The credit-rating agencies Standard & Poor's and Moody's Investors Service played leading roles in the financial crisis of 2008. They provided AAA ratings to securities that were in truth toxic. These ratings made risky debt as good as cash in the bank. And the reason why these mortgage-backed securities were in such high demand at the time is they had higher yields than government bonds and boring-but-dependable blue chip stocks. The ratings, however, proved to be worthless, and investors, especially pension funds, lost their shirts. The whole economy tanked, and millions of people were plunged into poverty.
Though the Department of Justice got a settlement of $1.38 billion from S&P for adding fuel to "the subprime meltdown" (although an investment banker described it as little more than "a traffic ticket”), and is currently and very slowly investigating Moody's, the credit-rating industry mostly walked out of the economic crisis unscathed and continues to hand out ratings as if the past does not exist.
In 2011, S&P brazenly downgraded the United States from AAA to AA+ (a rating it still maintains to this day). Keep in mind, this downgrade happened after the United States was forced to absorb a bunch of the toxic assets that S&P had misleadingly graded as prime stuff.
It gets worse. S&P set the tone for the election that happened in Portugal yesterday after it recently upgraded that country's credit rating. S&P decided Portugal was "politically stable" because the candidates of the leading parties on the left and right did not threaten to discontinue fiscal policies that are favorable to creditors and hard on citizens. The people of Portugal were essentially voting for tit or for tat. And, ultimately, the race went to the center-right coalition headed by Passos Coelho. But had it gone to the socialists, Portugal's rating wouldn't have changed.
Ireland, on the other hand, did not get an upgrade from Moody's last month because of fears that the country's citizens are keen on electing a party that will pursue a fiscal policy that is "favorable to citizens." (Low credit rating makes it harder for a country to sell its debt, or sovereign bonds, on the market.)
How did these disreputable (and some even say criminal) credit-rating agencies accumulate so much power and prestige after the subprime debacle? My theory is that they are no longer evaluating the economic worth of a country but simply its commitment to bondholders. In our post-crash times, you can have almost zero growth and high unemployment, as is the case with Portugal, and have the rating on your debt improve by simply showing that your budget prioritizes creditors.
Those who are familiar with the post-growth movement, which is leftist and proposes a radical break with super-wasteful and unsustainable capitalist growth, will be surprised to find that financial capital is one step ahead of them and is already shaping a world where growth is not important or vital for generating profits. Portugal is in this future darkly; it's a post-growth capitalist economy.
