“I’m so bored. I hate my life.” - Britney Spears

Das Langweilige ist interessant geworden, weil das Interessante angefangen hat langweilig zu werden. – Thomas Mann

"Never for money/always for love" - The Talking Heads

Friday, April 01, 2011

funny capitalism

There is a funny little op ed piece in the Guardian by Dominic Rushe on the ratings agencies. Moodys, Standard and Poor and Fitch have all threatened not to rate European economies if they are held liable for faulty ratings.

Supposedly, this will be a disaster. Who, after all, will loan to Greece if Moodys isn’t the angel at the lender’s ear, whispering the point spreads based on – well, it is hard to say what it is based on. It could be based on the national debt, and the ‘lack of political will’ to cut back on deficits. But during a downturn, deficits are in fact the weapon of choice for managing an economy that is under capacity until biz cycle magic strikes and the private sector (that much misnamed mishmash of corporations and small businesses) comes roaring back. Roaring, by the way, is a finance journalism word, meant to evoke lions and such, turning the pinheads in pinstripes into masters of the universe. Of course, they are really simply rentseekers who have found nothing better to do with their lives than extracting points from capital flows, which makes them externally rich and internally null. But that is as may be.

I wonder if the EU will – poked by Merkel’s need to appeal to the German electorate – bring down the hammer. It should. Ratings agencies are jokes, and the EU could easily set up a rating agency itself. The very idea of a rating agency is antithetical to the market – it creates a non-market price, against which the market prices are then pegged. This is of course an incitement to dysfunction and corruption, and its only justification is that, without the ratings agencies, investors would put their money in overpriced assets. For instance, they would, worldwide, put trillions of dollars into mortgage backed securities that would all collapse in synch. … oops!

It is a funny world, this new capitalism. Banks become customers of rating agencies, who oblige banks by adjusting their ratings for crap investments so that banks can unload these crap investments in a game of swap. Then the game stops, the banks go bankrupt, and the governments plug the gap by supporting the banks. For instance, through the Federal Reserve, the government in the U.S. supported the banks to the tune of 9 trillion dollars in loans at below 1 percent interest. Banks, being run by geniuses, figure out how to make money on 9 trillion at 1 percent interest, but in the meantime economies slump. The rating agencies then oblige the banks who are buying bonds – that is loans to governments – by downgrading governments, so banks can collect a bigger vig. Why does this happen? After all, governments don’t need a private bond market at all – they could easily establish a collective interstate supported loaning agency that would provide all loans to states. But the banks would not like that. What we have, then, is a world in which the rich: benefit from their de-regulated investments; receive free insurance in the form of state supports; receive below par loans that they can loan out at above par rates; and possess a tool, the rating agencies, to pare back government transfers to the less wealthy. It is almost like democracy has turned into an oligarchy that rewards the richest and the political class that is close to them, regardless of party. Hmm, perhaps that Egyptian democracy movement needs to spread.

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