Deborah Hill Cone: Flawed, but still sitting in judgment

Do credit rating agencies have to apply for a credit rating? I hope Moody's, Standard & Poor's, Fitch and Veda Advantage give themselves junk status, put themselves on negative creditwatch and give themselves a bitch-slap across the chops. Not gonna happen of course, even if I think credit rating agencies are repugnant.

Their own earnings are down - Moody's was down 5 per cent for the first three months of this year and Standard & Poor's rating division was down 8 per cent. But despite slightly reduced circumstances, they were still highly profitable and nothing I read on the finance pages or their own publications suggests credit agencies are chastened. They should be. They were found to be either dazzlingly incompetent or breathtakingly compromised. Just remember, Enron's credit rating remained at investment grade until four days before the company went bankrupt. In its promotional bumf, Bridgecorp made much of a 2005 Rapid Ratings opinion that gave it a B3 - just enough to make investment grade. Great solace to investors when it went belly-up, I'm sure.

Credit rating agencies' wretched failure at the big end of town does not seem to have changed anything when it comes to rating the general punter. There is one rule for the big boys and another for solo mothers in Huntly. This week the local credit agency Veda Advantage announced it was setting up an intrusive new system, a sort of "credit hot or not", where everyone is going to get a grade.

I understand risk needs to be assessed to keep the financial system chuff-chuff-chuffing along. But I simply resent the huge power that is put in the hands of credit rating agencies when they have been shown to be so spectacularly useless. Have you ever tried to get a genuine mistake on your credit record changed? I have, and trust me; it is so hard that you are tempted simply to give up. What does that say for the accuracy of the data?

Curious, isn't it, that "respected" credit rating agencies - an oxymoron, surely - take forever to downgrade a company's credit rating, but when it comes to grassroots consumer credit, the benefit of the doubt goes zippily in the financier's favour. Then again, large corporate rating agencies have a chummy relationship with the clients they rate - who incidentally also pay their bills. No conflict there. Maybe Veda Advantage would come up with different conclusions if they came round to see their consumer clients for a cup of tea and a chat about their budget, their kids and their future.

Credit rating agencies have been shown to be thickos - they certainly didn't understand how to rate structured products such as CDOs, assigning AAA ratings to structured debt, which in a large number of cases has subsequently been downgraded or defaulted. And when it comes to Joe Bloggs, they have aided and abetted the credit boom.

In the US, the country's largest public pension fund (CalPERS) is suing Moody's, Standard & Poor's and Fitch Ratings for causing more than $1 billion in investment losses. Cool. Can we sue Fitch Ratings if their changed outlook for New Zealand last week puts off investors? It's not as if Fitch Ratings have ever got anything wrong before.

deborah@coneandco.com