The E.U. is incensed that credit rating agencies “didn’t do more” to warn people of Lehman Brother’s collapse, but at the same time are outraged that the same agencies correctly assessed the credit worthiness of Greece, Spain and other countries. The solution? An E.U. run credit rating commissariat that investors would be forced to trust were honestly rating their own credit worthiness:
The big three credit ratings agencies were threatened yesterday with fines and the creation of a new state-backed competitor, only weeks after European leaders attacked them for exacerbating Greece’s problems with downgrades.
The agencies will be subject to a new European supervisory body with the power to hand out fines and suspensions under plans unveiled in Brussels.
Work on a rival centralised European credit agency is also being carried out by the European Commission, José Manuel Barroso, its President, said.
The Commission’s plans were welcomed by Liberal MEPs but dismissed as heavy-handed by Conservatives, including John Redwood, who called on the bureaucrats to think again.
It’s almost funny. Almost. So how would this work? Get ready to see the greatest example of irony you will ever see:
The European Commission proposed that an already-planned central European Union regulatory body — the European Security Markets Authority — should take on oversight of the existing rating agencies when it is due to begin work in January 2011.
The new authority would register rating agencies in return for a fee and check that they meet EU rules showing careful research of their rating and no conflict of interest.
The authority will be able to fine individual national offices of rating agencies that cannot or will not justify their methodology, or stop them from issuing ratings temporarily, or even permanently in the worst cases.
If the E.U. starts overseeing the credit rating agencies investors should simply stop buying European debt, because there s no way you will be able to accurately gauge the risk involved. Now would be a good time to look through your portfolio and start planning an investment strategy that is Europe free.