From Socialist Voice, August 2009

Poor standards and credit ratings!

Standard and Poor’s is a financial services company famous for rating the creditworthiness of individuals, companies, and states. Most people would have heard of AAA ratings or of states being downgraded to AA+ and perhaps also of the S&P 500—five hundred of the largest stocks traded in the United States.
     Standard and Poor’s supposedly provides an independent analysis of the ability of the subject to pay back a loan, thus providing the lender with information and ratings on which to base the interest rate at which the money will be lent. The worse the rating, the higher the risk, and the greater the interest the subject will have to pay.
     “Sovereign credit ratings” are those provided by companies such as Standard and Poor’s to sovereign countries, such as Ireland. So in essence this company (a division of McGraw-Hill Inc., a publicly traded company) determines how expensive it is for the Irish Government to borrow money and so is a determining factor in the perceived necessity to raise taxes upon its citizens.
     In simple terms, the rating this agency gives Ireland affects the money in our pockets.
     In March, Standard and Poor’s downgraded Ireland’s creditworthiness from AAA to AA+ and then again in June to AA, making it harder and more expensive for the Government to borrow money. This downgrading will cost taxpayers money and is a contributing factor in the crisis in public accounts that we hear so much about. Interestingly, while public-sector workers and their unions are seen as part of the problem, the role of these rating agencies is never questioned.
     This process raises several vital questions. How sovereign are “sovereign states”? How independent are these rating agencies? And, most importantly, why (not how) did these rating agencies continually give the highest and best credit ratings to financial companies and their products that were on the brink of collapse and whose lending-capital ratios were appallingly skewed?
     Clearly, “sovereign states” are not in fact sovereign and the sole determiners in matters of national importance, such as the fairest way to rebuild our economy. They are subject to massive, unaccountable and uncontrollable outside interference from non-elected agencies.
     Interestingly, Standard and Poor’s was brought before a US Congressional committee to explain its poor standard in credit-rating, and failed to convince. Yet months later it is still given media attention and serious consideration, is still a determinant of interest rates on loans, arguably forced Brown’s Cabinet reshuffle in Britain, and in April 2009 called for “new faces” in the Irish Government—a blatant attempt to directly interfere in our affairs (although they may have been right about that!).
     But truly, how independent are they, structurally, and the individuals involved? They are a financial services agency; without the financial services and complex structures and procedures they would cease to exist. They are owned by a publicly traded company and so are invested in the maintenance of capitalism.
     The individuals involved all comePoor standards and credit ratings! from the transnational business world. The president, Deven Sharma, worked for an American “security and homeland defence consultancy” and before that for Dresser Industries, an oil production technology firm.
     So the question is not how they got it so wrong when they gave institutions like Lehman Brothers AAA ratings—including its derivative products, until finally seriously downgrading them on the 9th of September 2008, only seven days before it applied for bankruptcy—but why. And the answer is simple. They are not independent. They are in fact dependent on and a product of the financialisation of capitalism that we have witnessed over the last decades.
[GM]

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