Credit Rating Agencies Are Agents for the Banks
76Who are Standard and Poor’s?
The credit ratings agency Standard and Poor's has downgraded France's debt, from a prestigious triple A rating, to a less desirable AA+.
Meanwhile Austria, Italy, Spain, Cyprus and Portugal have also had their ratings downgraded, Portugal to "junk" status.
What this means is that the cost of borrowing has gone up for all of these countries, and the Eurozone has once again been thrown into crisis.
Several things strike me at once. Firstly that Standard and Poor’s is a private company, and yet it appears to hold the economic well-being of a whole continent in its hands.
I wonder if other people are as surprised by this as I am?
At what point did the European Union – a political organisation consisting of twenty seven states and several hundred million people - give its sovereignty away to a small number of private companies operating out of Wall Street and the City of London?
Next it is the inordinate amount of power these companies seem to wield. One word from one agency, and the whole financial world is thrown into chaos and the livelihoods of millions of people put at risk.
Finally I’m struck by how little like an objective process this is. Who are Standard and Poor’s? Have they been selected by some recognised body on the basis of their independence and economic expertise? No. They are a private company whose first purpose is to make a profit and whose loyalty is to the banks they serve, not to the public.
A credit rating is an opinion, not a fact. It is an assessment being made by a bunch of shady individuals, in a locked room, without oversight, on the basis of some criterion over which the rest of us have no control.
Who elected them? Who gave them their power? Who was it who decided that these companies and no other should have the right to assess the credit worthiness of whole nations? Where is the oversight? Where is the public accountability? Where is the peer review system able to judge the accuracy of their ratings? Who assesses the assessors, in other words?
It was these same agencies, remember, who gave triple A ratings to the dodgy financial packages which brought the economic system to the brink of collapse in 2008.
What this amounted to was fraud, slicing up and repackaging sub-prime mortgages that the financial institutions knew were going to default as top grade investment opportunities.
The ratings agencies were fully complicit in this process, as was noted by the Financial Crisis Inquiry Commission in the United States in its report in January 2011: "The three credit rating agencies were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval. Investors relied on them, often blindly. In some cases, they were obligated to use them, or regulatory capital standards were hinged on them. This crisis could not have happened without the rating agencies. Their ratings helped the market soar and their downgrades through 2007 and 2008 wreaked havoc across markets and firms."
Parthenon for sale
Economist Joseph Stiglitz said: "I view the rating agencies as one of the key culprits...They were the party that performed the alchemy that converted the securities from F-rated to A-rated. The banks could not have done what they did without the complicity of the rating agencies."
In other words what they were doing in 2008 is exactly what they are doing now, wreaking havoc, but this time not only amongst firms, but across whole nations.
So what happens when a nation like Greece has its credit rating downgraded to junk status? Basically it can’t borrow, which means it can’t get money to service its debts. The IMF moves in, and the country is forced to sell off its assets to pay its debts. It’s like a garage sale of public assets. Everything must go, at rock bottom prices. And who benefits from this? Well the banks, of course. The banks get to buy up the public assets, which they can then “monetise”. They get to own the Parthenon and the Lottery and the country is forced into even greater debt, having now lost its only forms of income.
It is legalised theft, and all enabled by that fictional “credit rating” provided by the ratings agencies in the first place.
It is by this process that the world is being driven into further and further indebtedness to the banks.
Credit Rating Agencies links
- Credit rating agencies and the subprime crisis - Wikipedia, the free encyclopedia
Credit rating agencies played a very important role at various stages in the subprime crisis. They have been highly criticized for understating the risk involved with new, complex securities that fueled the United States housing bubble - Freakonomics » Did Rating Agencies Give Preference to Big Banks?
At the heart of the financial crisis was the market for mortgage-backed securities (MBS). These are the “toxic assets” that larded up bank balance sheets and all but froze the credit markets in the fall of 2008. - Wall Street banks investigated over links to ratings agencies | Business | The Guardian
Inquiry into bid to find whether banks cheated in hunt for high credit ratings includes Citigroup, Goldman Sachs, Merrill Lynch and Morgan Stanley - Senate looks at credit-rating agencies | Marketplace from American Public Media
The Senate subcommittee is looking at credit ratings agencies like Moody's and Standard & Poors for allegedly taking bribes instead of keeping an eye on mortgage-backed securities. Steve Chiotakis talks to Marketplace's Gregory Warner. - BBC News - EU criticises Standard & Poor's ratings downgrade
The EU's top economic official hits out at a decision by Standard and Poor's to downgrade the credit ratings of nine eurozone countries. - The big fat Greek sell-off - Telegraph
Required to contribute €50bn towards its own bail-out, Greece is finally facing up to the sale of its most treasured assets. - Vampire Hedge Funds Are Sucking Greece Dry | Economy | AlterNet
If Goldman Sachs is a vampire squid, as Matt Taibbi so aptly named it, then hedge funds are like piranhas or sharks, eager to strip the financial carcass to the bone.
