Saturday, March 07, 2009

Our Hidden Insurgents

Many years ago John Savage, then Premier of Nova Scotia, informed several thousand of us who were holding audience with him just outside Province House that he has to cut social spending. Moody's of New York warned him of an impending less flattering credit rating for the province if he doesn't.

At the time, governments and newspapers were screaming bloody murder about social spending and the impact it has on the province's/country's finances.
The fact that Moodys or Standard and Poors can dictate social policy for a government is not easy to digest. It's pretty ridiculous that Canadian politicians must listen to what Moodys might say about their governance and abide by the credit raters directives.

Global Autocrats

It is similar to the IMF/World Banks power over developing countries where they demand privatization of vital necessities such as water.
The IMF, the World Bank, and the credit rating companies such as Moodys, Standard and Poors, and Fitch have a definite bent toward ultra privatization and laissez faire economics. A bent that has proven, over and over again, to be disastrous for human beings.

These rating companies are the maker or breaker for business and like the IMF or the World Bank, adhere to a model of business that is focused on the bottom line (profit) without concern for the impact business dealing may have on individuals, communities, or whole societies.

Governments need credit to operate. Back in the 1990s Canada's Prime Minister, Paul Martin, slashed social spending to the bone in efforts to placate Moodys who warned Martin that Canada is in danger of having its credit rating lowered if it didn't curb social spending.

In 1995 Canada's health care system was slashed to the point of criminal negligence by Martin to where it is now. Prior to this, Canadians bragged about having the best health care system in the world. Today, the system limps and private speculators (HMOs) salivate at the prospect of stealing the homes and savings of elderly and poor Canadians.

Paul Martin was faced with Moody's threatened cutting Canada's debt and the interest rate rose, Canada suddenly was paying an extra $300 million on its bonds.
At the time, Martin was critical of the bond rater and said, "It doesn't take a stroke of genius to understand that we have broken the back of the deficit and, in fact, that the rating agencies should have no concerns." The credit rater responded by lowering Canada's rating.

These credit rating agencies answer to no one but themselves. There is no international monitoring or control over them even though their scope is international and pervasive.

Keeping Them Down

While Canada may be uncomfortably vulnerable to the credit rating agencies, developing countries don't stand a chance. For example, in 2001 the Dominican Republic issued its first international bond to raise much needed money. They paid Moodys and Standard and Poors to rate them. They received a rating of B A 2. The rating companies cited their lack of foreign financial capital as the reason for the low rating ignoring a decade of relative strength.

In 2003 a banking scandal cost the country about 2 billion dollars. Their currency devalued and the cost of paying loans increased dramatically. The country was also hit with a poor rating. Since then the country has been on a downhill slide. Vital infrastructure projects were stopped in mid stream.

Who knows the extent of the sickness and deaths that have been caused by people forced to rely on filthy water.

The problem is that when a country is in difficulty, these credit raters draconian wave of malevolent wands makes the situation far worse.

The companys will say that their ratings are a reflection of a countries economic misery and not the cause of them. But it isn't quite that sharp or easy. These rating companies have far too much clout in the affairs of all human beings from New York to Shanghai.

They need to be purified and their business must be taken away from the back rooms of the private sector and out into the public spotlight. They're remit must change from myopic profit taking to comprehensive analysis of a societies best interests. Independent bodies must carry out impact studies on what a rating might mean for people that are sick, poor, as well as people that are carrying out business ventures.

Hidden Culpability

More recently the rating companies made determinations about whether certain mortgages were safe. Capitalists bundled hundreds of mortgages into a single security and the securities were given 'triple A' ratings.

Mortgages became a way to make a lot of money in the fast lane. Subprime mortgages flooded the stock markets. It was Moodys and Standard and Poors that gave the green light to re-packaging chunks of capital. It is these credit raters that hold much of the responsibility for the severity of the economic crisis even though the real structural problems are more fundamental than the scams that occurred over the past decade.

These credit rating agencies are over familiar with and cozy with many of the large business entities that are rated. Arthur Levitt, former chairman of the Securities and Exchange Commission, stated that “the credit-rating agencies suffer from a conflict of interest, perceived and apparent, that may have distorted their judgment, especially when it came to complex structured financial products.”

If the rating companys had been doing their job, these rated firms would have been dealt fatal blows over the leveraging scams that had been carried out which caused a large false economy to rise and then come crashing down. Standard and Poors, Moodys, and Fitch knew - and Alan Greenspan knew - that the American economy was sitting on a foundation of sand. These rating companies, like Alan Greenspan, has been complicit in the economic fiasco that is unfolding and they should be held responsible.

It was the erroneous credit rating of the re packaged and risky loans that caused the sub prime crisis that contributed to the collapse of the phony bubbles that had kept capitalism perking along. Moodys were not complaining in the hey day of capitalist scams several years ago. Its profits tripled. Why would they?

Our collective trust of the private sector remains, inexplicably, strong and relatively unquestioning. That has to change. Hard questions must be answered and those that committed fraud must be held accountable. The people that were lucid, those that masterminded the economic disaster now unfolding, people like Greenspan, the credit raters and the large firms involved in the leveraging scams must be brought to justice. Theirs in no ordinary subversion. They have done far more damage than a plane load of Bin Ladens could ever hope for.

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