Hello and apologies for the absence. The ’day job’ has been keeping me busy and admittedly I have been getting too big a daily dose of the markets on the ‘floor’ to continue mumbling about them at home. It’s a new year -gosh, it’s February already- so let’s give it a try.

Let’s make it less formal and let’s start by …. the rating agencies, the folk at S&P, Moody’s and Fitch.

If you think they are an insignificant part of the markets landscape you should think again:

Picture a tennis match. You got the players -obviously-, the managers, the physios & medical staff, the umpire, ball boys/girls, media, spectators, the police… Each group has a very distinct role in the smooth functioning of the game. I bet you think you know what’s coming next; that the rating agencies are the umpire.

Well, perhaps, but mind-you, an umpire in a game that is in its 3rd hour, it’s getting darker by the minute and we’re well before Hawkeye(TM) was introduced. An ‘out’ is not always out and vice versa.

Take sovereign ratings for example:

USA is AAA, fair enough -although, strictly speaking there is nothing AAA nowadays. Germany, France, even the UK all are AAA. Poor old Greece was downgraded to single A territory. All looks fine you might say. Think again: Spain was downgraded from AAA. A few days later, Ireland’s rating was reaffirmed to be AAA, albeit with a negative outlook. There is a mind-blowing lack of logic in these two sentences. Ireland’s CDS is the highest among the Eurozone sovs (wider than Greece even), with the economy facing the steepest GDP contraction, the corporate sector reeling, the nationalised banking system in a bad state and ministers combining the words Ireland, EUR exit and the IMF in the same sentence.

I do not wish to start a diplomatic incident. We are not saying that Ireland is heading to default. Neither does Spain. But in the name of consitency -and common sense- Ireland’s AAA sounds bizarre with all these issues, especially when Spain is downgraded.

My view is that the rating agencies sit in the front row of people who failed miserably during the last year. They were providing ratings not worth the paper they were printed on. People were making decisions based on them -mainly those vulnerable enough to need these ratings, rather than come up with their own views. All those AAA CDOs now downgraded to junk territory (or wiped out) were rated AAA by the rating agencies. While banks are stigmatised and ridiculed, noone even mentions the agencies (or the regulators, but that meritsits own post). That is, I guess, the upside of operating behind the limelight.

I am also buffled by their wider business plan and strategy -especially for this difficult transition period.

• no-one really takes them seriously nowadays
• their cheesegrater models are full of holes -and that’s me being polite
• the markets price in much more realistic and dynamic views on credit risk through the (so-much stigmatised) CDS & bonds market

Maybe I’m harsh, but they are rather obsolete. They had their chance to shine but they were caught sleeping on the wheel. In the era of Hawkeye(TM) there is no room for myopic umpires.