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Sell off everything your people need to survive, to appease the corrupt investment bankers handling the sale. Oops, I mean, “the markets”.

July 24, 2012
Are you a billionaire? Want to control whether a million or so Greeks die of thirst? Here’s your chance.

Heard on the news just now (Al-Jazeera): Moody’s cut the outlook for its AAA credit ratings for Germany, the Netherlands and Luxembourg to “negative” from “stable.”  Reasons given?  Costs of bailing out Greece (already the recipient of 2 failed bailout packages), possible costs of bailing out Spain and Italy (interest rates on Spanish and Italian debt are hitting record highs), possible costs of Greece ditching the euro currency.

Greece has failed to move fast enough on asset sales, the anchor says, and this worries the markets.

We are supposed to panic at this news.  We are supposed to think only of how to improve those credit ratings.  We are supposed to think only of how to move fast as possible to satisfy the markets, to stop their brutal hammering of Europe’s economies.

But who are “the markets”?  And who is Moody’s?

Moody’s is one of the three major credit ratings agencies most trusted by investors to rate the safety of bonds and similar investments, and by extension, the creditworthiness of the assets behind those investments.  Does this mean they are a fair, impartial judge of creditworthiness?  FUCK NO!  These are the same guys who gave an AAA rating (the highest rating you can get) to piles upon piles of mortgage-backed securities in the US, backed by “liar loans” and other fraudulent papers, based on the idiotic assumption that the housing-price bubble would go on forever and never burst.  Why would they give AAA ratings to crap?  Well, the way they get paid (fees from the big investment banks that sell debt securities to investors) might just have something to do with it.  Oh, but they’re giving negative ratings now, so they must have learned something about fair rating practices from the scandal following the US credit crisis, right?  Not exactly.  The key phrase here is asset sales.

Asset sales, also called privatization, are getting big right now in the US.  A government, starved for cash, sells off what used to be public services managed for the benefit of the public (electric utilities, water infrastructure, highways, parking meters, etc.) to a multinational conglomerate or a consortium of private investors.  If it’s the latter, the consortium will consist of major investment banks plus the sovereign wealth funds of countries who have extra cash and are looking for stuff to invest in.  Right now, these would be primarily China and the Arab oil states.  The government selling these public services, being desperate to fix a budget hole or pay down debt, sells them at dirt-cheap prices.  The private companies/investors now managing them jack up the rates for whatever it is they’re providing to the public (electric bills, water bills, highway tolls, parking meter rates, etc.) in order to increase their profit margins.  The big loser in this deal is You The Citizen.  If you’re going bankrupt over high utility bills and the utility is public, you can complain to an elected official who wants your vote.  If you’re going bankrupt over high utility bills and the utility is an “asset” that has been privatized, the only complaints the new owners will listen to are those of shareholders demanding that the rates go higher.  This is how free markets promote individual freedom.

So anyway, let’s look at how a credit ratings agency might benefit from a negative rating.  Let’s say Moody’s is rating a country, Germany, plus a bunch of assets being sold by an investment bank, Deutsche Bank.  Deutsche Bank is paying more fees to Moody’s than Germany is.  Deutsche Bank is also functioning as the middleman in a possible sale of, say, Greece’s railway system, to a bunch of mostly Saudi investors.  (These are all just possible examples.  I don’t know who Greece’s railway system is being sold to in real life, although I do know it is being sold.)  Moody’s downgrades Germany’s credit, and gives the Greek situation as the reason.  This puts more pressure on Greece to get going with those asset sales.  The cheaper the asset sale, the more Deutsche Bank can get in fees from the Saudis.  So naturally Deutsche Bank has an interest in pressuring Moody’s to downgrade Germany.  All the parties involved in the asset sale also have an incentive to use their power as “market movers” to drive up the interest on Greece’s debt through market speculation.

The more I look at this whole European debt crisis thing, the more I get the sneaking suspicion that it’s all about the asset sales.  The last two Greek bailouts were tied to austerity measures: steep cuts in government services, plus higher taxes.  This naturally fucked up the Greek economy, making it even more difficult to pay back the debt.  So now the powers that be are talking about a third bailout tied to even more austerity measures.  Will this help Greece pay back its debt?  Not if the last two bailouts were any guide.  But it will get Greek government officials all nice and panicky, just the mood you want to see when you’re trying to buy their country for peanuts.

For more info:

What Greece is selling off, as of last year.  Would you like to own your own private island?  How about control over the entire Athenian water supply and sewer system?

A few days ago, the chief executive of Greece’s privatization agency resigned.  He said that Greece’s slowness in selling off its public goods “reduced its prestige in the eyes of possible investors.”

Spain is selling off its assets too (railway, airports, and hotels).

Italy is also planning to sell off its assets…right after a credit rating downgrade by Moody’s, hmmmm.

Expect Europe’s economy to go even further down the crapper this August.  Things always get worse in August, because that’s when the traders close their positions before going on vacation.

Some people will benefit from austerity, though.

One Comment leave one →
  1. July 30, 2012 4:02 pm

    Very interesting analysis. I have family members who trust corporations more than government. I don’t trust government entirely either, but as you point out, at least we can vote for them without being millionaires (i.e. stockholders).

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