More on the economy by CJ Stone
- Who Says Were All In This Together?
Economics is not science. It is propaganda for the corporate sector. How politicians blind you with pseudo science in order to disguise the corporate rape of our economy. - The Market has a Name. It is Goldman Sachs
The human race is in debt to itself for more money than there actually is in existence. Even if we all tightened all of our belts and starved ourselves to death to pay off the debt, we still couldn’t succeed. There just isn’t enough money to do it. - We do the work. Someone else takes the wealth.
Economics is easy to understand. It is work that makes wealth. It’s as simple as that - The Empire of Things. On The Social Psychology of Looting
In the social sphere, the financial sector is a kind of collective psychopath, destroying the health of the economy for its private gratification. - Useless Idiots: cuts, war-crimes and quantitative easing
While the banks are busy looting the world in what is effectively a financial protection racket, forcing the sell-off of public assets at rock bottom prices, the defence of those assets becomes a priority for all concerned citizens.
Think Left
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No I know not a revelation Bob, at least not to you and I, but it does make you question how our world came to be constructed in this way. In a way the financial crisis is a good thing as it has exposed all of this. I never even thought about economics before 2008. Now I can't stop thinking about it.
CJ enjoyed this article and marked so. As to the credit agencies S&P are firmly in my sights. Their decission making seems to have shifted from manipulating credit scores based on accountancy to manipulating goverment/s. Perhaps they moved away from accounting after a simple accounting error they eventually admitted forecast a 2 trillion US dollar deficeit for 2021.
Thought part of me can't help thinking its the euro commissioner Michael Barnier whose really got their backs up.
Thanks for the comment edmob1. I don't know what their decision making is based upon, except some people seem to get rich out of it while the rest of us get undermined.
The credit agencies are paid for by the people who our politicians have gone to, to borrow money in our name, to pay for their grandiose schemes, to buy their footnote in History and to buy their re-election.
The Eurozone gave these people their power the same way that a gambler gives power over his life to a casino, whenever he signs another IOU.
Don't blame the usurer's, when it's the politicians and their supporters, who handed over the power to them.
John that's not quite true. The credit rating agencies were in on the sub-prime scam which blew the bottom out of the world economy back in 2008. The mistake our politicians made was in bailing the banks out rather than letting them fail. We shouldered their debt, and now we're in debt to them. Yes we need new politicians, but we also need a new financial structure which is publicly accountable rather than privately owned.
Chris, I have voted up for this awesome hub and think your last two sentences in it sum it up correctly when you say: "It is legalised theft, and all enabled by that fictional “credit rating” provided by the ratings agencies in the first place." I personally don't have any opinion on plans for how we practically solve this. I mean those behind it know very well what they are doing and they must have some safeguards already in place to take care of any 'we the people' mass movements against them. And even if the people could somehow take control what is to stop an equally corrupt system replacing it? New Agers, ufologists and some conspiracy theorists are talking about the whole world being raised into a new frequency, another density and even all the good people going to a new Earth where presumably there won't be rich and poor, but personally I can't see any of that happening. I also can't see any plans for those in power for getting rid of the money system. I simply don't know how this will all end!
I will add that the Kogi are making a second film and have said that over 20 years back they spoke and waited but we "Younger Brother" didn't listen so now they are taking further steps to stop the madness they see destroying the planet and her life forms. Alan Ereira has been working with them again. and has been shown much more of their until now secret culture and beliefs. I was watching videos of the Kogis last night and one Mamo said we only have 50 years left if Younger Brother's craziness cannot be halted, or words to that effect. I cannot see how the rulers of our world can be got to change it over to a Kogi style one or how the populations would react either seeing as the majority are addicted to various forms of consumerism and unsustainable use of resources.
OK Chris, here’s the problem.
You know I’m the last person to defend things like the credit agencies, but the attack on them by the likes of Sarkozy and other EU leaders is just a diversion from their own problems and the inadequacies of their system.
And please don’t be drawn into the trap of thinking that this is really just a conflict between the US and the EU – yes, they’re both bastards fighting over a cake, one may be slightly bigger than another and sometimes they conflict, and othertimes they don't. Just don’t think the success or failure of one or the other is going to help the likes of you or me.
Yes, the credit agencies failed to alert anyone to the 2008 sub-prime crisis (because they were so much involved in the system that dare not see or could not concieve of seeing it fail). That does not mean they were responsible for it . It would have happened with or without them, maybe sooner than later, but anyway.
