Poor standards

It seems absurd that so much power is assumed by- and accorded to- credit rating agencies these days, and all more so because the two main ones are non-European.
How easy it could be to exploit European markets and influence political scenes by casually suggesting the possibility of downgrading the credit rate of a targeted country and its banking system. Or perhaps by suggesting the opposite, whimsically praising the financial situation of a nation to stimulate the stock market before subtly placing an important investment, or in order to bolster up a political favourite in the popularity poles.

One wonders why Europe hasn't established its own credit rating agencies that are now eminently established in Manhattan, dictating financial law and order to Wall Street. Had there been, maybe the crisis would never have been triggered off in the first place. But perhaps such an idea would never have interested European economists.

Is Europe so lacking in character and financial savvy to fear whatever is whispered or joked about by monoglot cynics within the walls of Standard & Poors, Moody's or Fiches? Not only it seems that these agencies assume the right to make casual, costly errors, to the huge detriment of millions, but they don't even have to bother to apologise for it afterwards.

Long before the USA was born, Europe established the Hanseatic League, from the 13th to the 17th century. Stretching from the Baltic (Novgorod) to the British Isles (London), this alliance of trade and economy had its own legal system, treasury, army, trade protection system and even a social service system of sorts. The League had no common currency problems, and certainly no need for any unasked for, lofty judgements from credit rating agencies. But then there were still no European colonists in the USA capable of thinking up such an idea, and the North American Red Indians had more far important things to do in any case, than to want to meddle in the affairs of others in far off continents, affairs born of a system that worked perfectly well for over four hundred years, right across northern Europe, well before trains and aeroplanes were ever invented.

If one had a Machiavellian mind, one might suspect that the made in America agencies are secretly trying to undermine the euro. Maybe American high finance had the impression that the ECB was in the throes of taking advantage of the 'made in America crisis' and the weakness of the dollar, in order to substitute it surreptitiously with the impressively strong, new euro proudly propped up with firm wonderbrass interest rates, as an international money. At one time, at least to some extent, (with the Iranian regime, only too eager to support such an idea) it looked as though it might even come off. But thankfully the fools of the world are still a minority, even though they are still nevertheless capable of doing a great deal of harm.

One of human nature's many faults, is to pretend to specialise in fields that since the beginning of civilisation have always been impossible to specialise in, simply because they are all too often unpredictable. The economic field is an example (as the enigmatic symbolism and optical impossibilities incorporated by Holbein also suggest- see below regarding the top portrait).

Obviously what has always been essential however, is what one has to offer. The quality of a product naturally determines its value, in gold, silver, drachma, aurei, thalers, (note that thaler, ironically, was the origin of dollar) florins, gulden, ecus, etc., and yes, even euros. There is not one country in Europe that doesn't have something special of its own of real quality to offer. So where's the problem?

Not too long ago I posted Web loggers' and site evaluators' lunacy. Would it be totally and naively out of the question to make a parallel between the so called expertise, the 'credit rating' of site assessors who judge the merits of the efforts of those generous enough to freely allocate their time in trying to amuse others, and the 'Godly' powers of those self-proclaimed economical experts who, in US computer jargon, pass judgement either with holy benediction or infernal damnation on a European nation's capacity to survive economically? Why not?
The latter have already made several, unpardonable boobs, and obviously their mistakes are vastly more irresponsible and serious, compared to incoherent results made by so-called web-site assessors.

Isn't this already more than enough to take credit rating agencies' assessments as pretentious, damaging and meaningless meddling? Yet for some strange reason, those who represent us, as well as the media, (which these days could virtually amount to the same thing) seem to tremble with fear at the idea of losing their triple A. As if Europe consists of nations of various cattle herds, some of which risk the shame and horror of being re-branded by a bunch of cowboys to thus lay bare what has been decreed by the lords of livestock rating agencies, to suffer the disgrace of being beefed down to second, third or even fourth rate consumer quality.

But the consideration is only money. And again, it's the quality of what one produces that determines its worth, not necessarily the level of interest rates yo-yo'ed about by bored ECB bankers, and certainly not the over casual, credit rating assessments.

Ironically the focus is on the European debt which some like to think has created a monumental euro confidence crisis, as if the European money is something sacred and fragile that has to be 'saved'. Have the CRA boys been debarked to brave the front-line to 'save the euro', or might they be a shade orientated by distracting world attention from the dire economic situation of the USA which might be even worse?
S&P downgraded the credit rating of the USA by only one notch in August this year. Even so, they managed to make a considerably important blunder in their assessment. In November S&P announced their decision to downgrade the triple A of France. Again, they admitted to having made yet another important and inexcusable mistake.

