Regulate the rating agencies

NTMA chief John Corrigan’s assertion that Moody’s sub-investment grade rating of Ireland is contributing to our massive borrowing costs is absolutely correct.

If any lesson is to be learned from our current financial woes, it is that effective regulation is of paramount importance in the operation of financial institutions. In 2008 the three main rating agencies — Moody’s, Fitch Group, and Standard & Poor’s — rated Irish government debt as Triple A debt at the same time as claiming that sub-prime mortgages in the US were secure. The Financial Crisis Inquiry Commission in the US found in January 2011 that the global financial crash could not have happened without the involvement of these rating agencies There is absolutely no regulation of these powerful agencies, and a rating produced by any one of them can seriously impact upon the cost of borrowing and the level of investment for any state. Moody’s over reliance on GDP as the principal economic indicator for Ireland is misplaced. Most economists agree that, due to the high level of foreign direct investment which this country enjoys, real GNP is a far better measure of Ireland’s economic performance. Given the power that the “Big Three” wield, it is essential that a regulatory body is established at an EU level to regulate their operations. It should be made abundantly clear that ratings such as those issued by Moody’s impact negatively on Ireland’s and indeed the eurozone’s economic recovery.

Andrew Kennedy