In
all major capitalist countries, the power of the capitalist
classes is hidden behind ideology (free market), behind
law (protection of private property) propaganda (corporate-controlled
media) the coercive organs of the state (military, police
and prison) and the power of finance capital (banks, insurance
and financial instruments). 
Credit
rating agencies represent the power of financial capitalists
and are usually held in the background to discipline corporations
and governments. In moments of crisis these agencies show
their hand.
These
agencies along with the IMF and the US
military have been the weapons against the true self-determination
of all peoples. The peoples of the USA
are now beginning to pay attention to the power that the
IMF, these agencies and the military wielded over most
countries in the world. U.S. Treasuries are traditionally
considered to be a risk-free investment, and this is the
first time the U.S.
has ever been downgraded.
This
downgrade is much more than a psychological blow to the
prestige of the imperial overlords in the USA.
This is a sign of a power shift and another blow to the
position of the US as the sole super power.
The most oppressed must organize to break the power of
capital and the imperial overlords or humanity will pay
a high price.
What is a Credit Rating Agency?
Credit
rating agencies (CRA) are private entities that, over
time, gave themselves the right to be arbiters in the
financial system and in the international market place.
There are credit rating agencies in most capitalist countries.
The job of these agencies is to provide an analysis of
the risk posed to investors by bonds, companies and countries.
This analysis is supposed to be objective and the criteria,
the analysis of risk, but the credit rating agencies are
private entities owned by profit-making companies that
perform what is essentially a regulatory role. These companies
are supposed to serve the public, which expect them to
stamp their seal of approval on safe securities and safe
securities alone. 
But
the CRA also serve their shareholders, who profit whenever
that imprimatur shows up on a security, safe or not.
The
rating agencies achieved their legal status over time,
since the capitalist depression of the 1930s, but have
become more important to the US economy in the era of financialization, since
August 15, 1971. It was from this date when the US
gave unlimited rights to the speculators after the government
reneged on the articles of agreement of the IMF of 1944
that placed the convertibility of the dollar on par with
US $35 for one ounce of gold. From that moment of financialization,
the dollar was not backed up by the economic strength
of the society but by sheer military power. During the
Cold War, international capitalists were willing to shelter
under the US military umbrella
and one price for this shelter was to accept the political
power of US credit rating agencies.
These
private corporations are issued permits to be credit rating
agencies by the Securities and Exchange Commission of
the USA
and hence, through the Nationally Recognized Statistical
Rating Organization (NRSRO), the rating agencies perform
basically a regulatory function to discipline sections
of the capitalist class.
In
the past twenty years, the business of credit rating followed
the path of centralization and concentration of capital
so that the rating business fell in the lap of three big
firms: Standard & Poor’s, Moody’s Investor Service,
and Fitch Ratings. These are powerful organizations that
have the power the make life and death decisions about
corporations and countries. They seek to be regulators
when it suits them but seek to be like private citizens
so that they cannot be prosecuted.
The
subjective nature of their ratings will be brought out
later but in the aftermath of the clear theft and fraud
of the capitalist organization called Enron, the rating
agencies in public hearings held by the SEC in 2002 insisted
that ratings were only opinions and should have a limited
role, which is to assess the creditworthiness of issuers
on an ongoing basis, and the “likelihood that debt will
be repaid in a timely manner.” The fact that ratings are
“opinions” is important in the U.S.
legal context as it allows these big three capitalist
corporations to be protected by the First Amendment and
from civil and criminal liability.
From Where Do They Get Their Power?
These
credit rating agencies earn their power both from the
fact that they are owned by the masters of the universe
of Wall Street and also by the fact that their ratings
are sanctified by governmental authorities and most importantly,
by the International Monetary Fund (the IMF). The power
of these agencies has accumulated over time and has been
consolidated within the context of the power of finance
capital over the international capitalist economy. By
seizing a regulatory role, while eschewing a clear legal
status, these agencies gained the political power to be
whatever they wanted to be. Their power came from the
influence they achieved by making “opinions” on millions
of transactions.
Since
the Depression of the 1930s, statutes and rules required
that mutual fund and money managers of almost
every stripe buy only those bonds that have been given
high grades by a Nationally Recognized Statistical Rating
Organization. The effect was to give the three certified
rating agencies in effect an oligopoly. 
This
was the real power which these agencies used against the
peoples of Asia and allowed US companies
to move in to buy up assets cheaply in the aftermath of
the Asian financial crisis (1997-1998). This power also
played a role in the recent intimidation of European countries,
including Greece,
Portugal,
Ireland, and Iceland, to launch austerity measures against
workers by downgrading the ratings of these countries.
Power Struggles Within the International Capitalist System
There
are numerous commentaries on the downgrade of the US but the one commentary that caught my attention
was that of Paul Craig Roberts, former Assistant Secretary
of the Treasury in the Reagan administration and associate
editor and columnist at the Wall Street Journal.
