Following the recent downgrade of Cypriot and French government bonds, the criticism of the rating agencies by governments were inevitable. Governments need to maintain the confidence of the capital market through their bonds, and, therefore, when cornered, have little option but to discredit the rating agencies that deem their financial products as risky.Nevertheless, Mervyn King’s recent point that investors should rely on rating agencies less is fundamentally sound.But are we overlooking their true function?The function of rating agencies is to inform the financial system of the risks of investment products and to help investors build a picture of whether they should stay away from any one single product, corporation or country.To blame the rating agencies as a prime cause of the current political or economic situation is wrong. We may dislike rating agencies but they have an obligation...
Read more