WTF S&P? Shock Doctrine? Inside Job? Both?

by , posted on Monday, August 8th, 2011 at 12:48 pm

So today S&P downgraded the credit ratings of Freddie Mac and Fannie Mae, the mortgage giants which were taken over by the feds in 2008 after the mortgage disaster/scandal/swindling-of-American-homeowners-and-investors in which S&P was a co-conspirator. I realize some people are going to have a big problem with me describing S&P as a “co-conspirator” but hey, facts are facts: look it up.

Now S&P is saying their downgrade of Freddie Mac and Fannie Mae (and the Federal Home Loan Banks too, by the way) is a direct result of those entities’ relationship with the federal government, so the downgrading is a step necessitated by their downgrading of the U.S. in general. That’s what S&P says. I find it difficult to argue with that logic.

But I don’t find it at all difficult to argue that putting any faith or credit in anything this particular rating agency says in regard to the home loan market or anything related to it is a bit like putting the fox in charge of the hen house, where S&P=fox, and the mortgages of American homeowners=the hens in that hen house.

S&P can not and should not be trusted to mess around in any way with the roofs over the heads of actual people.

I have two theories about what’s really going on with S&P here: call them the Shock Doctrine Theory and the Inside Job Theory.

If you’ve read the amazing work Shock Doctrine by the amazing Naomi Klein, I probably don’t have to go to too much effort to explain this theory. But for those of you who haven’t read it, Shock Doctrine is Klein’s theory that multinational mega-corporations, many based in the U.S. but not all – this is an oligarchy thing, not a nationalism thing – are deliberately either causing upheavals in the social and economic order of nations, and then taking advantage of that, or in other cases just jumping in to take advantage of cases where such upheavals have occurred naturally, to pretty much co-opt any resources of value or potential value in the stressed-out post-shock environment in question. It’s a stunning work. It’s also conspiracy theory writ large, so it’s the kind of thing any sane person finds themselves questioning. But Klein offers up a lot, and I mean a lot, of evidence.

A Shock Doctrine theory started bouncing around my head when it occurred to me this morning to consider the general fakery of this “crisis” at several points in its evolution, all the way from its beginning to this morning’s fresh downgrades. First there was the ginning up of this crisis, the holding hostage of the debt ceiling by conservatives in order to achieve deep budget cuts, with no revenue increases, at exactly a point in time when any and all reasonable economists were already pointing out that austerity is dangerous, i.e. it could, and almost invariably will, send us into a double-dip recession.

It was a completely invented crisis, as there is no way the debt ceiling is tied to the deficit in anything approaching reality, but once the Republicans did tether the two they had invented a crisis that was completely real. Or so it seemed. Enter S&P, which “reiterated that it could downgrade the US debt rating if politicians cannot reach a deal to raise the country’s debt ceiling by August 2” thereby raising the fever-pitch at which Obama and Dems in Congress were willing to capitulate to the Tea Party Economic Terrorists. And of course they did reach a deal by August 2. The Tea Party released their hostage.

The S&P downgrade followed anyway on August 5, late on a Friday, which of course made it smell a lot like a Friday Night News Dump. But it started smelling even fishier when it began to look like they took the time from August 2 to August 5 to messily and hastily throw together a rationale for the downgrade that was so riddled with math errors that it was off by trillions – trillions – of dollars. And when they were called on that? They didn’t correct the downgrade, they revised the math, and tweaked the rationale, a clear sign that there was some considerable bullshit in the rationale to begin with. Or as Jed Lewison put it in the post linked above “S&P was looking for facts to support its conclusion, not the other way around.” And then, when they must have known full well that they would be downgrading Freddie Mac and Fannie Mae they did not do so immediately, but waited until the markets were falling, but clearly not going into panicked free fall, to pile that on.

All of which brings me to the Inside Job Theory, based on the documentary film of that name, this theory relies on the fact that S&P is not looking out for those who are relying on their ratings to make investment decisions, they are getting paid by using their ratings to reward crony-companies, and manipulate stuff they and said crony companies can sell, and buy, and dump to make rather large fortunes, rather quickly, at the expense of people they’ve duped with their fake rating system.

Harsh to call it a fake rating system? Tell them, not me. They are the ones who testified before Congress that their ratings were not to be seen as recommendations for making investment decisions. I don’t have the film Inside Job here at the moment, but am pretty certain that was their answer as to why they were giving mortgage security funds AAA ratings mere days before they collapsed. But then, of course, they started rapidly downgrading these funds in an attempt to cover their asses.

So there is another theory floating around in my head to the effect that things are much, much worse than the public knows, but that S&P has some inside knowledge of an impending new collapse of the mortgage/financial markets, and having been caught with their pants down once, they are now racing to cover their asses once again.

Of course there is no reason at all why these theories can not both be correct. They are not mutually exclusive.

All I can think of to do at this point is to “follow the money” and try to figure out who is, and who will be, profiting from this fresh shock to our ongoing economic fiasco: my first guess would be those who have been profiting from it all along.


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