‘WHY DO THEY EVEN RATE GOVERNMENT DEBT AT ALL?’

Quote of the Day: at the Daily Beast, Zachary Karabell wants to know who the rating agncies think they are rating sovereign debt.

There is only one rational solution to the looming threat posed by the ratings agencies: they should stop rating sovereign debt. Cease and desist. A self-imposed restraining order. Why do they even rate government debt at all? The finances of governments are hardly secret. Anyone with a mind, an interest, or a need can do their own due diligence and analysis about whether the finances of Greece, Italy, the United States, Brazil, India, France, or any other of the nearly 200 nations in the world are too risky or safe or somewhere in between. There is no reason to pawn off that task to a few employees of three private companies, and doing so creates a ticking-time-bomb risk if those agencies act too quickly, allow their own biases to color the analysis, or act too late. [Emph. added]

This is all so blindingly obvious that it speaks badly of the financial markets (and fixed-income investors in particular) that anyone pays any attention to what the agencies have to say regarding sovereign debt. As Karabell sensibly points out, the agencies don’t know anything the markets already know, and they certainly aren’t any smarter. And yet when sovereign downgrades occasionally occur, havoc can ensue for utterly no reason. It’s insane. These fools must be stopped. . . .