How Governments Solve Problems

This is hilarious, all the more so because the actors involved have absolutely no self-awareness of just how bad this looks

This week alone has seen a ratings downgrade for Spain as well as a threat by agencies to review France's AAA status -- and the markets have taken notice. Once again, it would seem, ratings agencies are making things difficult for European countries.

Now, the European Union is considering doing something about it.

European Internal Market Commissioner Michel Barnier is considering a move to ban the agencies from publishing outlook reports on EU countries entangled in a crisis, according to a report in Thursday's issue of the Financial Times Deutschlandnewspaper

This is not even a content neutral ban on speech - it obviously will only be applied to bad reports, not positive ones.  No wonder Obama has always been so admiring of the Europeans.


  1. Bryan:

    Good lord. Lets leave asside the free speach moral aspect of that proposal and just focus on the practical problem of dealing with the financial crisis.

    Why would someone think that bringing less transparancy and more ambiguity to a situation like that is in any way helpful?

  2. LoneSnark:

    If you ban bad news, then bad rumors will be accepted as news.

  3. Don:

    OK, so if they issue a dictate that the bond rating agencies cannot issue ratings on country X, then we can all simply assume that country X has a 0 bond rating, dump their cash and bonds, and run away.

    The effect will be essentially the same as "mark-to-market" had on the large mortgage-backed investors/lenders (e.g. Country-wide), i.e. the country will go broke literally over night.

    Good idea. Anybody want to bid against my $20 for the Parthanon?

  4. Ted Rado:

    I am patiently waiting for politicians ANYWHERE to get something right. Their collective motto is "What can we screw up today?". If they tried to do the right thing rather than fritter away money buying votes we wouldn't be in this mess. It's enough to convert on into an anarchist. No government may well be an improvement over what we have (joking).

  5. Val:

    "Why would someone think that bringing less transparancy and more ambiguity to a situation like that is in any way helpful?"

    They aren't. All of this is to buy time before the public panics. Best case scenario they envision is to blunt the really, really bad outcomes sufficiently to preserve their status quo. Worst case scenario still provides enough time for the major players to execute their exit strategies. In any case, it gives those major players time to reposition to take advantage of the anticipated market turns and other economic activity. That's it.

  6. MJ:

    Don nailed it. I'm curious as to why these folks believe that investors will be less trusting of the bond rating agencies than of government finance ministers who actively censor bad news about the status of their debt.

  7. ben:

    Less hilarious, more terrifying, methinks.

  8. BobW:

    It is unclear just how the ministers propose to effect a ban on U.S. based rating agencies. They can provide pressure in the form of hassling the local european ofices of the agencies. But in the long run they will recognize that native issuers of debt need the ratings of the agencies to market debt.

  9. Hasdrubal:

    So, how would this work with capital requirements? Banks are required to hold AAA rated bonds, if they can't get a rating for, say, Spain's bonds they can't buy them (to satisfy capital requirements, at least.) So wouldn't this put some decent downward pressure on the demand for bonds, driving yields up, before the rating agencies even took a look at them?

    And I presume they will enforce the gag order on US based firms by not allowing those firms to do business in the EU if they don't follow the rules.

  10. blokeinfrance:

    My favourite Michel Barnier story:
    When he was minister of agriculture, the french fishermen (another heavily subsidised industry) were protesting about fuel prices and blockading the ports.
    Barnier was sent down from Paris to negotiate (i.e. surrender) which he did to the best of his very limited ability.
    Sadly he couldn't do the business because Paris found out that french fishermen pay VAT at 5% (which they deduct as a business expense - i.e. they get it back) and 0% petroleum tax.
    So no capitulation possible. Barnier went back to Paris, the fishermen gave up about a week later.
    Just a glimpse of what you're dealing with here.

  11. John David Galt:

    The treaty that formed the Euro did not just create the "stability pact" (with which I don't think any member country has ever completely complied) -- it also included an absolute ban on bailing out any country that got in trouble.

    Now that even that agreement has proven to be absolutely toothless, anything is possible. Maybe we should start a betting pool on how long it will be before the euro, or even the EU itself, dissolves and is replaced by protectionism. My guess is it will happen before the end of 2013.