As for now, you could wipe S&P and all the other credit agencies off the face of the earth tomorrow, and it would change nothing about the Euro crisis.
(by the way, under EU law, some of the biggest investors, the pension funds are forbidden from investing in funds that have not been given good ratings by the credit agencies like S&P, so if the EU governments wanted to, they could change the law and wipe that out tomorrow).
At root, neither 2008 nor today's crisis were caused by credit agencies. They were both caused by an underlying crisis of capitalism (and the latest particularly by the EU attempt at a single currency and everything it involves)All the credit agencies have done in this case is point out the obvious bankruptcy of the EU and the Eurozone policies, which anyone with a head on their shoulders knows anyway -- and has known for at least the last six months.
So although credit agencies play a part in that, like all sorts of banks and god knows what, they are the froth on the surface, they are not the cause..
Don’t you find it interesting that even the Financial Times is now running a series about the “crisis of capitalism” and has articles in which authors say, it is not a financial crisis, or a crisis of the Euro, but a “crisis of aggregate demand” which is inherent in the economics of capitalism itself, not little bits of it.
That’s the core, and that’s what you’ve got to come back to.
Ps, pleased about your new-found interest in economics ;-)
Dave, I've writing about economics for about three years now, ever since I lost my job with the Whitstable Times due to the credit crunch. I'm not saying the rating agencies caused the Euro crisis, I'm saying that they are agents of the banks and that there is a move to wipe out what little remains of our democracies in order to turn the crisis of capitalism (which I agree is the fundamental problem) into an opportunity. Recessions are good for investors who are in the know. The shift in wealth from the population as a whole to the very rich is greater than it has ever been, and those that are in control aren't going to give up their power very easily. I didn't say it was a conflict between the US and the EU. It's the same bunch of people in control either side of the Atlantic as far as I can see.
Hi Steve, I don't know where it will end either. Every so often I get what I feel might be hopeful glimpses, but I guess we'll all have to wait and see. I'll check out the Kogi films later.
Chris (el al). I received a lot of stick recently over a hub I wrote stating that peaceful protests are, in the main, uselss and all the hogs grunting over the trough understand is machettes and cobblestones. One redneck suggested I go to Texas and he would give me a taste of my own violence.(Ha!).
Millions are dying from poverty in the world. From starvation, lack of potable water; lack of adequate shelter and disease. Most Third World countries have a dictatorship which strangles them to death. The gap is still ever widening in the so called "First World," with the power structure having no intention of trying to balancee the ship.
The Daily Mail today suggested seriously that we refurbish the Royal Yacht Britannia for the Queen's Jubilee. That would cost billions probably apart from running it (Note: we can't even afford a small aircraft carrier!)
I think we are past due for the cobblestones!
Bob
You are far more knowledgeable than I on this issue, and I thank you for stating the case so clearly. S & P's board is none other than the bankers themselves, which says it all. The idea that we vote for a government to run our affairs is nothing more than a myth when in truth we are controlled by the financiers.
hi chris
thanks for that, don't really disagree (which is odd)
Bob, cobblestones are ok in certain circumstances, but you have to be young enough and fit enough to be able to run away once they're thrown. Also you have to be fired up and reckless. That's why it's always the young that lead with the cobblestones. Anyway, as one wit once said - in 1968, I think, somewhere in Paris - beneath the cobblestones, the beach.
lmmartin I've just made myself knowledgeable by reading. Most of the links you need to get this particular picture are in this Hub. Hoepfully it will act as a resource for anyone wanting to research the subject. That's the idea anyhow.
Dave, you should watch Max Keiser on RT sometime. He calls himself a capitalist and says that what we've got now isn't capitalism, it's communism for the rich. Which is a good line, if nothing else.
Why did everybody just ran to the banks and signed up for mortgages? Isn't it a case of a small elite ruling masses of unquestioning people?
Yes it's exactly that Denise. But it takes a certain amount of imagination to think outside of the norm and most people are just getting on with their lives. The point is, will they begin to wake up now?
I always get the impression that comfort is the biggest prison, which is why Brave New World is actually a more accurate prediction than 1984, well so far.
Maybe once the masses are taken out of their comfort zone and have less to 'lose' they will take action. In some ways you could say the crisis is doing us a favour. Here in Spain the building cranes were everywhere and now they've gone. So for the environment it's a good thing. Hey the old silver lining...
diogenes Level 7 Commenter 4 months ago
Not a revelation, Chris, but a very well constructed article clearing up my thinking on the subject as well as many others, in and out of Hubpages I am sure.
France should come out and take a stand against this ruthless exploitation; so should Greece. It's the damned Anglo, US/British power group again screwing the world for their own benefits
Great hub Bob