Their Standard is Poor – Ratings and US

Credit rating agencies… gotta love ‘em… NOT. Big financial institutions learned how to read their rating policies, fan large fees before their long credit-rating noses, and lure such “objective” credit rating agencies to rate pretty crappy aggregations of subprime mortgages into A or AA or, OMG, AAA ratings. Yet when investors burned by the ratings sue the agencies, they find that these sleezeballs are either specifically exempted from the various federal securities laws, aren’t really in any of the categories regulated or are somehow exempted by exercising their free speech rights. Bottom line: issuers of crappy subprime bundles of mortgages shopped for the credit rating agency willing to issue the best ratings for a fee that was normally… significant. Without any risk related to the accuracy of their results.

Huh, the people who created the crap were the ones who got to pick who would rate the crap and they got to pay the crappy raters a fee to rate crap, a fee that they wouldn’t pay if they expected the ratings to be crap? Huh? It’s like applying for a loan and effectively then getting to rate yourself to the lender by paying a big fee to a sympathetic ear? Isn’t that sort of… er bribery? And clearly Congress is clamping down on these agencies right? Oh, yeah, there’s the filibuster thang that is stopping any reform efforts. And the rating agencies aren’t high on the list of change. How about something simple like submitting your wish to be rated to a blind pool of rating agencies and getting stuck with the luck of the draw? Naw, that would be too easy. But credit rating agencies are increasingly governing our lives… and the fate o f entire nations.

Okay, what’s the latest fun and games with these agencies… now that they are trying to prove that they really do take their jobs seriously? How about S&P’s taking the overall credit rating for the nation of Greece down to below investment grade… junk ratings in colloquial jargon? The U.S. and European stock markets took a nose dive. Portugal had its ratings dropped too, still investment grade but worse. What it means is higher interest rates for nations struggling to make the payment on loans they took out at lower rates. Greece is in deep… yeah… crap… just like the subprime bonds that were rated better than Greece or Portugal. It wasn’t pretty as the April 28^th Washington Post points out: “A major ratings agency cut Greece’s debt to junk level on [April 27^th], warning that bondholders could face losses of up to 50 percent of their holdings in a restructuring. The agency also downgraded Portugal’s debt by two notches.” On the 28^th, S&P dropped Spain’s credit rating as well. And Spain’s economy has a much bigger GDP.

And as Europe moves to shore up the economies of member nations – the so-called PIIGS (Portugal, Ireland, Italy, Greece and Spain) – the prospect of a longer, more drawn-out recovery cycle seems all but inevitable. It gets worse as deteriorating economies raise the interest costs for the nations least able to bear the increased burden. Heavy use of austerity programs and sacrifice by the population that will just have to do with less while paying more. Weakness in the European sector means the Euro will weaken and U.S. exports will remain costly while European imports will be affordable… tough on our balance of payments. A great deal of our recovery was premised on growing the overseas market for our exports. We all lose.

“Under the burden of government debt now estimated to be 124 percent of the country's gross domestic product, Greek leaders are working on economic reforms that would raise taxes, cut government wages, rein in pension costs, and privatize government-held firms such banks, utilities and telecoms.” Washington Post (April 27^th). And that’s just Greece! But Greeks, who hate to pay taxes on any basis, are 61% opposed to the austerity measures… and what government can stay in power by enacting provisions opposed by most of its citizenry? If my memory serves me right, aren’t the Greeks the society that perfected rioting to oppose economic austerity programs? Hmmm?

The Post (27^th) continues: “Mounting anger over tax increases and public sector pay cuts erupted Tuesday when Greek transportation workers went on strike and rallied in the streets of Athens, warning, ‘Hands off our salaries,’ according to Reuters. Bus and metro train service came to a halt for six hours… That protest was followed by another where 2,000 people, including students, marched to Parliament and with red flags and ‘Out with the IMF’ banners in hand, expressing outrage about the Socialist administration's request for financial aid from the IMF and European Union, Reuters reported… The public outcry is expected to spill over into next week, when two large unions, representing 2.5 million workers, are expected to march to protest deficit cutting measures.”

S&P executives are mumbling that credit reductions could come directly into our own hearts (and bodies), and that would raise national debt numbers by staggering amounts: “Some even worry that the next debt crisis may materialize closer to home — in the United Kingdom or even the United States, where budget deficits and debt burdens are growing. Both countries are now issuing debt at reasonable levels of 4 percent. The long run of cheap financing may be coming to an end, though, even for the most creditworthy countries.” Post (28^th). Wow, for pure raw destructive fun with little or no risk as to any consequences, isn’t being a credit rating agency fun? Hey, mom, how do I get to be a credit rating agency? Power! Heh, heh! [Insert cackling sounds] Is Lex Luthor behind this?

I’m Peter Dekom, and rating is getting a bit too grating!