By Matt Stoller, a fellow at the Roosevelt Institute. He is the former Senior Policy Advisor to Rep. Alan Grayson. (on Twitter at @matthewstoller)
So S&P downgrades the US, and Treasuries rally. Then S&P affirms that France is a AAA rating, and the markets freaked out about Eurozone and Eurobank risk. France is “now in the crosshairs”. What should be clear by now is that S&P isn’t doing actual credit analysis. It is being a part of a community of financial oligarchs that for their own reasons want to see various communities and countries threatened with a downgrade.
Indeed, of all the players in the financial crisis, the ratings agencies were the single most embarrassing and obvious points of failure and corruption. Why did all the toxic crap get AAA ratings? Because S&P, Moody’s, etc. basically got paid for each AAA rating. Were these companies actually apologetic after blowing up the economy? Ha! Here’s testimony to the House Financial Services Committee in 2009 by S&P President Deven Sharma.
Mr. Chairman and members of the Subcommittee let me assure you of two things. First, our ratings in the mortgage-backed securities area were not venal. These were honest views expressed based on the best information available, dealing with complex instruments.
This conversation by two S&P analysts was released by the House Oversight and Government Reform Committee in 2008.
Rahul Dilip Shah: btw: that deal is ridiculous
Shannon Mooney: I know right … model def does not capture half of the risk
Rahul Dilip Shah: we should not be rating it
Shannon Mooney: we rate every deal… it could be structured by cows and we would rate it
This stuff came out in 2008. In 2009, S&P’s President got up in front of a Congressional committee and said that her company’s ratings were honest and not venal. And nothing happened! S&P still keeps going as if they are a credible institution!
A lot of people think that lobbyists call the shots in Congress, and they largely do. But they do it by knowing more than you do, by having more people and more resources, more people, more experience, and more money. This is the not-so-dirty secret of governing – Congress and the White House are seriously understaffed and underpaid. What lobbyists and think tanks do is provide expertise and legal and political help to overworked government employees. Everyone knows deep down the real trade-off here, that no one’s helping to be nice. But there are still norms.
Lobbyists tend not to be bullies, because even politicians and staffers have pride. They’re more glad-handlers, and the best ones are really fun to be around, always pass on the latest juicy gossip, or just have a good political or legal mind that can spot problems and opportunities before you can. Only one lobbyist ever yelled at me when I was a staffer; that lobbyist was from S&P.
I get all the institutional pressures of Congress, why it’s hard to stand up to power, etc. But it’s still a little baffling to me that this kind of overt obvious corruption and dishonesty went unpunished. I mean, derivatives can be confusing, but “structured by cows”, that’s ridiculous.
I guess you can count that as reason #7463278 that it should have always been obvious this White House and Congress were not serious about fixing our financial architecture.