This is a civil libertarian who was arguing that there
is a struggle between the military and Wall Street for
power in the USA. In an article
published on counterpunch.com, after quoting from the
statements of Dwight Eisenhower on the rise of the military
industrial complex, Roberts claimed that up to the present
the USA has been dominated by
the military/security complex. According to this analysis
of the downgrade, the only challenge to this military
was Wall Street and Wall Street was using this downgrade
to get more power over the military.
“The
main power rival was Wall Street, which controls finance
and money and is skilled at advancing its interests through
economic policy arguments. With the financial deregulation
that began during the Clinton
presidency, Wall Street became all powerful. Wall Street
controls the Treasury and the Federal Reserve, and the
levers of money are more powerful than the levers of armaments.
Moreover, Wall Street is better at intrigue than the CIA.
The behind the scenes fight for power is between these
two powerful interest groups. America’s
hegemony over the world is financial, not military. The
military/security complex’s attempt to catch up is endangering
the dollar and US financial hegemony.”
Roberts
explained that the security establishment has been trying
to catch up with the power of the lords of finance by
launching wars to enrich themselves and to gain more power
in the society.
“The
country has been at war for a decade, running up enormous
bills that have enriched the military/security complex.
Wall Street’s profits ran even higher. However, by achieving
what economist Michael Hudson calls the ‘Financialization
of the economy,’ the financial sector over-reached. The
enormous sums represented by financial instruments are
many times larger than the real economy on which they
are based. When financial claims dwarf the size of the
underlying real economy, massive instability is present.”
“Aware
of its predicament, Wall Street has sent a shot across
the bow with the S&P’s downgrade of the US credit rating. Spending must be reined in,
and the only obvious chunk of spending that can be cut
without throwing millions of Americans into the streets
is the wars.”
I
do not agree with Paul Craig Roberts because he missed
the rapid integration between finance capital and the
military, as manifest by the fact that companies that
profit greatly from militarization, such as Boeing, established
financial arms. Most of the big investment and derivatives
firms have established links with the private military
industry. 
All
the top private military companies and the military hardware
manufacturers that are woven into the military-industrial
complex are traded on Wall Street. Many of the top private
military companies are subsidiaries of fortune 500 companies
that are also traded on Wall Street. In fact, the intricate
web of alliance between finance capital, the military
and the corporate media/information mind control is now
so dominant that we can talk of the finance-military-information
complex, instead of the military-industrial complex. As
the New York Times reported,
one such private contracting firm “boasts of having ‘more
generals per square foot than in the Pentagon’.” As a
militarist state, where all is subordinated to the needs
of the financial/military interests, there is no contradiction
between the two, as Roberts claims.
As
international capitalists with no cut-in-stone loyalty
to the US
state, the financial-military complex is now ready to
do to the US what it had been
doing to the rest of the world since 1945. Temporarily,
these financial and military oligarchs need to work through
the US state because it is that
state that carries the authority to print dollars as long
as the dollar remains the reserve currency of the world.
This downgrade of the US credit rating is forward planning by the top
capitalists to guarantee the political and military hegemony
of the richest 1 per cent of the US
population. As the dollar loses its status, there will
be consequences for the global position of American capitalism.
The Moguls of Wall Street want to ensure that the political
leadership in the USA
is sufficiently intimidated so that as the position of
the dollar deteriorates and there are deepening crisis
for capitalism inside the US, the state will take measures
to continue to ensure that wealth is transferred from
the working peoples to the capitalist class. Hence, this
downgrade is part of a long term plan to discipline the
working classes and the politicians in the US, just as how the IMF has
been used in the past against the rest of the world.
The Track Record and Credibility of the Rating Agencies
It
is now known that Enron was one of the most corrupt capitalist
corporations. But it had a triple AAA rating by these
credit rating agencies. When the full extent of the fraudulent
activities of Enron were revealed, President George W.
Bush claimed that this was one bad apple but soon after,
the revelations about WorldCom and Global Crossing WorldCom
fudged accounts to show inflated profits. Up to the day
that Enron sought bankruptcy protection, none of the three
rating agencies caught the fraud and corruption of Enron.
After this grand scale theft, there were hearings in the
US Senate. But there was no failure to catch the fraud because the
same corporations who were behind the Enron fraud were
the same forces that owned the credit rating agencies.
Throughout
the period of the power of the financial houses, the blatant
conflict of interest was too hard to ignore, so in the
aftermath of Enron and WorldCom, there has been some regulatory
response. The Congress passed the Credit Rating Agency
Reform Act of 2006, ending a century of industry self-regulation.
