( CNN ) -- The political infighting in Washington took on global importance Thursday when the ratings agency Standard & Poor 's released a report saying it would downgrade the world 's largest economy 's credit rating if a deal to raise its debt ceiling is not agreed on soon . This comes after similar warnings from Moody 's and Finch -- who , along with S & P , are known as the `` Big Three '' global credit ratings agencies . Meanwhile , European Union markets reeled this week after Moody 's recent credit downgrades of Ireland , Greece and Portugal -- heightening fears that the EU debt crisis will hit the larger economies of Italy and Spain . Government officials on both sides of the Atlantic have railed against the agencies . So how did the global economy become so dependent on the opinions of three companies ? Who are the credit rating agencies ? The `` big three '' are Standard 's & Poor 's , Moody 's Investor Services and Fitch Ratings . All originated in the United States , although Fitch has dual headquarters in New York and London . What do they do ? Before you can get a credit card , banks run a credit check on you . Similarly , the ratings agencies run credit checks on companies , countries and financial products . Countries are rated on a sliding scale : the U.S. , for example , has a top rating ( AAA ) which allows it to borrow cash at cheap interest rates . The lower the rating grade , however , the higher interest payments a nation must pay to attract investors to buy its bonds . Anything that slips to junk status -- as Ireland , Portugal and Greek government bonds are rated -- is considered a `` highly speculative '' investment . Furthermore , the pool of eligible investors is reduced -- many institutional investors , such as government pension funds , are forbidden to invest in junk-rated bonds . Why do they wield such power ? Investors across the world look to credit rating agencies to judge where to place their bets in the market . For governments , the ratings agencies have a lot of power over the popularity of bonds : cash given to governments by investors that , over time , will pay a return on the original investment -- unless the government defaults . The downgrade of Ireland this week signaled Moody 's belief that Ireland has a higher likelihood to default on investments . And global investors have little appetite to invest in those bonds . What does a debt rating downgrade mean ? The decisions of the `` Big Three '' catalyze market moves in often unpredictable ways , creating a strong ripple effect . In the wake of the Greece downgrade last year , for example , investors across the globe started rethinking investment in other governments ' bonds and began selling off more risky investments -- throwing the EU into crisis and depressing the value of the euro . There was a similar psychological ripple through the markets this week after Moody 's recent downgrades of Ireland and Portugal -- it put the spurs to Italian lawmakers to pass deep cuts in government spending on Thursday and turning up the heat on Washington lawmakers to extend the debt ceiling . How are ratings agencies paid ? Historically , they were created to give investors an unbiased assessment of investments and investors paid for access to the ratings . In the 1970s , however , credit rating agencies started charging the issuers of new investments fees for ratings . In 1975 , U.S. legislators -- fearing a proliferation of unscrupulous ratings agencies -- designated Standard & Poor 's , Moody 's and Fitch as the only ratings organizations banks and brokers could use to evaluate the credit worthiness of their products . What are the complaints against the firms ? Critics complain the agencies have lost their ability to independently judge the risk on certain investments -- especially in light of AAA ratings given to mortgage-backed securities that imploded when defaults on U.S. home loans shot up , triggering the financial crisis . Critics also note that the agencies are paid by the very entities they rate , raising questions about their trustworthiness . `` No nation , agency or organization has the authority to dictate terms to the United States Government , '' U.S . Congressman Dennis Kucinich , D-Ohio , said on Wednesday after Moody 's placed the U.S. on review for a possible downgrade . `` Moody 's is representing people who stand to gain from the U.S. being able to issue more financing . This is an unwarranted interference in the political process and continues to raise questions about conflicts of interest among the rating agencies . '' In a speech Monday in Paris , Michael Barnier , a member of the European Commission in charge of Internal Market and Services , said : `` We need to be more demanding when it comes to how credit ratings agencies rate sovereign debt . `` These ratings play a crucial role not only for the rated countries but for all our countries : a downgrading has the immediate effect of making a country 's borrowing more expensive , it makes states weaker , and there are possible effects of contagion on neighboring economies . '' The agencies say they have revamped their procedures since the credit crisis . They also argue their ratings are merely opinions -- protected by free speech laws -- and ultimately , it 's up to the markets to decide .
`` Big Three '' are Standard 's & Poor 's , Moody 's Investor Services and Fitch Ratings . Rating agencies downgrade pressure felt this week from Washington to Rome . The ratings agency Moody's said the U.S. is in a " credit crisis " that could lead to higher interest rates for consumers as well as businesses. Agencies say they only give opinions on credit ; choices ultimately up to investors .