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Mehdi Hasan: Time to downgrade the downgraders

Standard and Poor's decision to downgrade the United States's credit rating is outrageous and undemocratic.

Prior to September 2008 and the near-meltdown of the global financial system, who had ever heard of the credit rating agencies? Who could name the so-called big three (Standard and Poor's, Moody's and Fitch), which exerted such huge power and influence over the global economy?

That's all changed now. The decision by Standard and Poor's (S&P) to downgrade the United States's creditworthiness, from top-notch AAA status to AA+, dominates today's news headlines and may finally force ordinary people across the world -- and, in particular, in the US -- to sit up and take notice of these unelected, unregulated, politicised private firms, with horrific track records and excessive power over democratic governments.

As I wrote in today's Guardian (prior to the downgrade decision by S&P, I hasten to add!):

In recent weeks, we have witnessed elected leaders in the world's most powerful nation dancing to the tune of David Beers. He's the moustachioed, chain-smoking head of sovereign credit ratings for S&P, the largest and arguably most influential member of the big three.

"You may have never heard of David Beers but every finance minister in the world knows of him," noted Reuters in a recent - and rare - profile of the analyst, who doesn't even have a Wikipedia page. It is Beers who recently downgraded Greece's credit rating to near-junk status, thereby making the EU's proposed rescue plan much more difficult. And it is Beers who now demands the US reduce its long-term budget deficit by $4tn - rather than the congressionally approved $2.4tn - and threatens to impose the first-ever US government downgrade, from AAA to AA. It isn't just the Tea Party holding the US to ransom.

Three questions come to mind. First, who elected David Beers or his Moody's and Fitch counterparts? By what right do they decide on the fate of governments, economies, debts and peoples?

Second, why should we care what Beers thinks? What credibility do he and his ilk have? The bipartisan Financial Crisis Inquiry Commission in the US has described the big three as "key enablers of the financial meltdown". The commission's January 2011 report concluded: "The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval. Investors relied on them, often blindly ... Their ratings helped the market soar and their downgrades through 2007 and 2008 wreaked havoc across markets and firms."

Third, would a downgrade in the US's credit rating really be that apocalyptic? Or could the world's biggest economy survive such a blow? Politicians and, in particular, finance ministers have fetishised the triple-A rating, and conventional wisdom says that a country's interest rates will rise sharply on a downgrade. But a study by JPMorgan Chase last week showed only a slight increase in lending rates for countries that lost their AAA rating. In May 1998, S&P marked down Belgium, Italy and Spain from AAA to AA, but 10-year rates barely moved in response. In some cases, rates fall. In Ireland, for instance, 10-year rates fell 0.18 percentage points a week after S&P took away the republic's triple-A rating in March 2009.

You can read the whole piece here.

You can read Reuter's fascinating profile of David Beers here.

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

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PMQs review: Jeremy Corbyn prompts Tory outrage as he blames Grenfell Tower fire on austerity

To Conservative cries of "shame on you!", the Labour leader warned that "we all pay a price in public safety" for spending cuts.

A fortnight after the Grenfell Tower fire erupted, the tragedy continues to cast a shadow over British politics. Rather than probing Theresa May on the DUP deal, Jeremy Corbyn asked a series of forensic questions on the incident, in which at least 79 people are confirmed to have died.

In the first PMQs of the new parliament, May revealed that the number of buildings that had failed fire safety tests had risen to 120 (a 100 per cent failure rate) and that the cladding used on Grenfell Tower was "non-compliant" with building regulations (Corbyn had asked whether it was "legal").

After several factual questions, the Labour leader rose to his political argument. To cries of "shame on you!" from Tory MPs, he warned that local authority cuts of 40 per cent meant "we all pay a price in public safety". Corbyn added: “What the tragedy of Grenfell Tower has exposed is the disastrous effects of austerity. The disregard for working-class communities, the terrible consequences of deregulation and cutting corners." Corbyn noted that 11,000 firefighters had been cut and that the public sector pay cap (which Labour has tabled a Queen's Speech amendment against) was hindering recruitment. "This disaster must be a wake-up call," he concluded.

But May, who fared better than many expected, had a ready retort. "The cladding of tower blocks did not start under this government, it did not start under the previous coalition governments, the cladding of tower blocks began under the Blair government," she said. “In 2005 it was a Labour government that introduced the regulatory reform fire safety order which changed the requirements to inspect a building on fire safety from the local fire authority to a 'responsible person'." In this regard, however, Corbyn's lack of frontbench experience is a virtue – no action by the last Labour government can be pinned on him. 

Whether or not the Conservatives accept the link between Grenfell and austerity, their reluctance to defend continued cuts shows an awareness of how politically vulnerable they have become (No10 has announced that the public sector pay cap is under review).

Though Tory MP Philip Davies accused May of having an "aversion" to policies "that might be popular with the public" (he demanded the abolition of the 0.7 per cent foreign aid target), there was little dissent from the backbenches – reflecting the new consensus that the Prime Minister is safe (in the absence of an attractive alternative).

And May, whose jokes sometimes fall painfully flat, was able to accuse Corbyn of saying "one thing to the many and another thing to the few" in reference to his alleged Trident comments to Glastonbury festival founder Michael Eavis. But the Labour leader, no longer looking fearfully over his shoulder, displayed his increased authority today. Though the Conservatives may jeer him, the lingering fear in Tory minds is that they and the country are on divergent paths. 

George Eaton is political editor of the New Statesman.

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