EU commissioner links ratings scrutiny to recent sovereign downgrades

"We'll put you out of business if you downgrade us, comprenez?"

Shocking, perhaps yes. Surprising, definitely no! The differences between Europe and the US are quite narrow when it comes to regulators' and governments' ability and willingness to impartially assess the many causes of the recently experienced credit crisis. (Which means we are destined to repeat these mistakes!) While the rating agencies carry substantial culpability, the US governement is unable to pinpoint the primary culprits: Congress and the Federal Reserve; and in Europe, we've already moved beyond the broadly recognized need to address the rating agencies' limited means to compete to fall back on the age old instinct to shoot the messenger!

To summarize a portion of this article, the new European regulator for rating agencies (EMSA) is poised to ramp up supervision and constraints. This regulator is publicly calling the real or threatened downgrades of some European sovereigns mistaken and reckless. Hence, it's as clear as it can possibly be that the regulator plans to pressure rating agencies to give ratings it deems appropriate. The focus will NOT be on getting the analysis right but on preventing politically inconvenient downgrades of European banks, sovereigns, and favored companies. As an ex rating agency employee and expert in root causes of the current worldwide financial chaos, I find this development to be shocking.