As the capitalist world economy continues to spiral further and further out of control, one of the major credit rating agencies, Moody’s, has just downgraded 15 major banks. This action, which was expected since Moody’s had stated back in February of 2012 that it was placing the credit ratings of all the banks under review, nonetheless caused stock markets to tumble around the world.
The capitalist world economy is inherently unstable. With every corporate entity in the world tied to their “own” capitalist ruling class in their “own” separate nation-states, it’s a case of every man for himself: an economic free-for-all that results in mad drives to increase profits at any cost and which leads to overproduction, economic collapse, and, ultimately, world war.
The current world depression was triggered by the massive corruption of the United States government and its banking system which created the great real estate bubble of 2008. The of that enormous real-estate Ponzi scheme caused worldwide disruption of the capitalist system, as greedy bankers all over the world had made huge investments in US real estate. The collapse of the US real estate market triggered round after round of bank collapses that ricocheted from New York to Reykjavik, Iceland, to London (where a very similar real estate scam was being perpetrated by British banker-criminals) and on and on. The world recession that was the result of all this greed-based “speculation” in banking and property circles has never ceased since 2008. The weaker economies in the Eurozone began to crumble several years ago and banks in Ireland, Spain, Greece, Italy and France have been threatened with collapse as the economic basis of their financial stability was shown to be largely fictional.
The Financial Times of London reported yesterday that among the banks downgraded were “Credit Suisse […] Morgan Stanley, UBS, Barclays, BNP Paribas, Citigroup, Crédit Agricole, Deutsche Bank, Goldman Sachs, JPMorgan Chase[,] Royal Bank of Canada […] Bank of America, HSBC, Royal Bank of Scotland[,] Société Générale [and] Lloyds TSB.” Hey, that’s actually 16 banks – but who’s counting? Maybe some remedial math is needed for these guys! They’ve lost so much money they can’t even count anymore!
Moody’s and other credit ratings agencies in this “free-market” capitalist system, are supposed to be the watchdogs of the financial condition of these huge corporations and banks. They are supposed to review the books of these organizations and to report to the public what the state of their financial health is. However, Moody’s and their competitors, whose own directors had made enormous investments in the stock and real estate markets, instead of being watchdogs turned out to be publishing misleading and even outright false assessments of the financial soundness of the big banks and corporations. Only a very few of the top banking establishments seemed to really know what was going on; Moody’s lied to the “investing public” and aided and abetted the massive trillion-dollar swindle in the US real-estate market. Now, in order to save what is left of their reputation, they are attempting to be more “responsible” and to produce more accurate assessments of the true financial conditions of the world’s largest banks. This new “truthiness”, as you can imagine, is not popular in the boardrooms of major US corporations and banks.
The Financial times reported that the chief executive of Morgan Stanley “lobbied furiously” to prevent Moody’s from including “his” institution from being downgraded. We are sure that all the others did as well, though perhaps not “furiously” enough for their efforts to bribe the newly vigilant watchdogs at Moody’s to warrant a mention by the Financial Times. [Source: Financial Times: “Moody’s Downgrades Top Banks” 22 June 2012]
So, little by little we see the credit ratings of major world banks being dropped down toward “junk” status. As the economies in Europe reel from the economic crises in Greece and Spain, China’s economy, dependent on European imports, falters as well. The combined contractions of the European, Chinese and US economies is now dragging down South American and the Indian economies as well. Nowhere in the world’s capitalist system can anyone today find a “safe haven” for their investment dollars. On top of all this, even the price of gold is plummeting.
For workers to expect that they can somehow plan for the future of their families based on an irrational, unplanned system like capitalism is itself, as Spock would say, “highly irrational”.
Will the banks be able to regain their “top credit ratings” in the eyes of the all-seeing ratings agencies? Hey, this is capitalism! The only people who get hurt because their credit ratings suck are supposed to be the working class!
What’s a banker to do? Become honest? Nahhhhh! They’re just going to “redefine” “top credit rating”!
“A new world order is emerging – one in which only a scattering of banks will carry much-prized top credit ratings.
“Markets largely took in their stride this month’s ratings actions on banks in Spain and Italy . Despite wider worries about the health of Spain’s financial system, banking stocks rebounded on Friday after Moody’s downgraded 16 of the nation’s lenders. And with ratings actions on other countries’ banks due to be announced during the next month or so, some argue that if sovereigns and their banks are downgraded at the same time ‘what does it matter?’
“ ‘After all the agencies’ failures in the asset-backed securities, banking and sovereign space over the past few years,’ [one banking analyst opined], ‘should investors really be compelled to react if the agencies move their goalposts?’ ”
[Source: Financial Times, “Bank downgrades threaten to hit funding”, 21 May 2012.]
Talk about whistling in the dark!
In fact, just as when a worker’s credit rating declines and he or she has to pay a higher rate of interest for future loans, the same is true for the big banks – except if the banks fail, the bankers don’t become homeless like we do. They just use their “golden parachutes” to escape unharmed, selling their stock options and getting out – profitably – before their bank crashes and burns, taking the world’s economy down with it. Ain’t capitalism grand?
As the credit ratings agencies downgrade banks’ ratings, the banks have to pay higher rates for funds to keep their banks afloat. On top of that, many highly leveraged (and not-so-highly-leveraged) banking operations have cut lucrative deals with clients in which the clients can force the bank to post additional collateral to back up their contract if the bank doesn’t maintain its creditworthiness. And no one has a clear picture how many billions – or hundreds of billions – these banks stand to lose if their ratings continue to get cut. The Financial Times explains it thusly:
“Banks and insurers also buy bank paper. For these investors, as a bank descends down the rating order they face higher capital charges, so it is more costly for them to hold those instruments. One notch here or there will not make a big difference, but if it [a bank’s rating] falls by three or four notches it will have an impact…
“Another cause for concern is how ratings downgrades affect derivatives contracts and structured finance transactions…
“All banks have thousands of collateral agreements with clients. They are all slightly different and most have some sort of ratings trigger. A downgrade would mean a vast majority of banks would potentially have to post additional collateral…
“Since such contracts are legally binding, technically this would mean banks having days or possibly weeks to post more collateral at a time when banks are already using an increasing amount of their collateral to tap European Central Bank funding or for other forms of secured funding…” [Source: Financial Times, “Bank downgrades threaten to hit funding”, 21 May 2012]
The Independent Workers Party warns our sister and brother workers once again: sticking with the capitalist system is a lose-lose proposition for the working class!