Curiosity killed the EuroPosted: November 24, 2011
About ten days ago, the Commission announced plans to regulate the rating agencies 1,2,3. Defenders of Moody’s, Fitch and other S&P responded by saying “don’t blame the messenger“. Their argument: the rating agencies are just evaluating the financial health of states and is not responsible for any crisis. In other words, don’t blame the thermometer if you have a fever.
That is true: indeed, the original cause of financial crisis is the management by states of their finance.
However, it is not fair to say that Rating agencies don’t have any responsibilities. Why ? Because of quantum physics of course !
Indeed, when one is probing for the temperature of something (outside, cake, …) with a thermometer – as rating agencies pretend they do with public finances – the thermometer does not change the temperature of what you’re measuring the temperature of (or very very very very little). This is what’s called a non destructive measurement.
But, for quantum systems, observation perturbs the system and force it to adopt a specific configuration – that is why looking into the box might kill the cat. It is very clear that it is this kind of observation that are made by rating agencies: the result they publish are fixing the financial world into one state of mind.
When the weather channel announce that it is 10˚C outside, nobody consider that information as the unmovable truth, but when a rating agencies says one country will go bust, the financial world react to this announce in a way that prevent any escape from this predicament.
To conclude this reflection, I’ll say that there is one way for the rating agencies to be effective thermometer: just to not publish their estimations will make their observations non destructive and not constraining on the finance of states.