S&P have given the highest credit rating assessments to risky loan companies such as the Credit Suisse Group, causing losses of millions to investors. As credit rating agencies are paid for their rating service, would it be unreasonable to believe that the credit rating assessment level they grant is determined by the generosity of those who wish to appear as solvent as possible?

Moody's have even been accused of contributing to the international financial crisis by downgrading Freddie Mac. And according to Time, Both Moody's and S&P had given the triple A rating to Collateralized Debt Obligations when it was brim full of lousy mortgage deals. Apparently Fitch was also accused in this case. This also contributed largely to the 2008 financial apocalypse.
The list of criticisms doesn't stop there. Europe also has accused S&P of abusing its position.
And to quote David Wyss, once head economist at S&P up until July of this year, "The credit agencies don't know any more about government budgets than the guy in the street who is reading the newspaper."
Despite massive assessment errors that for the USA amounted to the odd 2 or 3 trillion, those responsible are still employed by the agencies, which, should anyone be inclined to accord with any necessary reason of being at all, inspires even less confidence.

This isn't to say that Europe doesn't have real problems. History, recent history especially, has taught us the severe lesson about whatever takes place negatively elsewhere, is going to negatively effect everyone sooner or later.
However, in the case of Afghanistan, instead of working closely with the first directly concerned, the Afghanis themselves, The West's way of fighting the Taliban has been with the 'co-operation' of the very nation that fostered them in the first place. The negative consequences suffered by the West now seem to include the absurdity of having to make generous annual payments to Pakistan to secure the right to wage war indirectly against Pakistan..

In our small world we should by now also understand that what is bad for one nation or continent, is bad for all nations and continents. It's therefore counter-productive and futile to try to take advantage of what first seems to be an isolated problem. Isolated problems no longer exist. No one anticipated the economic tidal wave, the domino effect triggered off in the USA. No one anticipated the negative effect the Grecian handling of financial affairs would cause Europe, therefore the whole world. Could it be said that Greece was granted a triple A to be accepted in the euro zone? Where then were the august, credit rating assessors in this case? And why should a nation that has been allowed admission on the strength of fraudulent figures, be allowed to remain a euro-zone member, without first having to undergo a strictly observed probation period, at the very least?

Maybe Hermes or Tyche has something to do with the Greek problem, but finally the responsibility would then be Zeus'. The Greeks had no God of financial credit rating assessment. All powerful Zeus who holds the aegis, would never have tolerating one. He wouldn't have lost time in making his own divine assessment which would have resulted in his thunderbolting such a tartuffian, self-proclaimed divinity straight from Mount Olympus all the way to Hades, who would have banished him to a murky corner in Tartarus for ever.

The above portrait is of the merchant George Gisze. Der Kaufmann George Gisze of the Hansiatic League (1532) by Hans Holbein the Younger (1498-1543). Painted in oils on oak, 86.2 cm x 97.5 cm, this painting carried out in England is interesting because it's full of symbolic paradoxes and optical impossibilities. Holbein was fond of incorporating such subtle optical illusions and/or allusions. In this case they seem to have even more significance. The motto of Georg Gisze was Nulla sine merore voluptas (no pleasure without regret) which has a symbolic connection with the unbalanced scales. It thus suggests that the stable, balanced and secure financial world of George Gisze is not as sound as the impression it first gives. But no doubt Hans Holbein's allusion was already based on the understanding that the financial world is never as sound as it might appear.

Text © Mirino. Sources include Wikipedia. Intro portrait by Holbein, with thanks to Wikimedia Commons. December, 2011

1 comment:

Mirino said...

Assuming that the existence of credit rating agencies is justified, which is already an arguable point, would it not be more correct for the agencies to make sure that their assessments are absolutely exact before making them public (if making them public is deemed necessary in any case)?

Regarding major banks during an important financial crisis, surely discretion should be given priority when the banks' credibility and the lively-hood of millions of people are also at stake?

If an agency decrees that a particular bank should be 'placed under observation,' why publicise this? What is gained by making a public issue of this? Even if it's considered necessary, would it not be more responsible to discreetly inform the authorities concerned of such a decision or possibility, rather than shout it out on the roof tops?

And where were these 'illustrious experts' regarding the Wall Street crisis? Why weren't all the dodgy banks there and then 'under observation' or down-graded?

If the US credit rating agencies are as professional and as qualified as they pretend, why are we now submerged in a crisis that also originated in the USA?

It therefore seems obvious that this over-publicisation of the possibility of downgrading creditability of financial institutions and economic governing in Europe, is done more for the purpose of undermining the economy, thus regularly creating gigantic losses on the stock-exchanges, than to make any positive contribution to improve the European economy, already over-strained as it is.

In other words it appears that as far as Europe is concerned, these American agencies are doing a lot more harm than good.
Maybe one could affirm that the same applies to their influence in the USA, which certainly has not improved things there either.