Standard & Poor’s: A Serious Warning

It’s very important that the public knows how financial market rating agencies like Standard & Poor’s — independent providers of credit ratings — are able to grant bonds, once again, with the highest rating (triple A) despite their being supported by subprime mortgages. This action proves two things. First, it proves the unreliability of Standard & Poor’s reports and its participation in and responsibility for the 2007 financial crisis, because it gave creditworthiness to many toxic products that flooded the world market. And second, it proves that four years into the crisis, the same behaviors that caused it are being repeated.

Haven’t we learned anything from the last four years? Where are the financial monitoring mechanisms like the Federal Reserve and the U.S. stock market authorities, and what actions do they take in order to prevent the recurrence of mistakes?

Standard & Poor’s, the rating agency that may once again give top marks to bonds secured by subprime mortgages, was the first one in this industry to worsen the financial crisis in the United States this summer. However, it had also spurred, along with other rating agencies, the speculations against the European sovereign debt crisis.

It seems incomprehensible for the financial markets to concede any credibility to these agencies, particularly to Standard & Poor’s, which not only guaranteed subprime mortgages but also maintained high ratings for Lehman Brothers shortly before they went bankrupt and triggered global instability. Icelandic banks were subjected to the same incompetence. But the paradox lies in the employment of these rating agencies by central banks and stock market authorities, paid by customers themselves who demand an accurate report in order to justify the approval of many financial operations by banks, funds and companies. Isn’t it time to introduce a little more consistency and control to this whole operation?

After the crisis and its still-severe effects, the leaders of the G-20, but especially the United States and the European Union, pledged to reform the international financial system as a top priority. However, nothing has been done yet. We cannot afford any more economic losses. We have paid a very expensive price already. The case of Standard & Poor’s is a serious warning that the passive state of the government should end immediately and that effective measures must be taken against the unethical or allegedly fraudulent behavior of some major players in the financial market.