German Chancellor Angela Merkel speaking in Tokyo criticized credit ratings agencies for not spotting companies with problems amid the current market instability. German banks have been the worst hit in Europe so far by the problems linked to the US sub-prime mortgage crisis.
"It is not acceptable that wrong risk assessment in one place has to be paid for by the entire global community" said Ms Merkel who has been described by Forbes as the most powerful woman in the world. There has been criticism of the high ratings given to bundles of debt that included sub-prime mortgages, which are offered to homebuyers with inferior credit ratings. German regional bank SachsenLB was hastily sold to another state-backed regional bank a few days ago after it nearly collapsed as a result of its exposure to US sub-prime debt. Addressing an economic symposium during her three day tour of Japan, the German leader said ratings agencies' judgment had been called into question by recent events. "If we look at how the mortgage crisis happened, we have often experienced that what was rated highly in the end turned out to be much more unstable" insisted Ms Merkel. However a spokesperson for Fitch Ratings, one of the industry's leading operators, said it was "thorough" in its analysis and "transparent" in how it communicated its opinions. "Since 2005 we have been warning about potential stress in the US sub-prime mortgage sector in our published research," he said. "This anticipation of higher losses in US sub-prime mortgages has been factored into Fitch's analysis." Mortgage default rates have risen in the US as a result of rising interest rates and the weakness of the housing market.