The purpose of this law was to promote competition in
the rating industry by establishing a transparent and
rational registration system for rating agencies seeking
NRSRO status. It was also designed to enhance industry
transparency, address conflicts of interest, and prohibit
abusive practices.
But
the SEC was itself impotent as the world saw from the
financial crisis of the collapse of the investment banks
in 2008. Bear Stearns and Lehman brothers had enjoyed
top ratings from these agencies and the sub-prime products
called Credit Default Obligations (CDOs) were given triple
AAA ratings, even when these products turned out to be
garbage. Of course, this garbage was held by the same
bankers who owned the rating agencies.
In
the aftermath of the fall of Lehman Brothers and the fact
that the sub-prime mortgage crisis exposed the securities
fraud by the financial houses, for a short time, Wall
Street was on the defensive. There were dozens of lawsuits
filed against the credit rating agencies. Citizens were
calling for the fraudsters to be incarcerated but the
rating agencies went back to their old line that their
ratings are merely opinions and are protected by the First
Amendment.
It
was then left to Congress to act, and after the public
outrage, the financial regulatory reform law adopted in
2010, known as Dodd-Frank Law, directed the Securities
and Exchange Commission and other agencies to undo that
link between the “opinions” of the Credit rating agencies
and the claim that they could regulate themselves.
The
Dodd-Frank Wall Street Reform and Consumer Protection
Act enhanced the SEC’s enforcement mechanisms, and added
a number of requirements on NRSROs that are immediately
effective (i.e., do not depend on SEC rulemaking). The
Dodd-Frank Act also required the Commission to adopt a
number of new rules concerning conflict of interests.
According
to the US government and their newssheet, “the Dodd-Frank
Act requires every federal agency to review existing regulations
that require the use of an assessment of the credit-worthiness
of the security or money market instrument and any references
to credit ratings in such regulations; to modify such
regulations identified in the review to remove any reference
to, or requirement of reliance on credit ratings; and
substitute with a standard of credit worthiness as the
agency shall determine as appropriate for such regulations.”
What
this meant was that from June 2010, the SEC unanimously
approved a plan to erase references to credit ratings
from certain rulebooks. 
The
agency also adopted a substitute to the ratings, the first
of several such changes the commission had to enact. Dodd-Frank
created a laundry list of new regulations for the industry,
including proposals to make it easier for investors to
sue the agencies. The SEC must also create its own Office
of Credit Ratings to police the raters, though the agency
has yet to open its doors, as it struggles to scrape together
the needed money.
Since
the passing of the Dodd Frank Act, these masters of the
universe on Wall Street have been pushing back, spending
millions of dollars to reverse Dodd-Frank and to ensure
that the law is whittled until it is meaningless. However,
while the bankers were seeking to protect themselves,
the fact that they were holding on to garbage since the
financial crisis was becoming clearer. In the past year,
the vulnerability of the banks has been heightened by
the capitalist crisis in Europe. As a means of pressuring the states of Greece, Portugal,
Ireland,
Iceland and others to implement austerity measures
against workers, these rating agencies downgraded these
countries’ ratings. These downgrades exacerbated the class
struggles in Europe where the bankers and the bond holders wanted to be paid. For
the US
capitalists, the crisis in Europe
threatened the future of the Euro and the collapse of
the Euro in the short term would serve the interests of
the capitalists on Wall Street. This would ensure that
there was no clears challenge to the dollar and the US
could continue the military occupation of many countries
in Europe, especially Germany.
However,
some of these US
capitalists were also exposed by the crisis in Europe
and US banks wanted to ensure that the European Central
Bank imposed austerity measures so that the full exposure
of US banks would not be known. However, this crisis is
not a simple one; it is structural and systemic and needs
fundamental changes in how society is organized. This
crisis has intensified in the past three months with the
knowledge that states and societies such as Italy
and Spain
will also need the iron hand of international capital
to impose harder burdens on the workers to transfer wealth
from the majority to a minority.
Psychological Barrier
There
are some who have stated that the downgrade is cosmetic
because the other two rating agencies, Moody’s and Fitch,
have retained the triple AAA rating of the USA. This may seem
to be the case but those who have been following the troubles
of the banks and the fake stress tests know better. The
timing of the announcement of the down grade has some
significance in the sense that it followed to false debate
and conclusion of the debt deal.
By
coming out after hours on Friday night when they knew
the state of the markets, the downgrade also provided
a false “public” cover for the well-publicized subsequent
fall and rise in global stock markets. Political spinners
were able to point to the downgrade as the “spark” for
the drop in stock prices (particularly for the banks).
In reality, the true causes are the growing risk and troubles
in Europe, the continued lack of growth in the US, and
the fact that in spite of all the trillions in bailouts
of the banks, accounting rule changes, and the fake stress
test exams to show that the banks are doing well, the
market participants who know better than anyone the true
status of the banks revealed that the banks are still
in danger of collapsing.
