I’ve had less cause of late to criticize the Wall Street Journal as the paper has made strides in its coverage of the credit markets. However, today’s paper has a story in which ideology appears to have compromised its reporting.
Today Charlie McCreevy, EU internal markets commissioner, is to outline proposals for closer, tougher oversight of rating agencies. His speech contains some withering attacks on the US regime, not merely its structure, but also the failure of regulators to exercise the powers they had. From the Financial Times:
Mr McCreevy is to make clear that nothing short of supervision will do. “I am now convinced that limited but mandatory, well-targeted and robust internal governance reforms are going to be imperative to complement stronger external oversight of rating agencies,” he will say. “I have concluded that a regulatory solution at European level is now necessary to deal with some of the core issues.”
The announcement comes just weeks after the International Organisation of Securities Commissions proposed changes to the industry code of conduct, a code Mr McCreevy will make clear falls far short of what is needed.
In withering language, Mr McCreevy will describe the code as “a toothless wonder” and point out that “no supervisor appears to have got as much as a sniff of the rot at the heart of the structured finance rating process before it all blew up”.
He will say that he is “deeply sceptical” about its usefulness. “Many of the recent IOSCO task force recommendations do not appear enforceable in a meaningful way,” he will suggest.
He will also call for “robust firewalls” to protect those responsible for the integrity of the process from executives whose priority is “to drive forward” earnings.
So McCreevy thinks both the current regime and the IOSC proposals are grossly inadequate. And how does the Journal present his views?
Europe’s top markets official is set to unveil a plan to regulate bond-rating companies, a move that adds heft to similar efforts by U.S. officials to address causes of the yearlong global credit crunch.
Charlie McCreevy, the European Union commissioner for internal markets and services, plans to say in a speech Monday that he will propose legislation designed to address what he sees as conflicts of interest at credit-ratings companies. In a draft of his speech, he called current voluntary codes of conduct a “toothless wonder.”…
Among other measures, Mr. McCreevy wants to enforce so-called fire walls between operations of the ratings companies that raise fees from clients issuing bonds and operations that rate the bonds. He wants ratings companies to register in a way similar to that in the U.S.
Policy makers have criticized ratings companies because their ratings of structured products failed to reflect their true risks, particularly under stress. Critics say there is an inherent conflict of interest in the business: an issuer of debt pays the agencies to rate its product and sometimes, in the case of structured credit, to help design the product, too.
The U.S. Securities and Exchange Commission recently recommended that credit-rating firms make more information about ratings publicly available.
Mr. McCreevy’s plans would ban some practices and require firms to distinguish between corporate or government debt and complex structured products.
So the Journal intimates that McCreevy is pretty much on the same page as US regulators, and makes no mention of his unusually harsh criticism or specifically, that supervision was woefully inadequate and is badly needed.
Misconstruing where McCreevy stands relative to his US counterparts seems a deliberate attempt to play down calls for more stringent regulation.