Loki
12-17-2010, 06:27 AM
The credit rating agencies are leading an assault on nations and peoples (http://www.guardian.co.uk/commentisfree/2010/dec/16/credit-rating-agencies-downgrade-spain)
Moody's, S&P's, Fitch: they are unelected, unaccountable and have hugely inflated powers. We must curb them
How many of Spain's 46 million population could tell you anything about the middle-aged German woman who holds their country's hard-won democratic sovereignty and economic future in her hands today; whose judgments will decide whether millions of hardworking Spaniards can stay in their jobs or pay off their mortgages through 2011 and beyond; and whose negative verdict on the Spanish economy would trigger not just a programme of austerity measures that would dwarf those already imposed on Greece and Ireland but could prove to be the beginning of the end for the eurozone itself?
Not many of them, one fancies, since the middle-aged German woman playing God over one of the greatest of all European nations is not Angela Merkel. The German chancellor is central to the battle to defend Spain that was again being fought out at today's Brussels EU heads of government summit. Yet she is not, it turns out, the person whose thumbs-up or thumbs-down can shape Spanish life for a decade or more.
That accolade belongs instead to the shadowy figure of Kathrin Muehlbronner (http://uk.linkedin.com/pub/kathrin-muehlbronner/9/73a/177), a polyglot economics graduate of the university of Tübingen who, it is tempting to say, may exert more reactionary influence over Spanish life than any woman since Queen Isabella drove out the Moors, expelled the Jews and put the Inquisition at the centre of the nation more than half a millennium ago. How so? Muehlbronner is a vice–president and senior sovereign risk analyst specialising in Spain at Moody's credit ratings agency. That makes her the woman whose say-so can plunge Spain into the unknown by the simple act of declaring that Europe's fifth largest economy no longer merits its Aa1 rating.
This week Muehlbronner stopped short of actually pulling the lever that will dump Spain through the trapdoor into a fiscal torture chamber that would have done credit to Torquemada himself. "Moody's believes that the downside risks warrant putting Spain's rating under review for downgrade," Muehlbronner pronounced with her hand on the lever – whereupon the euro and the stock market both fell. A moment later she relaxed her grip. "Moody's does not believe that Spain's solvency is under threat," she conceded, whereupon both euro and markets rallied a little.
Moody's believes? Who, pray, elected Moody's? Which treaty did Moody's sign? On what basis do we bow the knee to Ms Muehlbronner? I have nothing against her; but I do have something very strongly against the salience and influence of the credit ratings culture in which she is a rising spear-carrier. That's because, as the nations of the world struggle to extricate themselves from the global financial crash, Moody's and its two main competitors, Standard & Poor's and Fitch, are not objective neutrals whose only concern is to make intelligent oversight of the markets.
We treat the ratings agencies as if they were umpires. They even have a place in some of the cobbled-up regulatory frameworks. But they are players, and not just players but speculators. Thus, when credit was ballooning and cheap in the 1990s and 2000s, every bond seller in sight was routinely rewarded with triple-A ratings. Moody's, said the head of Barack Obama's federal crisis inquiry commission earlier this year, was a "triple A factory". The result, all the way up from sub-prime mortgages to the bond market itself, was that the system was awash with financial products which were massively overvalued, all guaranteed by what were, in the end, equally worthless ratings.
The curse of the credit-rating culture in personal finance is in its relative infancy in Britain. But it has increased, is increasing and ought to be diminished. Anyone who is familiar with the US personal credit-rating culture from which the sovereign risk culture has grown will know that it has a Kafkaesque way of doing things. Apply for a credit card in the US without a good American credit rating and you are not only refused a card, your credit rating also suffers, making it harder for you to build the credit you need. Miss a payment for any reason at all and the agency marks you down as a risk – and makes a profit from the banks for its trouble. As in high street banking and lending the world over, the computerised box-tick system has replaced the individual.
It is exactly the same, though writ far larger, in the sovereign risk world. Here, however, the agencies are pronouncing on the administration of the economies of sovereign free peoples. Yet the problem in the sovereign debt world is also in some ways a larger version of the problem in the personal finance world. Just as credit-fuelled personal debt spiralled out of control because there were no longer high street bank managers who knew the clients, knew the locality, and were able to make intelligent judgments about individual cases, so the sovereign debt world is now devoid of commonsense and balanced judgment in its dealings about nations.
In real life, history is about people. In the make-believe world of ratings agencies, history is a set of figures. Above the line, good; below the line, bad. No one with a human sense of history can fail to share Ireland's pain at its humbling by the markets. But the idea that a great nation such as Spain – for whose freedom friends of my parents fought and died – should be brought to its knees on the whim of a bunch of overpaid executives looking at computer screens is just outrageous. How dare they?
There is plenty wrong with the eurozone. But in Britain we must stop framing EU and eurozone events through our domestic nervousness about the European project. The underlying struggle in European markets is not solely between the EU and the nation states, as too many like to pretend. It is also between nation states and financial markets. And in this struggle we should be on the side of the nation states, even those within the eurozone, because one day the markets will come for us too.
Nation states are both too strong and too weak. Some deserve some of what they get. If Muehlbronner had Berlusconi's Italy in her sights, it might be harder to summon up the same indignation. Yet in the end it would be necessary to do so even with regard to Italy. The credit ratings agencies are leading a market assault on nations and peoples. We must curb them hard if we can. This is part of Germany's latest eurozone plan. That is why, with all her faults, we should back Frau Merkel over Frau Muehlbronner every time.
