War on Credit Rating Agencies: Italy versus S&P and Moody’s

Falling markets? Blame anyone else but the government.

From Reuters,

Italian prosecutors have seized documents at the offices of rating agencies Moody's and Standard & Poor's in a probe over suspected "anomalous" fluctuations in Italian share prices, a prosecutor said on Thursday.

The measure is aimed at "verifying whether these agencies respect regulations as they carry out their work," Carlo Maria Capistro, who heads the prosecutors' office in the southern town of Trani which is leading the probe, told Reuters.

The documents were seized at the Milan offices of the two agencies on Wednesday, he said, adding that prosecutors had also asked Italian market regulator Consob to provide documents relating to their registration in Italy.

S&P in Italy said in a statement it believed the probe was "groundless".

"We strongly defend our work, our reputation and that of our analysts," it said.

Moody's said it "takes its responsibilities surrounding the dissemination of market sensitive information very seriously and is cooperating with the authorities."

The Trani prosecutors have opened two probes -- one for each rating agency -- after a complaint by two consumer groups over the impact of their reports about Italy on Milan stock prices.

The first complaint was filed against Moody's after it published a report in May 2010 about the risk of contagion for Italian banks from the Greek crisis.

A second complaint filed in May this year targeted Standard & Poor's after it threatened to downgrade Italy's credit rating because of its huge public debt.

This isn’t to defend the sullied US credit rating agencies whom failed to predict the last crisis and whose operating process appears to be politically oriented.

The essential point here is that when turmoil emerges, governments always shift the blame elsewhere. In this case, markets are simply reflecting on the real deterioration of the country’s ability to pay creditors as a result of fiscal imprudence.

Desperate governments will resort to almost anything, even to the absurd, in order to control market price signals for them to look ‘good’.

At the end of the day, dealing only with the symptoms are most likely to exacerbate the disease.