The second act of the theatrical\u00a0tragic-comedy known as “The Debt-Ceiling Show” is about to begin. In Act II, Scene 1, the credit-rating agencies\u2014[Lower the] Standard & [Make you] Poor\u2018s, Moody\u2019s and Fitch–pour themselves a brandy, light up a few stogies, put their feet up on the desk, and decide what rating to give the United States.<\/p>\n

The whole world is watching. And the characters upon whom the credit rating of the United States depends are none other than those wonderful folks who brought us the housing bubble and crash in 2007 and 2008.<\/p>\n

In the absurdist run-up to this momentous day, we watched as politicians, pundits, economists and bureaucrats predicted the dire consequences of not raising America\u2019s debt limit: The all-powerful rating agencies would reduce the U.S.\u2019s credit rating from the top category—AAA\u2014to something less. The results could be economically devastating, they warned.<\/p>\n

I\u2019m not an economist, or a banker, or even a person with more than a thimbleful of knowledge about how the rating agencies work. But I do try to keep up with events in the world around me. And it doesn\u2019t take a full-time devotion to economic news to have learned that Standard & Poor\u2019s and Moody\u2019s were among the chief culprits in the housing bubble and its inevitable collapse.<\/p>\n

The housing bubble didn\u2019t just happen. It was aided and abetted by the ratings agencies. Basically, they gave undeserved, top ratings to very risky financial schemes, such as collateralized debt obligations [CDOs] and sub-prime, mortgage-backed securities [MBSs]. In subsequent investigations,<\/a> it has been revealed that the agencies had a variety of conflicts of interest that drove them to endorse financial instruments that they knew to be riskier than the ratings indicated.<\/p>\n

Don\u2019t rely on an amateur like me for an explanation. Rent the documentary \u201cInside Job,\u201d<\/a> or read what people who actually know what they\u2019re talking about say. For example:<\/p>\n

Economist Robert Reich<\/a> says\u2026<\/p>\n

Who is Standard & Poor\u2019s to tell America how much debt it has to shed in order to keep its credit rating? Standard & Poor\u2019s didn\u2019t exactly distinguish itself prior to Wall Street\u2019s financial meltdown in 2007. Until the eve of the collapse it gave triple-A ratings to some of the Street\u2019s riskiest packages of mortgage-backed securities and collateralized debt obligations.<\/p>\n

Standard & Poor\u2019s (along with Moody\u2019s and Fitch) bear much of the responsibility for what happened next. Had they done their job and warned investors how much risk Wall Street was taking on, the housing and debt bubbles wouldn\u2019t have become so large \u2013 and their bursts wouldn\u2019t have brought down much of the economy.<\/p><\/blockquote>\n

Economist Joseph Stiglitz<\/a> agrees\u2026<\/p>\n

They were the party that performed the alchemy that converted the securities from F-rated to A-rated. The banks could not have done what they did without the complicity of the rating agencies. \u201c<\/p><\/blockquote>\n

So, what I want to know is: Who died and left these ratings agencies in charge of judging America\u2019s global financial standing? Buyers of their information, opinions and ratings: beware.<\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

The second act of the theatrical\u00a0tragic-comedy known as “The Debt-Ceiling Show” is about to begin. In Act II, Scene 1, the credit-rating agencies\u2014[Lower the]<\/p>\n","protected":false},"author":3,"featured_media":10517,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1136,93,519,384],"tags":[1153,1152,1151],"yoast_head":"\n