Credit Raiding Agencies

Abraham Lincoln, the sixteenth President of th...
"In the longer term however, we can sell off the Union for its scrap value plus a small handling charge"

So now Standard & Poor’s has given the USA a lower rating than it did the mortgage-backed financial instruments that caused the meltdown. Does this mean America is in even worse shape than one of those?

Or does it mean that the criteria S&P use are arbitrary, inconsistent, and possibly reckless?

As I was saying before, there is no line that can possibly be drawn between ratings that help investors profit because they guide them accurately, and ratings that help investors profit because they influence the market favourably. So the agencies may as well say things that benefit investors. Who has S&P’s downgrade actually benefited? Well China for one. Not only can they relish the prospect of charging Americans more to lend them cash, they can now talk down to them too. According to Reuters:

“The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” China’s official Xinhua news agency said in a commentary.

Xinhua scorned the United States for a “debt addiction” and “short sighted” political wrangling. China, it said, “has every right now to demand the United States address its structural debt problems and ensure the safety of China’s dollar assets.”


So S&P are in the pay of China? No not really. They’re in the pay of money. The rating also benefits many of America’s wealthy; a loose affiliation of the sort of people who were being given money freely under a Republican administration, now using more forcible tactics to transfer funds from the public purse into private pockets. Even, the threat of the destruction of US Federal government.

Everyone can and will blame the Tea Party – after all, if they got into power these mentalloids really would repudiate American debts. They’re internal enemies of the United States, and not ashamed to say so. But they’re not going to get into power. They are just going to be used by the Republicans, as their suicide squad.

It’s not in the interests of the Republicans or their supporters to really bring about default – not when many of them are America’s creditors. But there is nothing to stop them taking it to the brink like this to get their way again. And again, and again.



They Really Are Out To Get You

Goalposts In Motion (click to enlarge) ©

Many have asked recently whether ratings agencies like Moody’s, Fitch, or Standard & Poor’s really are the neutral commentators they claim to be. Do they provide advice to investors without fear or favour, merely giving their assessment in a disinterested way? Or are they out to get us?

To think the latter would seem just downright paranoid. And yet… This post on well-respected politics blog Crooked Timber suggests that there is something rather difficult to explain going on with the agencies’ assessments of the Irish economy. Every time Ireland complies with the conditions of the EU-IMF deal by cutting spending, the agencies downgrade it further. This downgrade means that the goal of raising money on the markets moves still further away.

Let’s just repeat that – the more we cut our budget spending, the less likely it is we’ll be able to borrow the money we need to pay for our budget.

It really does seem they’re out to get us.

Why would they be? They’re not there to frustrate our economic recovery or undermine the EU’s plan. They’re there to give the best advice to investors. That’s how they make their living.

But wait – Can’t it be both? The thing is, the ratings agencies do not – cannot – issue predictions while pretending the prediction itself is not going to influence the market. If they did, the predictions would be wrong. They must have long accepted that they help shape the market they pronounce on. Yes, they are there to give good advice to their clients. But that can mean giving advice that is good for their clients.

They also know that when a currency collapses, there’s a killing to be made. The Euro’s fall could be the biggest free money explosion in history, and what easier way to cause that fall than to bring down one of its more vulnerable economies?

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