Ratings agencies play games with economic crises

Published 30.07.2018 01:24
Updated 30.07.2018 02:12

Are credit ratings the worst judges of a country's solvency? Have the controversial ratings presented by the major credit rating agencies – Moody's, Standard & Poor's and Fitch – contributed to the global financial crisis becoming bigger? Thomas Straubhaar, former director of the Hamburg Institute of International Economics says, "Remove the power from the rating agencies! They triggered the crisis with vulgar opinions and time-consuming downgrades"

Many reports on the workings of rating agencies dictate and affect the economy of states and billions of people around the world, thus, several countries, as well as the global economy have dealt with major crises. The destabilizing and parasitical role of some unscrupulous speculators and often bankers, with an enormous appetite to increase their profits, drives them to speculate on shares, currencies, interest rates, real estate and even the World Cup 2018, to create a fictitious euphoria and ultimately "bubbles." When, in turn, these "bubbles" burst, huge economic and social damage is inflicted. The taxpayers and especially the poor social strata are the ones that pay the price dearly.

The speculators put their victims under the microscope; states which are about to be attacked by forces of speculation. To begin with, they strengthen them through the funding they provide. Then, before the "bubbles" burst, the speculators abruptly withdraw and cut any new funding for states that are precarious. Through this technique, states are forced to go bankrupt, while they are trying to protect themselves by sending the bill, and often by forcing the repayment of their loans both to the governments of these countries and to the international financial organizations.Therefore, the countries in default lose any access to the international financial markets, leading to a major financial crisis. Credit flow to businesses and households shrinks, production stalls, unemployment – especially among young people – goes up dangerously and social discontent grows. The poverty inflicted on the weaker strata and across society in general, leads to social explosions and conflicts, as well as political instability, and so on.

In 2007-2008, when the expansion of the financial sector became unmanageable, and governments began – especially after the collapse of the American bank Lehman Brothers – to consider measures to downsize it, the rating agencies decided to react decisively because the restriction would reduce their profits, particularly the profits of their clients in the financial sector. That's why they used a certified "war tactic." They "fired" upon another part of the financial system, the so-called troubled states of the eurozone. With this distraction, they managed to pass their own judgment on states, saying that they are living above their means. Thus, they created a new environment in which they continued to profit immensely, on a scale never seen before.Focusing on Greece, their influence was totally destructive, as their ratings between 2009 and 2012 accelerated the course of the crisis and pushed it to the brink of the economic cliff.

At the end of 2009, Fitch rated Greece as Grade A. Since then, it has been moving ever more steeply and ever faster towards instability. In 2010-2011, Greece has had a downgrade in almost every two weeks, from Fitch, from Standard & Poor's and from Moody's, to a total of 33 downgrades.

The downfall wreaked havoc in the markets and in a country that looked like hell from that point on. In 2011, right after the decision of the European Summit on Greece's new rescue package, Moody's deemed that this "bailout package" had a 100 percent chance of bankruptcy for Greece, then downgraded the country's long-term debt to Ca from Caa1. During that period, Standard & Poor's had downgraded Greece's creditworthiness by three degrees from B to CCC. Fitch was more "gentle" with Greece, downgrading credit from BB + to B + / RWN (with a negative outlook). It became clear that the debt of Greece had been manipulated by the three private American groups to "put pressure" on the euro, triggering the speculative game that was set up in recent months against Greece and other European economies.

After completing their daunting "task" with the Greek economy, which was left in tatters, Standard & Poor's, the largest of the three, downgraded the U.S. economy one point, crippling stock exchanges all over the world, which lost trillions. Then all hell broke loose in the U.S., leading to a vertical rise in debt costs, thus it was made unable to secure external financing. After shaking the world's biggest economy, they were still "thirsty for blood" and clawed at Europe, threatening to downgrade France and Italy, while implying that Germany could be next. The European Union was shaken, Sarkozy and Merkel rushed to meet, while Berlusconi announced measures of strict austerity. The economies of the entire planet dance to the rhythm of credit rating agencies, while governments put the blame on them for unsolicited and dirty games.Despite their failures, that affected their credibility, such as Enron's shares bankruptcy, Lehman Brothers and Iceland's collapse, the governments let them continue unhindered, even paying their subscription fees without interruption.

In Turkey, the story is the same. The very same rating companies are waging an unprecedented war against the Turkish economy. Given the "uncertainties" about the Turkish economy and the recent volatility, with the Turkish lira sliding to new lows, speculators are on the verge of producing a massive attack against Turkish economic fundamentals. They try to classify the country's debt to "junk" status. Investors tend to avoid "unchartered waters" and right now, the Turkish lira is sailing in a storm, testing the impressive growth record of the past decades. Those agencies are also expected to further downgrade Turkey's credit rating.

States and governments that have suffered and are still suffering from the gangrene of the credit rating agencies, should find a way to establish their own internal financial control mechanisms, in order to cut loose from them.

Thomas Friedman said, "The U.S. can destroy countries with bombs, rating agencies can do this by downgrading government bonds." This phrase is more relevant than ever before.

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