Moody's, S&P's, Fitch: they are unelected, unaccountable and have hugely inflated powers. We must curb them
How many of Spain's 46 million population could tell you anything about the middle-aged German woman who holds their country's hard-won democratic sovereignty and economic future in her hands today; whose judgments will decide whether millions of hardworking Spaniards can stay in their jobs or pay off their mortgages through 2011 and beyond; and whose negative verdict on the Spanish economy would trigger not just a programme of austerity measures that would dwarf those already imposed on Greece and Ireland but could prove to be the beginning of the end for the eurozone itself?
Not many of them, one fancies, since the middle-aged German woman playing God over one of the greatest of all European nations is not Angela Merkel. The German chancellor is central to the battle to defend Spain that was again being fought out at today's Brussels EU heads of government summit. Yet she is not, it turns out, the person whose thumbs-up or thumbs-down can shape Spanish life for a decade or more.
That accolade belongs instead to the shadowy figure of Kathrin Muehlbronner (http://uk.linkedin.com/pub/kathrin-muehlbronner/9/73a/177), a polyglot economics graduate of the university of Tübingen who, it is tempting to say, may exert more reactionary influence over Spanish life than any woman since Queen Isabella drove out the Moors, expelled the Jews and put the Inquisition at the centre of the nation more than half a millennium ago. How so? Muehlbronner is a vice–president and senior sovereign risk analyst specialising in Spain at Moody's credit ratings agency. That makes her the woman whose say-so can plunge Spain into the unknown by the simple act of declaring that Europe's fifth largest economy no longer merits its Aa1 rating.
This week Muehlbronner stopped short of actually pulling the lever that will dump Spain through the trapdoor into a fiscal torture chamber that would have done credit to Torquemada himself. "Moody's believes that the downside risks warrant putting Spain's rating under review for downgrade," Muehlbronner pronounced with her hand on the lever – whereupon the euro and the stock market both fell. A moment later she relaxed her grip. "Moody's does not believe that Spain's solvency is under threat," she conceded, whereupon both euro and markets rallied a little.
Moody's believes? Who, pray, elected Moody's? Which treaty did Moody's sign? On what basis do we bow the knee to Ms Muehlbronner? I have nothing against her; but I do have something very strongly against the salience and influence of the credit ratings culture in which she is a rising spear-carrier. That's because, as the nations of the world struggle to extricate themselves from the global financial crash, Moody's and its two main competitors, Standard & Poor's and Fitch, are not objective neutrals whose only concern is to make intelligent oversight of the markets.
We treat the ratings agencies as if they were umpires. They even have a place in some of the cobbled-up regulatory frameworks. But they are players, and not just players but speculators. Thus, when credit was ballooning and cheap in the 1990s and 2000s, every bond seller in sight was routinely rewarded with triple-A ratings. Moody's, said the head of Barack Obama's federal crisis inquiry commission earlier this year, was a "triple A factory". The result, all the way up from sub-prime mortgages to the bond market itself, was that the system was awash with financial products which were massively overvalued, all guaranteed by what were, in the end, equally worthless ratings.
The curse of the credit-rating culture in personal finance is in its relative infancy in Britain. But it has increased, is increasing and ought to be diminished. Anyone who is familiar with the US personal credit-rating culture from which the sovereign risk culture has grown will know that it has a Kafkaesque way of doing things. Apply for a credit card in the US without a good American credit rating and you are not only refused a card, your credit rating also suffers, making it harder for you to build the credit you need. Miss a payment for any reason at all and the agency marks you down as a risk – and makes a profit from the banks for its trouble. As in high street banking and lending the world over, the computerised box-tick system has replaced the individual.
It is exactly the same, though writ far larger, in the sovereign risk world. Here, however, the agencies are pronouncing on the administration of the economies of sovereign free peoples. Yet the problem in the sovereign debt world is also in some ways a larger version of the problem in the personal finance world. Just as credit-fuelled personal debt spiralled out of control because there were no longer high street bank managers who knew the clients, knew the locality, and were able to make intelligent judgments about individual cases, so the sovereign debt world is now devoid of commonsense and balanced judgment in its dealings about nations.
In real life, history is about people. In the make-believe world of ratings agencies, history is a set of figures. Above the line, good; below the line, bad. No one with a human sense of history can fail to share Ireland's pain at its humbling by the markets. But the idea that a great nation such as Spain – for whose freedom friends of my parents fought and died – should be brought to its knees on the whim of a bunch of overpaid executives looking at computer screens is just outrageous. How dare they?
There is plenty wrong with the eurozone. But in Britain we must stop framing EU and eurozone events through our domestic nervousness about the European project. The underlying struggle in European markets is not solely between the EU and the nation states, as too many like to pretend. It is also between nation states and financial markets. And in this struggle we should be on the side of the nation states, even those within the eurozone, because one day the markets will come for us too.
Nation states are both too strong and too weak. Some deserve some of what they get. If Muehlbronner had Berlusconi's Italy in her sights, it might be harder to summon up the same indignation. Yet in the end it would be necessary to do so even with regard to Italy. The credit ratings agencies are leading a market assault on nations and peoples. We must curb them hard if we can. This is part of Germany's latest eurozone plan. That is why, with all her faults, we should back Frau Merkel over Frau Muehlbronner every time.