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Why have they given us the Moody blues? AS CREDIT AGENCY DOWNGRADES OUR DEBT TO JUNK STATUS WE ASK REASONS BEHIND MOVE..

Byline: JAMES McNAMARA

THE downgrading of Ireland's debt to junk status yesterday raised serious concerns about the motivations of powerful US credit ratings agencies.

The move by Moody's will make it even harder for the Government to return to the bond markets next year - and raised the prospect of a second bailout.

Interestingly, the downgrade immediately caused the euro to fall against the dollar.

It has led to many questioning Moody's agenda.

The agency is one of three US giants which earn billions in fees and capable of striking fear into the markets at any given moment.

Yesterday, Taoiseach Enda Kenny moved to calm the situation claiming the downgrade was not necessarily caused by an Irish problem but because of a wider "difficulty" in Europe.

He said the latest revelations about Italy's debt of EUR1.8trillion was a cause of concern.

Mr Kenny added: "Europe itself has got to respond to a European problem and that is reflected in Moody's analysis and downrating. Their problem is not with Ireland, they recognise this is a European problem and has to be responded to in a European sense."

He also said that if European leaders held an emergency meeting on Friday to discuss the growing debt crisis, decisions better be made.

He added: "If a council meeting is going to be held this Friday, then obviously it's got to be one that is going to grasp this nettle and set out Europe's response to the contagion which clearly is causing anxiety and concern."

EC President Jose Manuel Barroso described the decision by Moody's as "incomprehensible".

The Finance Department said the downgrade was completely at odds with recent views of other credit rating agencies and there was no need for Moody's downgrade.

CONCERNS

The National Treasury Management Agency said Ireland has sufficient funding to cover requirements until the end of 2013.

Minister for Enterprise, Jobs & Innovation Richard Bruton said the move was due to the overall debt situation in the Eurozone.

Moody's said it took the decision because we are likely to need a second bailout.

In the past, there have been serious concerns about the influence agencies can wield over markets, often in dubious circumstances.

Moody's has come under sustained fire for failing to predict the financial crisis and for assigning top credit ratings to rotten mortgage products. Former Moody's analysts have claimed they were forced by their bosses to churn out ratings more quickly than they could properly analyse products, in order to increase the company's share of the market.

CONFLICTS

During the boom they are believed to have been seriously conflicted in their dealing with Wall Street banks and hedge funds, giving their seal of approval in return for large fees, which in turn led to the sale of junk mortgages to unsuspecting investors.

It is ironic that while these agencies are now sitting in high judgment on the worthiness of a country's debt, mainly caused by the property collapse, they allowed the sub-prime property bubble to thrive by giving favourable ratings to mortgage related securities. It led Pimco's Bill Gross to describe these agencies as hookers who wooed the markets with "6in heels and a tramp stamp".

Even at the time of the infamous collapse of Enron, major agencies kept the energy giants investment-grade rating in place - just five days before it filed for bankruptcy. Lehman Brothers' debt was rated "investment grade" by Moody's on the day the financial powerhouse sank.

Commentator Thomas Friedman joked there were two superpowers in the world - the US and Moody's.

He said the US could destroy you by dropping bombs and Moody's could destroy you by downgrading your bonds.

EC President Jose Manuel Boroso revealed the EU is looking into the regulation of agencies to determine "if there are some if measures to be taken to the prevent possible conflicts of interest and other matters".

He added: "It's quite strange that the market is almost dominated by just three players."

"On the issue of the creation of a European rating agency, we at the political level are not of course taking decisions on that matter. I believe this a decision for the markets.

"It shows there may be some bias in the markets when it comes to the evaluation of the specific issues of Europe."

Irish Mirror Comment

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Publication:The Mirror (London, England)
Geographic Code:4EUIR
Date:Jul 14, 2011
Words:722
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