After all the high drama over how to raise the US debt ceiling between the Obama administration and Congress, it seems rather remarkable that above the extensive politcking, the ultimate judge of ‘success’ is a private, for-profit company: ratings agency Standard and Poor’s. And in one swift move, a downgrade in its credit rating of the USA from AAA to AA+ has catalysed stock fluctations in global stock markets and ignited talk of ‘turmoil’, ‘calamity’ and a ‘second financial crisis’.
In the New York Times,one line in particular sums up the current character of this relationship, where the opinions of credit ratings agencies constitute apparently definitive judgment on national economic policies and plans:
“If Congress wants to satisfy the rating agencies — Moody’s and Fitch have so far kept their AAA ratings of government debt — it will need to lock in substantial deficit-reduction measures, without using the kind of budgetary gimmicks that sometimes appear to produce savings under accounting rules prescribed by Congress, several lawmakers said.”
For all intents and purposes, the universe of such agencies is made up of just three organisations – S&P, Moody’s and Fitch – and are a narrow and rather centralized set of organisations upon which an effectively ‘thumbs up/thumbs down’ judgment, in the style of the Roman emperors deciding the fate of gladiators, is made. In the assessments of these agencies, it seems, do the fortunes of national economic policy lie. In some ways, they perhaps resemble what the IMF looked like to developing countries through their own economic crises in the 1980s and 1990s, in setting the terms for bailouts and specifying necessary packages of macroeconomic reform. The key difference being, of course, that the agencies have not even a smidgen of democratic accountability to governments and states.
In other words, these agencies define what ‘acceptable’ economic policy looks like, and with it, all their own assumptions about what economic policy should look like. And for all their protestations that their ratings are simply ‘opinions’, one of many possible perspectives, their judgement of creditworthiness carries particular – perhaps disproportionate – sway over market behaviour and government policy. (The Inside Job, narrated by Matt Damon, is a fascinating illustration of their role in the 2008 crisis and their ratings of particular companies).
While I’m not going to pretend to understand the intricacies of how international capital markets work, it seems fair to say that they set the terms and norms on which these markets work – where both state and non-state actors are effectively playing a game set within the boundaries and parameters of what the ratings agencies deem to be appropriate behaviour. Certain assumptions about what good and effective economic policy looks like are not questioned by the actors – instead, simply internalized, and they are striving to meet the standards set by the ratings agencies. In the landscape of how the global economy is governed, as Timothy Sinclair notes in The New Masters of Capital, “the institutions that work to facilitate transactions between buyers and sellers have a central role in organizing markets, and consequently, in governing the world”.
And so even as S&P finds itself the target of criticism from US politicians – one memo from a US Treasury official attacking its “credibility and integrity” – it will nonetheless find itself kowtowed to, because it, and the other agencies, remain the referees to global finance. They may be self-appointed referees – but up until now, at least, ones widely accepted by governments and companies, as having the authority, through their credit ratings, to dictate what the game should be.