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The Terrorists Still at Ground Zero
7 World Trade Center, Lower Manhattan


By Alexander Cockburn

17/02/08 "
Counterpunch" -- -- Terrorism flourishes brazenly at Ground Zero, in the new 7 World Trade Center building. Here can be found a secretive entity of fabulous wealth and power. Kingdom and corporations alike tremble at its shadow and make haste to pay it tribute. I refer to Moodys Investor Services, wholly owned subsidiary of Moody's Corporation, which reported $2 billion in revenues in 2006.

On January 10 Moody's, in concert with the other main bond rating firm, Standard and Poor's, gave the United States its top AAA credit rating. The terrorist blackmail threat came in the form of a demand by Moody's that the U.S. government "reform" Social Security and Medicare: "In the very long term, the rating could come under pressure if reform of Medicare and Social Security is not carried out as these two programs are the largest threats to the long-term financial health of the United States and to the government's Aaa rating."

Steven Hess, Moody's top analyst for the US economy spelled it out even more explicitly to the London Financial Times: "If no policy changes are made, in 10 years from now we would have to look very seriously at whether the US is still a triple-A creditThe US rating is the anchor of the world's financial system. If you have a downgrade, you have a problem."

US interrogators torture men in secret prisons seeking to catch those members of Al Quaeda still at large, starting with Osama bin Laden and Aiman al-Zwahiri. Yet here's Moody's man calmly threatening to destroy the US government's credit ranking unless it follows his agenda, and he strolls around Lower Manhattan unmolested, even if his threats could add up to the financial equvalent of a thermonuclear device planted under the Statue of Liberty.

Moody's runs a protection game. It issue credit ratings, (in 2007 no less than 39 percent of the global credit rating market by revenue, according to Bloomberg) based on public data and private information made available by those clients that have "voluntarily" retained their services. The price of not volunteering can be high. As vividly described by Alec Klein in his excellent 2004 series in the Washington Post on the credit-rating giants, the giant German insurance corporation Hannover declined repeated Moody's offers to rate its credit, at a time when the latter was trying to extend its reach in the European Community. Moody's promptly issued an unsolicited and adverse rating, then--just like a small time mobster after hurling a brick through the window of a liquor store--went back to Hannover and reissued its invitation to offer protection-by-rating. Hannover's top man said he wouldn't surrender to blackmail and so between 2001 and 2003 Moody's steadily reduced Hannover rating all the way down to Junk. This cost Hannover a great deal of money in paying the higher risk premiums on money it borrowed.

By contrast Enron handled relations with Moody's with ermine gloves. All the way through 2000 until a few days before Enron filed for Chapter 11, Moody's, like S&P, declined to lower the boom by demoting bonds issued by Enron company to below-investment grade. Banks with huge sums at stake allegedly pressured Moody's to keep quiet, even though Moody's had privileged access to Enron's internal financial operations.

Today, the world's credit system is strained to bursting point by such financial scams as CDOs (collateralized debt obligations) which are bundles of debt instruments, ranging from junk bonds through subprime mortgages. Moody's and the other rating agencies have played a crucial role in putting the CDOs together in the first place.

Of course the terrorists in lower Manhattan want Wall Street to get its mitts on the pools of money held in the Social Security trust funds. But if Moody's is going to present itself as a major political player, presuming to dictate national policy down the barrel of a financial gun, its executives and analysts should be hauled into the Star Chamber. Let's have a war on terror and a rendition of Moody's executives to explain, before a special investigative committee of congress with full subpoena power, their own role in causing the financial upheavals afflicting the planet right now, due to the collapse of the housing bubble and its impact on the home mortgage market.

As Prof. Robert Pollin of U Mass/Amherst remarked last week to me, "We could say the Bubble and crisis occurred because people like Moody's rating agency always misread the build up of bubbles. They assume the rise in asset prices represents something fundamentally different about the economy, and then open the floodgates for financial speculation. Based on this, we should rather be talking about the stability of U.S. and global financial markets coming under immediate pressure due to the fact that market analysts, like Moody's, don't have a clue as to what they are talking about."

Right now the US deficit is around $200 billion, 1.5 percent of GDP, not large and presenting no danger in itself to U.S. financial soundness. But as Pollin adds, if Moody's analysts want to discuss causes of fiscal laxity, "why not look at the Iraq war? The Defense budget for 2006 was $617 billion. That is 4.8 percent of a $13 trillion GDP. Before the Iraq war, the defense budget was about 3.0 percent of GDP. So Iraq alone is costing between $150 - 200 billion annually, about 1.5 percent of GDP.. And what has that war achieved? Social security and medicare combined were about $900 billion in 2006. Why assume we first have to attack our minimal welfare state, and leave the imperial budget intact? "

In fact it's almost entirely Medicare, not Social Security, that accounts for the projected rising costs in our shrivelled welfare state. The culprit here is not the swelling ranks of older people but the insurance and drug companies' grip on our health system. Conversion to single-payer would mean huge savings. The U.S. pays around 14 per cent of its gross domestic product for health care, twice what other advanced industrial countries pay. Shift to single payer and quit shoving money--4.8 per cent of GDP--down the imperial sink-hole and there's no fiscal crisis of any sort, short or long term for Moody's or anyone else to fret about. And in the even shorter term, if Moody's sees fiscal crisis looming, why don't its overpaid executives for once put the national interest first and call for a tax hike on the rich? Bob Pollin tells me that just going back to Clinton, as opposed to Bush-2, on taxes for those making over $200,000 a year, would generate $60 billion a year. Do this and end the war in Iraq and you wipe out the deficit at a stroke.

Let a real war on terror commence!

Amid its blackmailing threats to launch a terrorist onslaught on the credit rating of the United States, Moody's has its moments of honesty about the capitalist rackets in which it is a major player. Witness its extraordinarily forthright recent background document, "Archaeology of the Crisis", part of its series, "Moody's Global Financial Risk Perspectives" "In the financial industry, in contrast with other businesses, there is a point beyond which increased competition is not stability-enhancing, but rather potentially destabilizing past a certain point--difficult to identify--more competition means more, and perhaps socially undesirable risk-taking."

With bracing frankness Moody's archeologist of capitalism concedes " it is also possible that the welfare benefits of some financial innovations may be lower than expected Accepting the existence of crisis is the Faustian pact that policymakers have made with the financial industry. However, the pact is an implicit one, as policymakers are reluctant to concede that they will have to intervene in extreme situations--that is when almost no capital cushions
could be large enough to absorb truly exceptional problems."

In other words, says Moody's man, capitalism is impelled by competitive pressures that are often profoundly anti-social in consequence and lurches from lurches from crisis to crisis, -- on average roughly 7.5 years apart since the late 1800s, as the late Charles Kindleberger once demonstrated -- that in the end require the intervention of the state, which has to save the system from the consequences of the market's excesses--which is why we have the scant protections we do, such as Medicare and Social Security.

Finally, why did Moody's man suddenly flourish the supposed threat to national security of the Social Security and Medicare programs? Chances are he was reading Niall Fergusonīs Colossus where the Wall Street Journal's favored historian uses some transparently bogus calculations to argue that "Imposing democracy on all the worldīs rogue states would not push the U.S. defense budget much above 5 percent of GDP" whereas Medicare and Social Security are a far greater drain on the pubic purse, and should be pruned back. The fellow at Moody's probably gulped down this exciting dram and duly issued his terrorist demands.

Footnote: a much shorter version of this column ran in the print edition of The Nation.

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