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05-07-2010, 09:47 AM #1
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Pimco attacks ratings agencies over Greek crisis
Pimco attacks ratings agencies over Greek crisis
Pimco has launched a scathing attack on the ratings agencies, accusing them of allowing the crisis in Greece to occur because of their "blind faith" in sovereign solvency.
By Angela Monaghan, Economics Reporter
Published: 6:45AM BST 06 May 2010
Bill Gross, managing director of the world's largest bond house, said Moody's, Standard & Poor's and Fitch lacked common sense and had foisted AAA ratings and the idea that countries do not go bust on "unsuspecting" investors.
"Their warnings were more than tardy when it came to the Enrons and the Worldcoms of 10 years past, and most recently their blind faith in sovereign solvency has led to egregious excess in Greece and their southern neighbours," he said.
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Mr Gross appeared to ridicule the decision by S&P to downgrade Spain one notch to AA from AA+, and to caution the country that it could face another downgrade. "Oooh – so tough!," he said.
He also criticised Moody's and Fitch for maintaining Spain's AAA rating, despite a 20pc unemployment rate, a recent current account deficit of 10pc, a record of defaulting 13 times in the past two centuries, and despite its bonds already trading at Baa levels.
"Their quantitative models appeared to have a Mensa-like IQ of at least 160, but their common sense rating was closer to 60, resembling an idiot savant with a full command of the mathematics, but no idea of how to apply them," he said of the ratings agencies.
S&P and Fitch declined to comment. Moody's did not respond. The ratings agencies have played a prominent role during the crisis as countries including Greece have allowed deficit levels to spiral. The UK has been warned that it could be stripped of its prestigious AAA rating if a credible plan to reduce the record deficit is not produced by the next government.
Despite his strongly-worded criticism, Mr Gross said the ratings agencies could not die altogether, because they served a necessary and productive purpose when properly managed and regulated.
"A certain portion of the investment world will always need them to "justify" the quality of their portfolios. Governments and regulatory bodies say so – it's the law," he said.
However Mr Gross advised investors seeking to profit at their expense to "dismiss" the ratings agencies. He said ratings services were overpriced, "as well as subject to the influence of the issuer, which in turn muddles their minds and clouds their judgment to say the least.
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