These rating agencies, these institutes whose triple-As make the planet of finance quake and the real planet tremble, these oracles, these modern gods didn’t see the 1997 crisis coming. They understood nothing of the subprime catastrophe. Four days before it went bankrupt, in 2001, they continued to give the energy broker Enron good marks. Up to the very last moment, they supported a Lehman Brothers that was circling the drain of bankruptcy. During the current euro-zone crisis, not content to have failed to see it coming, they aggravated the situation by keeping Greek securities in the basket of first class world bonds and, in so doing, contributed to the laxness of a government that preferred to sink deeper in debt rather than to review its accounts, clean up its public finances, and reform. In short, these agencies whose task it is to foresee have committed blunder after blunder. These agencies of credit have behaved like agencies of discredit. And the dictatorship they impose upon the markets stands back to back with faults, defaults, and an abuse of authority that might tempt one to laugh were the consequences not tragic.
How, moreover, do they go about it? What are the rules? Their methods of calculation? The hypotheses they retain in order to preserve the triple-A rating of one while withdrawing it from another? There, we seem to be faced with a black hole. The most puzzling of mysteries. We know there are often “juniors” at the heart of the three holiest of the holy who share the world ratings market. They are more often than not kids who are the twin brothers of the fabulous traders who led Wall Street to the abyss. You notice, when happenstance leads you to cross their respective paths, that some of them fit the profile of the overworked cocaine freaks of early Brett Easton Ellis novels. But how do they make judgments? What are the criteria, and who provides them? It is obvious, for example, that they do not take into account the social policies of businesses or the parameters related to well-being or employment. It is clear that they see countries as indistinct numbers, open to endless evaluation. But as to the rest, nothing. No information regarding the formulas upon which the future of men and, today, that of Europe depend. And this opacity makes the head spin.
I said, the “the world-ratings market.” Because what we do know, on the other hand, is that these organizations that are granted the power of life and death (much like Rome’s emperors over the games of the circus) over the modern gladiators, the firms and states grappling with the Moloch Finance, are first of all business enterprises. They have a balance sheet to defend, share holders to please, profits that inflate, or deflate, with the possible collapse (or health) of their clients. One might imagine autonomous authorities who maintain a serene presence, above all parties concerned. Rating for rating, one would dream of free and independent evaluators. One would imagine them being linked to the central banks, or the International Monetary Fund, or to comparable market regulators. But no. These are entities that earn a living and prosper according to their output. These are companies that are themselves rated, whose health depends upon the number of evaluations they produce, the fuss these evaluations will make, their possibly dramatic presentation, and more or less calculated leaks on the part of their marketing services. This new power is the work of an oligopoly of three grand groups that carry on their little business without too much thought for the general interest. And that, too, sends shivers down one’s spine.
One should also be aware that these groups are remunerated according to methods that would be considered illegal for any other kind of economic actor. They are paid by the clients that they will then rate. They advise banks as to how to structure the products that, once on the market, they will then judge. The more complex the product, the more it is “derived” or “securitized,” that is, the closer we are to the famous “toxic assets” that were at the origin of the current depression, the bigger the bills and the greater the profits for the little men at the agencies. In simple English, that’s called being both judge and party to judgment, or fireman as well as pyromaniac. We are on the brink of the worst confusion of interests, and even of the most brazen trafficking of influence. These incompetents are also underhanded, and perfectly impervious to all the rules of good governance and fair play.
I would add that, if the agencies are mistaken, if they drive Greece towards crime or, heady with their own power, mistakenly downgrade this or that other European country, there is no authority, no civil or even moral jurisdiction to whom they are compelled to answer. The head of a business who cooks the books goes to prison. The careless batting of an eye on the part of a decision-maker of Standard & Poor’s or Moody’s that may have the quasi-automatic effect of ruining millions of people will never be sanctioned. Legally, his “grade” is considered an “opinion.” And, like all “opinions,” it enjoys limitless freedom. Zero accountability. No counter-power to offset this new power. I am not saying that these bizarre grades should be abolished. I am saying they must be controlled, their status and regulations be reformed. They must be subject to minimal prudential rules. And I would add that dictatorship, as is often the case, is also in the mind, and it is high time the economic actors, starting with heads of State and of government, cease to live in frantic expectation of verdicts that are perceived, even when improvised or downright frivolous, as so many last judgments. It’s a question of common sense. And, for world finance, an urgent one of public salvation. The rating agencies must be downgraded.