We Really Should Be Wondering about Our Society’s Sanity — Giving Standard & Poor’s, a Private Entity with Self-Interested Economic and Political Aims, an Unopposed Platform from which to Rate the United States’ Credit Worthiness

08 August 2011

Taking a mental step back, so as to see the forest, helps us see just how crazy the big picture is

Economics writer Robert Kuttner published yesterday what I have been thinking about Standard & Poor’s relationship to United States credit:

You have to hand it to Standard and Poor's. Forget their two-trillion dollar math error. The whole idea that these clowns are evaluating the creditworthiness of the United States is just loony.

For starters, these are the same people who brought us the crisis, by blessing junk sub-prime loans as AAA securities. And they did so because they were paid as consultants by the same financial scoundrels who created the securities.

The executives of the credit rating companies -- not "agencies," for these are private, profit-making, essentially unregulated companies, not public entities -- belong in prison.

The last job these thieves deserve is arbiter of the security of Treasury bonds, and markets are even more irrational than they seem if they lend any credence to this downgrade.

Robert Reich reminded us of how much S&P’s institutionalized greed cost American taxpayers in the very recent past:

S&P's intrusion into American politics is also ironic because, as I pointed out recently, much of our current debt is directly or indirectly due to S&P's failures (along with the failures of the two other major credit-rating agencies -- Fitch and Moody's) to do their jobs before the financial meltdown.

Until the eve of the collapse S&P gave triple-A ratings to some of the Street's riskiest packages of mortgage-backed securities and collateralized debt obligations.

Had S&P done its job and warned investors how much risk Wall Street was taking on, the housing and debt bubbles wouldn't have become so large - and their bursts wouldn't have brought down much of the economy.

You and I and other taxpayers wouldn't have had to bail out Wall Street; millions of Americans would now be working now instead of collecting unemployment insurance; the government wouldn't have had to inject the economy with a massive stimulus to save millions of other jobs; and far more tax revenue would now be pouring into the Treasury from individuals and businesses doing better than they are now.

Think about the implications of putting S&P (and their two corporate brethren) in positions that directly affect the United States’ national economic security

It should be clear that a corporation with economic and political irons in the fire is going to stoke the conflagration in ways that work to its, rather than the public’s, interest.

So why should we sit by while the self-interested (math-challenged) pseudo-imbeciles at S&P try to extort political power from a nation with more than two hundred years of unblemished credit worthiness?

Indeed, when push comes to shove, Congress and the Executive tend to rely on evaluations, predictions, and investigations made by public, non-partisan entities — like the Congressional Budget Office and the Government Accountability Office.

This is national security issue. It is not one where private self-interest belongs.

At the very least, the United States needs to establish a non-partisan agency to evaluate government credit worthiness. That would bring some competing balance to the rating wars.

Kuttner goes further than I think is structurally possible, but his idea has generalized merit:

As for the credit rating companies, they should be denied their quasi-official status, and be put out of business in favor of non-profit or public entities.

They would have to be totally transparent in their models, and without conflicts of interest in how they get paid.

Why this infrastructural flaw matters — your wallet is on the line (again)

As I’ve said repeatedly, plutocrats have bought American government. They work it in ways that steals wealth from ordinary Americans.

S&P is no different. Down-graded American credit worthiness has the potential to cost Americans dearly in the long run by making most everything more expensive.

The moral — even if one believes in the wisdom of markets, there is a difference between “the market” and self-interested components of the market (like S&P)

Getting the two concepts confused causes us no end of unnecessary trouble.

PeteFree.com

We Really Should Be Wondering about Our Society’s Sanity — Giving Standard & Poor’s, a Private Entity with Self-Interested Economic and Political Aims, an Unopposed Platform from which to Rate the United States’ Credit Worthiness