The Ratings Game: How the Banking Mafia Operates

by James Corbett
corbettreport.com
September 21, 2019

Five years ago in the pages of this very column I examined "The Ratings Game: Rating agencies as weapons of economic warfare." In that article I explained how the major credit ratings agencies—Standard & Poor's (S&P), Moody's, and Fitch Ratings—act as adjuncts of the US State Department, targeting Uncle Sam's enemies with strategic credit downgrades at times that best serve Washington's interest.

As I pointed out at the time, the credit ratings agencies are the oft-overlooked tools of economic (let alone geopolitical) power. With a wave of their hand they can declare a tranche of toxic Mortgage-Backed Securities sludge to be a AAA prime investment opportunity—thus helping to blow a housing bubble and wreaking havoc in the economy—or downgrade the credit of a foreign treasury on a State Department hit list, hindering their ability to raise funds.

It's now time to return to the topic. But this time, we need to examine how these supposedly "independent" agencies are kept in line by their Washington swamp-dwelling masters. By doing so, we will learn some important lessons about how political (and, ultimately, economic) power is wielded by the global banking mafia.

If you caught my recent conversation with Catherine Austin Fitts about the Financial Coup D’état, you might have noted my remark that "if there was some sort of problem with the 'full faith and credit of the US government,' one of the ratings agencies (like S&P) would step in and downgrade the federal government, right?" Of course, that was sarcasm, and Fitts rightly responded with a story about the time that a ratings agency tried to do precisely that . . . and suffered the consequences.

It was 2011, when the US economy was still in the early stages of its <sarc>miraculous jobless recovery</sarc> from the Lehman crisis. You might recall that at that time the political wrangling over the debt ceiling and the threat of default and/or government shutdown was the big talk in Washington and in the economic press.

Then, on August 5th, 2011, the unthinkable occurred: Standard & Poor downgraded the credit rating of the US Treasury. It marked the first (and so far only) time in history that a rating agency downgraded the long-term sovereign credit rating of the United States of America from its perfect AAA rating to an ever-so-slightly-less-than-perfect AA+ rating.

In their statement explaining this momentous move, S&P offered this rationale for their decision:

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.

All of which may seem humdrum enough to those not immersed in the world of credit and finance. But for those in the know, this story exploded like an atom bomb. How dare they! The Full Faith and Credit of the US Government™ is the most solemn promise that has ever been uttered! Who is S&P to doubt the word of Uncle Sam?!!

Needless to say, the US Treasury immediately shot back, citing a "$2 trillion error" in S&P's downgrade calculations. That "error" turned out to be the result of a discrepancy between two Congressional Budget Office forecasts, one predicting that the government's discretionary spending would track GDP growth, and another predicting that it would expand with consumer inflation.

But, to their credit (<---see what I did there?), S&P did not back down from their downgrade decision. In fact, they doubled down on it, with John Chambers, head of S&P's sovereign ratings committee, insisting: "Our job is to hold the mirror up to nature, and what we are telling investors is that the United States government is slightly less credit worthy."

This is hardly news to readers of this column. But evidently someone neglected to tell Mr. Chambers and his S&P colleagues that if you dare to point out that the Emperor isn't wearing any clothes, you are going to suffer the consequences.

In this case, the consequences weren't long in coming, and it was pretty obvious what was going on. On August 23rd—just 18 days after their downgrade decision—the president of S&P announced that he was resigning from his position, and that he would be replaced by a senior Citibank executive. (Yes, that Citibank.)

But don't think that one executive falling on his sword would be enough blood to satisfy the banksters. No, S&P had to pay for their crimes. Literally.

As Catherine Austin Fitts writes in "Caveat Emptor: Why Investors Need to Do Due Diligence on U.S. Treasury and Related Securities":

Subsequently, the Department of Justice (DOJ) initiated an investigation into S&P’s role in the rating of several mortgage-backed securities that played a role in the 2008 Financial Crisis. In February 2013, DOJ and nineteen states’ attorneys general and the DC U.S. Attorney filed a $5 billion lawsuit against S&P and its parent company, McGraw-Hill, based upon the findings in the investigation, which was settled two years later for $1.375 billion. Neither of the other major rating agencies, which had not downgraded the U.S. credit but had joined S&P in the Financial Crisis debacle, was subject to such a lawsuit. This was a clear warning shot fired to prevent any rating agency from considering any future such downgrades.

Note well: Moody's and Fitch Ratings, which both maintained their AAA rating of US debt, went unscathed. S&P was the only one of the three agencies to actually pay for its part in enabling the 2008 crisis. This despite the fact that all three agencies were blasted by a federal inquiry into the financial crisis just months prior to the downgrade—a report that concluded in no uncertain terms: "The three credit rating agencies were key enablers of the financial meltdown." But no, only S&P were held liable for their actions.

Hmmmm. I wonder why.

Yes, this is how the banking mafia operates. It isn't difficult to see, nor is it difficult to understand. If you play ball with them then you'll do just fine. If you don't, you'll be shaken down. All of this despite the fact that (as even some mainstream reports noted at the time), the S&P downgrade decision was more symbolic than functional:

The lowering of a core financial instrument of the global economy is freighted with symbolic significance, but carries few clear financial implications. The downgrade could lead investors to demand higher interest rates from the federal government and other borrowers, raising costs for local governments, businesses and home buyers. But many analysts say the impact could be modest, in part because the other ratings agencies, Moody's and Fitch, have not downgraded the government at this time.

To this day, S&P's rating of US debt remains at the AA+ level and the Treasury is not having any difficulty selling its paper promises. But that isn't the point. The point is that gangsters can never let anyone challenge the authority of the gang or go against its wishes. Those who stand up and tell the truth must be punished. This is how gangsters operate.

S&P stood up, cleared its throat, and in a quiet voice noted that the Emperor's New Clothes look very fine indeed. Splendid, in fact. But it seems that there may just be a teensy bit of thread hanging from the end of His Majesty's resplendent robes. And for that, the agency was taken out back to the woodshed and roughed up.

Welcome to the world of the banking mafia.