Friday, July 4, 2014

Lest We Forget

While the right wing is all atwitter over Moody's reassessment of Ontario's debt from stable to negative, it is perhaps a propitious moment to highlight a few inconvenient facts about the credit rating agency:

As recently reported in The Huffington Post,

Moody's Corp and Standard and Poor's triggered the worst financial crisis in decades when they were forced to downgrade the inflated ratings they slapped on complex mortgage-backed securities, a U.S. congressional report concluded on Wednesday.

In one of the most stark condemnations of the credit rating agencies, a Senate investigations panel said the agencies continued to give top ratings to mortgage-backed securities months after the housing market started to collapse.

Why did they commit such fraud? Greed is the simple answer.

As explained by Global Research,

S&P and its main competitor, Moody’s Investors Service, played a critical role in the vast edifice of financial speculation and fraud that came crashing down following the bursting of the housing bubble in 2007.

S&P, Moody’s and Fitch Ratings are all private, for-profit companies. As previous US government investigations have documented, S&P and Moody’s made huge profits between 2004 and 2008 by landing contracts from Wall Street banks to rate residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs), which were assembled by the banks from home loans and sold to other financial institutions and investors around the world.

Greed and self-interest drove credit rating agencies to misrepresent the quality of the derivatives that ultimately resulted in the housing collapse that triggered a worldwide recession:

Wall Street drove mortgage lenders to sell high-risk, high-interest subprime home loans to people who could not afford them, bought up the loans from the mortgage companies, bundled them into RMBS and CDOs, and sold off these toxic investments, making massive profits in the process. The entire US and global financial system was infected as a result by what was, in essence, a vast Ponzi scheme.

While US bank regulators looked the other way, the credit rating firms facilitated the fraud by giving triple-A ratings to RMBS and CDOs backed by mortgages they knew were headed for default.

The credit rating firms had a financial interest in inflating the ratings on RMBS and CDOs, since they were paid by the banks whose securities they were rating.

So I can perhaps be pardoned for finding it hard to take a corrupt Moody's seriously when it warns about Ontario's debt. It lost its credibility when it destroyed the lives of millions of people, sacrificing its fiduciary integrity for Mammon. And yet strangely, one is hard pressed to find such reminders of corruption in our domestic press. I wonder why?


  1. I had much the same thoughts when I first saw those headlines. It was the same felling I had when Cheney & Wolfowitz waxed self-righteous about the current mess in Iraq - "Why are these clowns not jailed/shut-down and even if allowed to be free/operate why would anybody care what they say?"

    1. It seems, Anon, that a sycophantic press is always willing to heed the call of their masters, no matter how much mud there is in their package.