Thou shall not induce the markets to trust some particular information agents

Sir, in the Life & Arts of October 18, in very small letters, your readers are told they can go to ft.com/magazine for an article on how the credit rating agencies got it so badly wrong… which sort of implies that the human frailties present in the CRAs could somehow be avoided in the future… and so that we could trust the CRAs even more. 

Is the FT building up some defences against an accusation of having downplayed the role of the CRAs in this crisis? Do you not think this article merited to be printed in the Financial Times; when the world is so dumbfounded confronting a financial crisis of immense proportions and the role of the credit rating agencies lies at the heart of it? 

The article “When junk was gold” by Sam Jones is not bad but does not classify as good either, since one cannot understand how he could have left out mentioning how the bank regulators in Basel, in the mid 90s, empowered the credit rating agencies with oligopoly rights in the risk information markets, and thereby elevated exponentially their influence. Sam Jones writes “lawmakers may not have the appetite to go after the rating agencies. 

The world’s financial markets have credit rating hard-wired into them… going to an investor-pays model is probably too big a change to ask for more broadly. American and European market regulators seem happier to push for a much-reformed status quo. 

I am not so sure of this. Just like there are many new regulatory proposals based on identifying and managing the behavioural patterns in the relation between borrowers and lender, there are also many like me who argue that the behavioural patterns between security vendors and investors has to be realigned, and in this respect consider that the number one reform needed, in order not to repeat mistakes that could be even more catastrophic, is for the regulators to avoid empowering any supplier of information in any special way.

Just as I warned against the introduction of a systemic risk in a 2003 FT letter

Hey, you missed the story!

Sir, "Moody's error gave top ratings to debt products" May 21, is presented as a "human bites a dog" story even though it really is a "dog bytes a human" event. We all know that Moody and all the others are bound to commit errors, it is only human and must be forgivable, just as then try to cover up those errors is also human though not as forgivable.

The real story is how these agencies could have been regarded as infallible by the regulators who empowered them, and thereby forcefully or suggestively induced the market to blindly follow their ratings.

The article states "Credit ratings are hugely important within the financial system because many investors – such as pension funds, insurance companies and banks – use them as a yardstick to restrict the kinds of products they buy, or to decide how much capital they need to hold against them" and this gives the impression that the use or not of the credit ratings is a voluntary issue, which is clearly wrong. The investors mentioned, use the credit ratings because they have been strictly ordered to do so by their respective regulators.

Now if they managed to get you to spin a story about a once in a lifetime crazy mistake event that is never ever to happen again, then let me assure you that someone is shamelessly using you.