The history of credible data collection for the needs of private businesses in the US was relatively short. The 1907 stock market crash was the watershed moment after which the dependence of credit rating agencies (CRAs) on powerful corporations and their complicity with the rated companies, especially the financial market players, momentarily grew into entrenched practice. These days, the CRAs, while sharing their datasheets for free, do charge fees for assigning ratings, thus de facto inviting clients to shop for the marks. Predictably, the ratings thus issued serve to reinforce the public images rather than to reflect the actual standing of the rated.
The privileged position of CRAs became rock-solid with the ban imposed by the US financial regulators on the handling by insurers and retirement funds with cumulative holdings beyond $1b of securities not stamped by the so-called “Nationally Recognized Statistical Rating Organizations”. The latter is an assembly featuring such recognizable brands as Standard and Poor’s, Moody’s, Fitch Ratings, and Morningstar.
By the early 1990ies, the rating agencies whose original freedom had been skillfully auctioned off rose to unprecedented financial heights and, moreover, acquired unlimited and totally unchecked political power. In the mid-1990ies, for example, Moody’s knocked down Canadian premier Jacques Jean Chrétien’s electoral bid and unseated laborists from the parliament of Australia by downgrading the countries’ national ratings. At the time, it used to be a media staple that the Pentagon was the only body to rival in might the pool of the US CRAs as both had a potential to erase sovereign countries from the map of the world, albeit by different means.
Some 15 years ago, Moody’s extended the top investment rating to South Korea whose economy dived into a severe crisis shortly thereafter. In the spring of 2003, Berlin complained in the form of official statements that the US CRAs were deliberately underrating German companies as a punishment for Germany’s dissent over Iraq.
The recent financial crisis highlighted the controversial role played by the CRAs in the global economy. Standard and Poor’s, for example, found itself owing a serious explanation in the wake of the Enron collapse. A US Senate probe revealed that Moody’s and Standard and Poor’s – the leading couple in America’s rating industry – pretended to overlook evidence of financial tricks due to which the crisis was brewing and were rewarded by investors for relaxing standards.
According to Neue Zurcher Zeitung, a few days ago Hamburg Institute of International Economics (HWWI) Director Prof. Thomas Straubhaar voiced a call for taming the CRA influence. Straubhaar holds that the predominantly US-owned CRAs are completely out of place in Europe’s economy and routinely put the economic stability in jeopardy. Criticizing the private CRAs as a negative legacy of the 1990ies, he suggests that the time has come to free economies across the world from the US-imposed credit-worthiness assessments. Indeed, there's no shortage of arguments to support the view that the CRAs tend to create new problems instead of helping to solve existing ones. For example, in the Greek case grabbing the current headlines, Standard and Poor's provoked a new round of mass protests and alarmist expectations by tearing in a single move three points out of Greece's national rating.
The warning issued by Fitch that the US sovereign rating would be put on a negative watch unless the country's federal borrowings ceiling is reset to a higher level by August 2 may be cited as an example of a rating agency's responsible conduct at the face of the global economy. The question arising in the context, however, is what interests loom behind the push for greater US indebtedness. The shift should enable Washington to replenish the US budget by dumping ever larger quantities of bonds internationally, the printing costs being the only parallel expense. In this mode, the US budget, including its defense part, will continue to swell forever or at least as long as the US dollar retains its oddly earned global-currency status. Fitch spokesman A. Colquhoun who sounded the threat to the US sovereign rating promptly expressed confidence that the debt ceiling would be risen and no US default was on the horizon.
In fact, on April 19 Standard and Poor's already downgraded the AAA forecast for the US sovereign rating from stable to negative and issued minuses to the US Federal Reserve and the Federal Reserve Bank of New York. In other words, US financial flagships are storming the federal budget, which happens to be their traditional pursuit.
The global financial system abounds with parasites capitalizing on the so-called credit worthiness ratings of banks, companies, and even countries. The products they are dealing may be described in sophisticated economic terms, but in fact amount to useless imitations of financial instruments which are built tightly into the Western economy and serve as efficient economic weapons against big and small rivals…
