Questioning credit ratings agencies’ credibilty

AAA. A battery, but a credit rating for the UK no longer. Moody’s has decided that due to their own predictions of sluggish growth the UK’s public debt is a little riskier than before.

The narrative imposed on this decision is that it is a humiliation for the Chancellor George Osbourne. It was, as audio of Osbourne as Shadow Chancllor attested, one of the cornerstones of his economic policy. He pinned his political credibility on being a ‘safe haven’ for international investors, in sharp contrast to the on-rumbling crisis in the Eurozone.

The role of the agencies in this version of events is benign. The manner in which the ratings decision is made is opaque, by its nature, and deliberately presented by Moody’s or Standard&Poor as a rational, scientific and detached one, rather than something that is highly political. The ratings that the agencies produce is used as a measure as important as the length of an inch to the engineering industry, but the agencies themselves are not, by anyone’s estimation, independent of those making a profit in the financial sector.

Both Moody’s and S&P were heavily implicated in the financial crisis of 2007, having AAA rated financial products, such as CDOs, that were near-worthless. The infamous sub-prime mortgages were essentially laundered through the ratings agencies in order to make them saleable products between the institutions who had only recently invented them. There are presently allegations emerging of simple bribery to explain the agencies’ collosal negligence.

The rating up or down of a country’s debt is not a dispassionate decision, but one driven by those, such as Moody’s and S&P, which are an integral part of the finance industry. Osbourne and the UK are not being buffeted by an unthinking and disinterested ‘market’.

The crushing irony for the Chancellor is that as he buys in wholesale to the scientific-rational finanical industry myth, he can’t criticise or fight against his tormentors. No wonder he’s moody.

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