I worship at the Altar of Truth, and swing around metaphorical incense lamps in the Church of Integrity. Obviously. Which is why I hasten to correct myself when I turn out to be Wrong about something.
And I have been wrong. Wrong about whether or not the credit ratings agencies were involved in Conspiracy or Cockup when they rated the subordinated debt of the half-finished trailer parks of athousand Cleetus the Slack-jawed Yokels as AAAA, or safer than a Bill Gates IOU.
It turned out they should have been as safe as Bill Gates promise Never to Crash your Computer.
But Mr innocent-as-a-choirboy Freethinking Economist sided a few weeks ago with the Cock-up theory. That is: ooh, ain’t it difficult to rate all these things. Mistakes will happen. Hard day at work. Won’t happen again. I was taking explicit issue with the views of Paul at the Bickerstaffe Record, who attacked the myth that
S&P are anything other than a corrupt part of a corrupt system, and reinforces my view that they are a legitimate and strategically useful target for anti-capitalist political action, direct and indirect
Reading the in-parts-excellent Financial Fiasco by Johan Norberg, I realise that my phlegmatic views are not right. Norberg points us to another source, the New York Times last year, which rather charitably calls the ratings agencies “debt watchdogs” <<INSERT MORE APPROPRIATE ANIMAL HERE>> and describes the way the ratings would be changed. Here’s a sampler:
The housing mania was in full swing in 2005 when analysts at Moody’s Investors Service, the nation’s oldest and most prestigious credit-rating agency, were pressured to go back to the drawing board.
Moody’s, which judges the quality of debt that corporations and banks issue to raise money, had just graded a pool of securities underwritten by Countrywide Financial, the nation’s largest mortgage lender. But Countrywide complained that the assessment was too tough.
The next day, Moody’s changed its rating, even though no new and significant information had come to light, according to two people briefed on the change who requested anonymity to preserve their professional relationships.
Moody’s had assigned high grades to many securities containing Countrywide mortgages. Those securities and mortgages, issued during the lending spree of recent years, later soured — leaving investors with large losses and homeowners and communities struggling with foreclosures.
The wealth of sources Norberg uses can give us little doubt. They put on ratings they knew were wrong.
Now I can still dispute whether this is a large capitalist conspiracy to fool and then fleece the Workers, in the way that Operation Barbarrossa was a conscious conspiracy to do the same to the USSR, say. But the effect of an unthinking system remorsely following its own logic – must make profit, must please client, must please Boss – can be the same in many details. No-one needs to be stroking a white cat, swivelling round in a chair, pressing a button that sets off a timer. But they can still operate in a way that ought to bring shame upon any organisation. I mean, check out this conversation between two S&P analysts.
So. The agencies certainly acted as conduits for more madness and, yes, injustice. There is a case for saying that much of the financial insanity was known to be insane, and yet kept on happening. This should give pause to those worthy types who think fixing the system is down to us improving our ideas somehow. We knew plenty. Its the way incentives hang together that is a problem.