Rating agencies are cited in economy news like an honest arbiter of evaluating assets. Their opinion are never challenged. Nobody seems to say that I do not agree with Standard & Poor’s, one of the top rating agencies.
I have read some articles criticizing their power but they are rare.
For example, recent news reports and commentaries about Greek debt crisis tells the following story. Greece borrowed too much money and wasted that money. Therefore, it doesn’t have any money to return. Every chunk of money you borrow, you have to return on fixed date and such a date is approaching for Greece soon. Greece will have to default but not if someone else comes in and pay back to the private creditors. European central bank, other EU countries, or IMF can be the someone. All of them are hesitant because this refinancing will not solve the problem but only shift the debt from private to public. Now EU governments are asking private banks to extend the return date and Greece should pay this money back over time. Even if this settlement happens, rating agencies may consider this situation as failure to pay back and lower the rating of Greek government. This possibility of lowering of the ratings makes everybody worry but not the continuous indebtedness of the Greek government.
Who the fuck are these rating agencies? They threat to lower rating of everybody, including US government. The big assumption of news commentators is that if these rating agencies lower your rating then no one will lend money to you. But, why all investors(not people) in the world trust them? The rating agencies failed completely in evaluating toxic debts that caused 2008 economic crisis. Their ratings were wildly wrong. Somehow this economic crisis failed to harm reputation of these rating agencies. (Here is a link to videos of US law makers shouting at rating agencies for partly causing the crisis)
It is a good economic sense to return indebted money in time. Most probably rating agencies will only apply probability theory to compute expected return and evaluate the rating. But, there is a big element of hunch that goes in their rating and of course politics and greed can alter their hunch. I think this good economic sense should be the ruling argument rather than unchallenged authority of rating agencies. Both may not coincide all the time. Since opinion of rating agencies matter so much, they must be grilled publicly.