CREDIT RATING AGENCIES: IT IS ALL RELATIVE

Now that the fault lines of the United States Sovereign Debt downgrade is now behind us and perhaps even healing, what can we glean from the fact that it did happen? First of all let us not forget that S&P was instrumental in the whole financial crisis in the first place. However, they were not alone in this financial calamity. Fitch, Moody’s and a host of other players including the federal government is to be held accountable for the crime of greed.

Of course we could dance around why the Great Recession of 2008 and 2009 happened but that is another conversation. The reason for this article is that some financial and economic gurus are calling for a more transparent and accountable system where the rating agency is more independent and not beholding to the customers they serve. It was also suggested in an article in China Daily an op. ed. piece by Ahmed Sule that the BRICS nations could be a rival or competing sector with their own rating agencies. There is some merit to this idea meaning that there will be competition amongst rating agencies and since the rating agencies in question are coming out of the BRICS nations these rating agencies would have merit in a rating agency world gone mad.

However, I caution the reader that would take such an idea and run with it. First of all you have to consider the BRICS nations and their background. Brazil, Russia, India, China, and South Africa are not considered the most ethical of nations on this planet and considering this where does that leave our so called transparent rating agencies? Case in point, the credit rating agency is a product of the system of which it has come from. The reason why Moody’s, Fitch, and especially S&P got caught up in the collapse of the financial markets in 2008 and 2009 is because they did not want to be left out of the easy money bonanza. Of course, one of them and I mean only one of the rating agencies could have rated these investment grade products for what they really were and that was junk. The problem is competition takes over and the sooner one of them steps up to the plate ethically there goes their business. Now let’s say that competing rating agencies do open doors in BRICS or anywhere else the same pressures of the market will apply to them as well.

Besides, we are really missing the point in this whole discussion of transparent credit rating agencies and the point is that these agencies are run and manned by people. People are the same the world over and we are all subject to the same motivations of greed, lust, power, and the list goes on. I would argue that there is no matter how many credible rating agencies we have over the globe they are all part of a system that is imperfect and is subject to the frailties of the human spirit. This is not an indictment it is just an observation of where we are right now. The suggestion that BRICS rating agencies is a welcomed surprise and could in the short run offer something of an alternative for the global marketplace but in the long run will become victim of the very same thing that we are trying to fix and in essence will have little effect on the global financial system. Frankly the only way that the fix we so sorely desire will come about is the reflection of what we should be doing at the individual level. If we are to do this then we need to look in the mirror first.

To sum up, think about all of the different people both wealthy and not so wealthy that bought property they could not afford. They in turn compounded the problem by buying the property with enormous amounts of debt or leverage. Couple this with the bank or mortgage company eager to make these loans because they knew it was easy to unload these loans to an unregulated stock market which in turn convinced a number of rating agencies with business and money to mark these questionable products as investment grade, which was in turn sold to brokerage houses, government entities, individuals and partnerships alike. The common thread to this whole scenario is of course people. These people are linked by one common flaw and who knows you may not even consider it a flaw which makes more of what I am talking about more plausible of where our true problem lies, greed! This is the real problem and this is where we should have the discussion, can we regulate greed? Is the system of capitalism inherently flawed because it features the idea of greed as a possible cornerstone to its success and possibly its ultimate destruction? The credit rating agencies in all its forms are a mere cog in a system that we all play in and in fact the system itself might even be outdated which by the way includes these rating agencies, the idea of globalization, peak oil and anything else that you figured would collapse the system. We all need a new narrative and I am willing to start it now.