Millions
of persons around the world are paying attention and there
are already signs that these foreign forces are losing
confidence in the safety of US securities by the rise
in the price of gold. 
The
other point is that the political alliance that paved
the way for this conjuncture is being strengthened by
the power brokers in the Treasury/Wall Street/IMF relationship.
It is this alliance that will work for the transfer of
wealth to the top one per cent and will not countenance
increased revenues from this small class. As we have argued
before, ultimately, the question is not simply one of
revenues and taxing the rich, but a fundamental restructuring
of the system. However, in the short run, the call for
more taxation and regulation of off shore accounts serve
to expose the ways in which the capitalist class is above
the law. Yet, these capitalist have to live somewhere
and they do not want to live in the offshore sites of
money laundering and lawlessness. Hence, they need laws
to suppress workers, take away collective bargaining and
the safety nets of social democracy.
The
downgrade will raise the cost of borrowing; this in turn
could trickle down to higher interest rates for local
governments and individuals. The iterations of decline
and deficits will increase the government debt and the
deficit, and S&P has issued the clear threat that
another downgrade will be coming after 18 months, if the
Congress does not follow its advice to impose austerity
measures.
The Chickens Coming Home to Roost
US
government officials are calling the methodology of the
rating agencies flawed, and some are calling for nationalization
of the agencies and/or the establishment of an international
rating agency under the United Nations. There was no such
call when the same agencies were working with the IMF
to impose hardships on the rest of the world. Now, we
are told that the rating agencies cannot do math. But
the destructive structural adjustment math that the IMF-rating
agencies alliance have used to destroy economies and livelihoods
in the global South over the past 30 years were never
questioned by those now calling out this rating agency
for its $2 trillion error in its computation used to justify
the US downgrade. The complaint was that a treasury official
had spotted a $2 trillion mistake in the agency’s analysis.
Whether it was a mistake or not, a psychological barrier
has been breached. The US is no longer beyond
the sanction of agencies that it unleashed against other
societies.
Crisis of Capitalism
Since
the fall of Lehman brothers in September 2008, politicians
have sought to cushion the blows to capital by making
band aid remedies. For some, the issue has been one of
regulation and more control over the financial institutions.
There were hearings in the US Congress and the Dodd Frank
law came into being. Through the media, the financiers
went on the offensive about a recovery, but there has
been no recovery because there was no fundamental alteration
in the way capitalist ensured that wealth was transferred
from the poor to the rich.
More
importantly, the limits of US military power has been
put on full display in Iraq and Afghanistan. The center of the world economy shifted
to Asia while the USA
and Europe were fighting in the Middle
East. The ten biggest economies in Asia ring-fenced themselves
against the USA
and the instability of the dollar. This downgrade will
reinforce this need for protection against the dollar.
From China, there was the warning that, “International
supervision over the issue of US dollars should be introduced
and a new, stable and secured global reserve currency
may also be an option to avert a catastrophe caused by
any single country.”
This
call for international supervision did not include with
it any statement on the conditions of working peoples
who are suffering at present. Inside the USA, the political choices
have been sharpened. It is either the articulation of
democratic control by the people or oligarchic control
by the banks and financial houses. The downgrade was not
a challenge to the government but to the working peoples
of the USA
and the world.
Youths
in the streets of Greece,
London and Cairo are giving
one response. The challenge is to coordinate these responses
for a prolonged and sustained struggle to break the power
of the financial-military-information complex. Those who
have been following the gyrations of the capitalist debacle
since 2007 will note that the events associated with the
2011 downgrade are simply precursors to what will continue
to happen as the last 20 years of debt-driven growth in
advanced capitalist nations unwinds. In the midst of this
protracted crisis, the rich will seek to transfer wealth
from the poor as the only means of sustaining their accumulation
of wealth as year 4 unfolds of what is likely to be a
7-10 year recession/depression. The financial-military-information
complex will continue to ensure that austerity to manage
government debt falls on the backs of working people.
Corporations will continue to claim that the only way
they will invest some of their trillions in cash to create
jobs and lower unemployment is to reduce regulations,
lower corporate tax rates and perhaps even lower minimum
wages. The American people must realize that the chickens
have just come home to roost. The people must organize
more and more to link up with working people’s struggles
around the world to break up the banks, IMF-rating agencies
alliance and their military enterprise. Financial institutions
should be made to serve the people, not vice-versa.
BlackCommentator.com Editorial Board Member, Dr. Horace Campbell, PhD, is Professor
of African American Studies and Political Science at Syracuse University in Syracuse New York. He is the author of Barack Obama
and Twenty-first Century Politics: A Revolutionary Moment
in the USA. Click here to contact Dr. Campbell.
