Rating Agencies, third party and Risk mitigation: Youth Leaders answer from the G8 & G20 Youth Summits

Release of S&P report and reactions

Last friday morning EST time, Standard&Poor’s (S&P and one of the 3 leading rating agencies around the world with Moody’s and Fitch) released their report on US debt downgrading it from AAA to AA+ with a negative outlook 

It has been a shock for politicians from both side of the Ocean and the only ones that are publicly recognizing this downgrade is justified are China (see Dagong report last week) and Russia.

Rating agencies have been under attacked last two years for their lack of vision during the crisis (but who is to blame for first, regulators and banks or the ones that are monitoring them on a product basis?). Now that their are justifying their position , we want them to be more patriotic and take into consideration some politics will. S&P justification for the downgrade: 

“ We lowered our long-term rating on the U.S. because we believe that the

prolonged controversy over raising the statutory debt ceiling and the related

fiscal policy debate indicate that further near-term progress containing the

growth in public spending, especially on entitlements, or on reaching an

agreement on raising revenues is less likely than we previously assumed and

will remain a contentious and fitful process” (P3 of their document ).

Rating Agencies role and risk evaluation

The truth is Rating Agencies are not better than any ones with some expertise in financial evalutation to evaluate the risk and everybody who wants to use their grade don’t have to take it for granted. The USA and a lot of regulators have helped them becoming the Graal for financial assessment and “unbiaised” third party (instead of countries or companies rating their bonds and debts themselves) and help the second market to be much more liquid than in the past thanks to these grades.

Youth Leaders answer from the G8 & G20 Youth Summits Paris 2011

I wanted to point out that the Youth leaders that have been gathered in Paris last June for the G8 & G20 Youth Summits has highlighted this fact in their Final Communiqué (P23): 

“We request financial institutions and investors to augment their internal risk assessment processes in order to improve the quality of information on trading instruments.

External rating cannot be an adequate substitution for companies’ internal assessment processes. We urge states, regulators and other entities to diversify the source and methodology of their risk assessment models beyond existing risk assessments when assessing the strength and quality of their financial and banking systems.”

update: The french Senat is advicing the same, Youth leaders are really visionary http://www.senat.fr/rap/l10-787/l10-78727.html