Bloomberg View: Don't Handcuff Credit Rating Agencies; a Plan to Lift Housing

Just a few years ago, credit rating companies were the sleuths who didn’t see. In addition to awarding strong ratings to Icelandic banks, Lehman Brothers, and other dubious enterprises, companies such as Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings slapped their triple-A endorsements on shoddy securities constructed from subprime mortgages. When the housing boom exploded, the companies’ hurried downgrades were too late to help anyone.

Lately the rating companies have been both bold and prescient in warning about sovereign debt troubles. Alarmed by Greece’s unsustainable borrowing, they slashed Greek debt to below investment grade. Troubles in Portugal, Ireland, and Spain aren’t as severe, but all are under appropriately close scrutiny by rating services. Even the U.S. has been tagged for a downgrade if it can’t sort out its debt ceiling and spending problems— and maybe even if it can.