US Business Credit Rating Agencies, Victims of Their Own Deceptive Games - Part I

Many of us Americans are likely to dismiss European Union's financial commissioner Michel Barnier's recent observations about the need for European rating agencies as finger-pointing.

Yes, we have a patriotic duty to defend our corporations and agencies. But it will be misplaced patriotism if we support their misdeeds. Especially, when those sins have pushed us into an economic pit, from which we have not yet recovered, despite our best efforts.

Whether we support or not, any institution that indulges in financial misdeeds will see fate or law catching up with them one day, even if that means passage of many years.

Even if a company succeeds in cover ups, they will be exposed eventually as a future CEO will never want to own up the sins of a predecessor and go to prison.

What were American credit rating agencies doing in the run off to the present economic malady?

They did nothing except that they were churning out rosy ratings even as the companies were failing.

Either they gave good grades too generously or showed prejudicial or biased gradings for the fun of it. That had nothing to do with the rules of finance and economics and more to do with whims and fancies.

Yet, a government agency like FDIC had the "brains" to blindly follow the "ratings-for-the-asking" and "ratings-for-people-we-like" doled out by these non-governmental agencies to gauge the health of our banks.

It is shameful that a government agency that was funded by millions of taxpayer's money didn't have even the facility or time even to check whether those agencies were feeding them the true ratings of banks. In an ideal situation. they should have done their own research and ratings rather than depending on the data manufactured by for-profit corporate organizations that passed judgments on their own competitors.

And millions of dollars were foolishly invested or dis-invested by unsuspecting investors and institutions who unquestioningly believed our credit rating agencies.

All those "fool-the-American-people" exercises received a severe jolt when economy signaled it couldn't stand these Wall Street gimmicks any longer and went into a tailspin.

And the push came to shove when the same culprits went into overdrive and started doing their long-pending homework and handed out all past-due downgrades to all the companies at one go.

Why the haste this time while they played around for months?

The US government started investigating Wall Street's misdeeds and the role of credit rating agencies in bringing down our economy was unraveled. So, it was either a question of getting caught red-handed or indulging in alacritous cover up. No need to tell which option was chosen.

In fact one credit rating boss immediately resigned on getting wind of an impending of a Congressional hearing. And it fell on the successor to face the Congressional committee. The Committee, in its turn, knew that this was a new guy and so had to let the company off with light admonitions and suggestions.

See how resourceful it was. Play around instead of working, mess up US economy, and then simply run off from responsibility, making another person face the consequences.

And the overdrive reaction of credit rating agencies as the government tightened its noose was the single factor that turned economy's tailspin into a straight nosedive.

Who suffered this time?

The American people.

How?

They lost their jobs.

Remember, the credit rating agencies had already helped widening company CEOs' pockets but weakened the companies by giving undeserved up-rating.

And when they started covering up their misdeeds by indulging in quick down-ratings that should have been handed over many months in the past in an orderly fashion, that action resulted in squeezing funds for most employers.

See a company doesn't go good or bad in one day. Both those happen over many weeks if, not months. Had the credit ratings were done on time and regular fashion, many companies could have taken corrective actions and millions of jobs would have been saved.

Employer's need short-term funding for day-to-day running of of their businesses including our wages. Long-term funding for growth and development may not be as immediate a need as the short-term funding.

Financial institutions loan these funds based on an employer's credit ratings.

So when funding dried up or became costly due to overzealous down-ratings, many employers closed doors. The rest downsized.

Both ways our people lost their jobs. For the simple reason that credit rating agencies were wantonly playing and not doing their jobs during happier days and started doing overzealous work when things went bad.

And what awaits our oversmart credit rating agencies now?

Soon they will be meeting their nemesis - not here, but overseas. Yes, in the form of European rating agencies.

What did they do over the Atlantic?

Yes, in Europe, our credit rating agencies played the same tricks they played here in USA that destroyed our jobs.

They tried to meddle in Europe's troubles by indulging in overzealous down-ratings of European institutions, and soon will be paying the price.

Yes, burning our neighbor's home is not the same as burning ours. It can have bigger consequences too, on many counts. But that will be another part of the story.