The eurozone debt crisis returned with a vengeance on Friday as Standard & Poor’s, the credit rating agency, downgraded France and Austria – two of the currency zone’s six triple A rated countries – as well as seven nations not in that top tier, among them Italy and Spain.
S&P, under political fire since it announced a review or eurozone debt in December, gave 14 of 16 countries – including France, Italy and Spain – a negative outlook, which it said meant a one-in-three chance for each country of a further downgrade this year or next.
The agency downgraded France and Austria by one notch to double A plus, while it cut Italy Spain and Portugal by two notches. Portugal has now been relegated to “junk” status by the three main rating agencies following similar actions by Moody’s in July and Fitch in November. Ireland held its rating....
Seema wrote: So what would you like to see instead?
I'm not obliged to propose a solution just because I identify an ethical problem. But an obvious alternative would be to require that audits be funded by shareholders, never the entity being audited. I'm unsure of how practical this might be, so I'm open to other proposals as well. Allowing only sole-owner or partnership incorporation is another, more radical solution.
Neil wrote: But be this as it may, if conflict of interest really bothered corporate boards, they'd get serious heartburn, for accounting firms have a conflict of interest anytime they audit a public corporation since they are paid by those whom they are supposed to be impartially reporting on (so stockholders & traders can make informed choices). He who pays the piper, calls the tune. But just try bringing this up to any accountants you know.
Peter Schiff has wondered why S&P didn't downgrade the US credit rating further. I wonder too.
Food for thought: publisher McGraw-Hill owns S&P, and this is their board of directors, some of whom might have a conflict of interest regarding securities ratings: MH Governing Board
But be this as it may, if conflict of interest really bothered corporate boards, they'd get serious heartburn, for accounting firms have a conflict of interest anytime they audit a public corporation since they are paid by those whom they are supposed to be impartially reporting on (so stockholders & traders can make informed choices). He who pays the piper, calls the tune. But just try bringing this up to any accountants you know.
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Dr. Alan Cairns | 3/9/2009
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