A news story in the Business section of the paper caught my eye on 30 April. It seems that with the downgrading of some European debt there have been renewed calls for “reining in” the rating agencies. One of the rating agencies mentioned is Standard & Poor’s, an agency that traces it’s roots to 1860, was incorporated in 1941, and provides stock market indices for the U.S., Australia, Canada, Italy, and India. In the last year S & P has downgraded both Spain and Portugal to an ‘A’ rating and Iceland and Greece to ‘BBB’, or ‘junk’ status.
Among the criticisms levied is that there is an inherent conflict of interest in the credit rating system because organizations pay to have their debt evaluated, thus providing an incentive for rating entities to provide a more positive score than might otherwise be warranted. A lot of this criticism was fueled by the fact that S & P and others rated a number of ultimately unsalable U.S. financial instruments as AAA during the debt crisis of 2008 and completely failed to predict the collapse of the Icelandic economy.
There is nothing inherently wrong with being paid to perform a service by those who benefit from the service. It is quite common for a house seller to pay an inspector to evaluate the property prior to sale. The property owner depends on the objectivity of the report so that they can address any shortcomings prior to sale. One could say that the inspector might be pressured to provide a positive report because they are in the pay of the property owner. The fact is that the inspector’s livelihood depends on their reputation for providing accurate, impartial information. So it is for any professional. I don’t know of any profession that doesn’t have a code of ethics, and in my experience the practitioners take those codes very seriously. This isn’t to say that there aren’t some bad actors, but to vilify an entire profession because you don’t happen to like the results comes across as petty and ignorant.
The story quotes the German Foriegn Minister (Guido Westerwelle) as suggesting that the EU form it’s own credit rating agency. Say what?! You don’t like the results you’re getting from private companies that have been doing this work for decades and imply that there is a conflict of interest so your solution is to form a government rating agency that will evaluate debt issued by . . . the members of the agency? This is an improvement? Given some of the controversy surrounding Herr Westerwelle, perhaps he should be speaking on this, as he apparently knows from conflict of interest.
In my neck of the woods the studded tire season is over, and not a moment too soon. These tires are illegal in many states so for folks who are unfamiliar with them studded tires are snow tires with metal studs set in the tread. They are great for traction in snow and ice but they’re also very good at gouging ruts in dry pavement. The surfaces of I-90 over Snoqualmie Pass and pretty much the entire length of I-5 in Oregon are pretty well chewed up from studded tires. I once drove for three miles on I-5 in Oregon hands-off at freeway speeds while the car guided itself by the ruts in the road surface.
Every time I hear someone driving around with studded tires it sets my teeth on edge. With the advent of lightweight chains, it really isn’t necessary to drive around full-time with studded tires. The part of Oregon I live in might see one or two snows a winter and even if you drive across the pass on a regular basis, it only takes a few minutes to chain up. Oregon has steadily increased the taxes on studded tires and in the last several years I have noticed fewer and fewer people using them, but anyone who has had to fight the road ruts probably wouldn’t mind if they went away altogether.