Don’t break the thermometer just cure the sick damn guy!

Gabriel J. Weill
12.05.10

Some people lost everything in the Global Meltdown. Clearly the political power understood how weak it is next to such financial hurricane. Obviously all the world governments tried to minimize the consequences of the economic crisis. Western countries did their best to implement economic policies to reduce the economic disaster.

When the politicians saw how big the crisis was they tried to understand what did not work and what needed to be fixed. But like in every catastrophe, even politicians understand how weak they are. The politicians need to find responsible body to endorse the responsibility of the “misfortune”. Finding responsible bodies is not part of a recovery process. Even if some people need to be punished the priority is to fix the system.

The economic crisis is born of speculation madness. Speculators initiated irresponsible processes in order to make huge profits by disconnecting transactions from real value of the assets. They played with very risky assets with the only goal to make bigger and bigger profits. Besides speculators politicians want to blame rating agencies.

Rating agencies assess the financial strength of companies and governmental entities particularly their ability to meet payments on their bonds and other debt. Today the crisis is very different compared to what it was in 2007. Today, the question is not about toxic assets or junk bonds but about the sustainability of sovereign debts of countries. The Rating Agencies do not only rate companies and assets, but also governmental debts. Here is the problem, when politicians want to blame these agencies for having launched the economic crisis they serve as judge, jury and executioner. They want to legislate against the body who is actually judging the government’s ability to pay back its debts. Politicians blame the rating agencies for not warning investors on time. What they claim may be true but this still doesn’t gives the governments the permission to say anything against the rating agencies.

Let’s take Greece for example, the rating agencies have downgraded the Hellenic government and launched a monetary crisis in Europe. The rating agencies didn’t act in a good time, even so the problem does not come from them but from the issuer of bad quality debts. It is too easy to say that the rating agencies are the cause of the crisis. If the European Union experienced a monetary crisis it is because of the European Central Bank which did not lower their rates quickly and drastically enough[1]. The fact that Germany wasted time to affirm that the EU will help Greece is another main mistake. And obviously the disastrous economic management of the Greek governments lead to the monetary instability.

A rating agency is a thermometer which describes the symptoms of a sick economy. By accusing the rating agencies, the politicians just want to satisfy an angry electorate. They are not curing the already weakened economy.

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[1] The ECB is in charge of the European monetary policy and does not take care of the European economic policy.