies: Rear-mirror view


Stephen Grenville

18 January 2011 16:43

One of the great survivors of the Global Financial Crisis is the credit rating agency. Despite their key role in the crisis — giving AAA ratings to what turned out to be portfolios of junk loans — the agencies emerged from the GFC with their reputation miraculously unscathed. Their role continues as gatekeepers of capital flows, especially between countries.

Also unchanged is their defining characteristic: warning investors about problems only after the crisis has arrived. Fitch, one of the Big Three rating agencies, has only just (last Friday) reduced Greece's rating to below investment grade. The agencies are equally slow to see change on the upside. Moody's has just raised Indonesia's rating, but still not to investment grade.

This is not financial advice, but my guess is that Greek Government debt is likely to require a restructure, with a haircut for investors, while Indonesia's government debt will go on being a safe bet. One day the rating agencies may catch up with this reality.

 Photo courtesy of Wikipedia.