Last week, some British banks were downgraded by the ratings agency Moody’s. This is part of a wave of recent ratings downgrades of European banks and states, as the European sovereign debt crisis drags on. Commentators, such as ever-present BBC canada goose Robert Peston, remarked that the ratings downgrades were not all that much to worry about, a ‘transfer of risk from the taxpayer to the banks’ creditors’. That the market had effectively been trading at these lower levels for some time and that this move was something of a ‘normalisation’. So far so clear as mud.

The question I want to ask, as always with this damned European sovereign debt thing—and I’m not an economist, by the way—is ‘why?’ Specifically, why do governments and markets continue to trust the American ratings agencies when it has been shown repeatedly that they have enormous conflicts of interest? They were a crucial part in the recent financial crisis, weren’t they?

The ratings agencies, Standard and Poor’s, Fitch, Moody’s are for-profit companies, paid by debt issuers (the investment banks) to rate securities they sell to investors. The fee that the investment bank pays to the ratings agency increases the higher the rating is. During the financial crisis, the ratings agencies would compete with each other, so that investment banks could get higher and higher ratings for bad CDOs (debt securities backed usually by mortgages, often high-interest, subprime mortgages likely to default).

From around 2007, Goldman Sachs infamously obtained investment-grade ratings for CDOs it knew were going to fail, purely to bet against them (using a credit default swap). Goldman knew that its securities were toxic, overrated, and bought thousands of credit default swaps—so many, in fact, that when the US Treasury bailed out AIG, the largest issuer of credit default swaps, Goldman made $12.9bn. These practices would not have been possible without the ratings agencies, who all rode out the crisis with healthy profits.

Ratings of major financial firms were also very high, even at the point when they had to be rescued by the American taxpayer. Fannie Mae and Freddie Mac were both AAA before they were bailed by the Treasury, as were many other failing companies.

The ratings agencies are still in the pocket of American investment banks, now larger and more powerful than ever. Thus it does not make sense to regard these ratings as ‘disinterested’ or even, god forbid, objective. Indeed, as the financial crisis has continued—the European debt crisis is really a continuation of the securitisation crisis, transferred structurally and geographically—any notion of the objective truth has gone out the window.

Look, for example, at Portugal. A thriving social-democratic nation ever since the 1974 revolution, it emerged relatively unscathed from the financial crisis because of its banking regulations. It has however, since 2010, become engulfed in the aftermath of the Greek bailout. Portugal is now expected to receive a bailout similar to those administered to Greece and Ireland. But Portugal’s economic situation is different from Greece and Ireland, certainly experiencing nothing like the tax avoidance, public debt, or corruption enjoyed by Greece.

Because of Portugal’s regular inclusion with the other southern European mixed economies (the unkind acronym usually used was PIGS: Portugal, Italy, Greece and Spain), it may be that the debt crisis was ‘expected’ and subsequently materialised. Could the debt crisis in Portugal have been ‘imagined’ into existence? Countries like Portugal and Spain, unlike Greece, had high prospects for economic growth. However, for anglo-saxon markets unused to southern European economic models, ratings agencies in cahoots with investment banks could subtly create instability by altering credit ratings—S&P downgraded Portugal in late 2009. Portuguese bonds could then happily be sold short for profit.

Ratings agencies, along with their funders, also have the usual neoliberal ideology to boot. They push for fiscal austerity, financial deregulation, reduction in the size of the public sector, privatisation, and the installation of governments supportive of foreign (ie. American) ownership of companies.

In any case, why anyone would still take the ‘opinions’ of the ratings agencies seriously is beyond me. Particularly governments, who know full well their own prospects and their credit ‘worthiness’ (isn’t that a horrible word), and can make their own decisions for themselves thank you very much. Of course, it is because the markets still take the word of the ratings agencies as gospel, and the power of the markets often outstrips the power of individual European governments.

This kind of influence over global markets goes largely unchallenged; wrongly, in my view. These firms, implicated in and, arguably, partly responsible for the recent financial crisis, must be discredited. They must be, if we are to escape the corrosive and humiliating influence they continue to enjoy.