STAFF NEWS & ANALYSIS
ECB: Shut Down Private Sector Watchdogs
By Staff News & Analysis - July 14, 2011

Credit rating agencies have worsened the crisis in the euro zone and financial markets could live without them, European Central Bank Governing Council member Ewald Nowotny (left) said on Tuesday. Nowotny, who also heads Austria's central bank, told Austrian television he did not need to go to a rating agency to assess the economic situation in Greece. "It is all apparent from public statistics and whether these statistics are accurate or not, the rating agencies … do not give any more intrinsic knowledge, they simply give opinion," he told broadcaster ORF. "And these opinions, they continue to give them in such a way that it worsens the crisis." – Reuters

Dominant Social Theme: The euro crisis is a problem of perception. Get rid of the ratings agencies, and the negative perception shall go away too.

Free-Market Analysis: The totalitarian mindset – always lurking at the dark heart of the European Union – has revealed itself publicly once again. A top central banker has stated in an open forum (see excerpt above) that the world's most important financial rating agencies perform no useful function.

The statement itself is astounding and so is the reaction; most seem to be ignoring its ramifications, including the mainstream media. There are hardly any articles about it on Google and not a single individual that we know of has publicly contradicted Nowotny.

Of course, at Nowotny's level, such statements are not made casually. There is paranoia among the Eurocrats that the Americans wish to sabotage the euro. This flies in the face however of the larger truth that the EU is at least partially an Anglo-American invention. Certainly, if the Americans hadn't backed it throughout the years, it would not exist today. There is something self-contradictory about this paranoia and one wonders if the Eurocrats actually believe it themselves, or if it is mere posturing.

Nonetheless, Nowotny will continue. He is saying what is meant to be said, what the Eurocrats WANT to be said. He is attacking the heart of the free-market system and in fact has been banging this drum for a while. A week ago, he told Bloomberg that policy makers are facing a situation in which banks are willing to help stabilize Greece, while rating companies are applying "aggressive" rules.

Greek Prime Minister George Papandreou has also made such statements. However, Papandreou's were issued out of frustration and he criticized the ratings agencies for making a bad situation worse. Nowotny has questioned the need for their very existence. He has stated, effectively, that he – by himself – (and people like him) can replace these agencies.

They are not necessary and their evolution within a competitive marketplace is not considered by him to be valid. In one stroke he denies FA Hayek's observations about spontaneous self-organization and to a lesser extent Ludwig von Mises' observations about the primacy of human action.

It is a profoundly brutal statement. One can hear in each syllable the drumbeat of a million military boots pounding the pavement. The rifles are being loaded; the triggers are being cocked. Nowotny, a sophisticated man at the peak of the EU establishment – a pillar of the banking community – has run roughshod over fundamental elements of free enterprise.

Nowotny is making these statements purposefully. He is speaking, informally anyway, for larger powers in and around the ECB. It is a big deal. The European central banking establishment has decided to attack the private sector's ability to criticize financial policies put in place by those with governmental authority.

Words at Nowotny's level are far more than communicative elements. They contain an emotional ambiance. Nowotny is expressing the omnipotence of the state. One expects to find similar utterances in grainy newsreels of the 1930s when totalitarian rulers began to make similar statements about private sector inefficiencies and the need for the state to take the free-market fully in hand.

Before we go any farther, we ought to stress in part that the ratings agencies – Moody's, S&P and Fitch – have brought such obloquy down on themselves by their behavior during the financial crisis of 2008. Not one of these agencies, stocked with the some of the most brilliant minds of the financial sector, anticipated the crisis.

A thousand – perhaps ten thousand, or even a hundred thousand – bloggers following economic news charted the rise and fall of Western economies throughout the first decade of the 2000s. But since these individuals – broker and money manager Peter Schiff among them – were not for the most part considered "experts" and did not work directly in and around the seats of power, their voices were ignored.

Even now, the history of financial prediction continues to be recast. Read mainstream media and one is struck by how alternative media voices are excluded. We are well aware of the correctness of the alternative press during the first decade of the 2000s.

We recall as late as 2007, Fed chairman Ben Bernanke was still insisting America's economy was sound and that all was well with it. Some six months later, the US economy along with the rest of the world began to slip into an economic trough that now threatens to exceed that of the Great Depression nearly a century ago.

It is a testimony to the supine nature of the US mainstream media that Bernanke was not taken to task over his remarks and has since then been reelected by Congress to his post. The US media – like the European media – is in a terminal state of decline. It is owned by the same Anglosphere elites that have caused the economic crisis that now exists. ("During times of universal deceit, telling the truth becomes a revolutionary act." – George Orwell)

Since the crisis, there have been extensive post mortems in which the mainstream press has catalogued the paucity of warnings, focusing on mainstream economists and bankers and ignoring the literally millions of articles that spewed out of the alternative press over a period of perhaps seven years warning that an economic collapse was coming.

It is like watching a dialogue between the deaf and the dumb, while an observer stands nearby shouting answers that are neither acknowledged nor acted on. Only those with expensive degrees – the "experts" are allowed to have a say in the formal conversation of business and politics.

If you have not paid for your ticket with an expensive diploma from approved schools you are not allowed in. Of course, it is again the elites themselves that control these schools and their pre-approved curriculums. At the very topmost level a one-world government is being created and dissenting opinions are NOT allowed.

Within this context, then, comes Ewald Nowotny to pull down whatever is left of the free market in Europe. He's doing so with an impeccable, "capitalist" pedigree. According to various sources, he is an Austrian economist and social democratic politician and currently president of the National Bank of Austria. He is a full professor at the Vienna University and since 2008 has been a member of the ECB governing council.

Nowotny echoed criticism of rating agencies by European officials earlier this month, when he said there were signs of bias against the European Union after Moody's downgraded Portugal's debt to "junk" status. European Commission President Jose Manuel Barroso has weighed in as well, reportedly saying the EU was "looking at getting away from its reliance on the mainly U.S.-based ratings companies and weighing possibilities for legal redress."

This is really a startling state of affairs. Top Eurocrat leaders are bluntly accusing private sector rating agencies of bias and incompetence. To rectify the situation, Eurocrats are contemplating setting up their own agencies that will be compliant with whatever economic message they wish to purvey.

One almost expects Barroso to show up at an EU meeting and pound his shoe on the table like the USSR's Nikita Khrushchev. In fact, Khrushchev famously said that the communist system would bury the West. Given Nowotny's and Barroso's statements, that would seem to be the case.

Look deeper however, and the situation gets even worse. (Amazing it can.) Contrary to what Barroso and Nowotny indicate, they are anything but aggressive entities. They are the "controlled opposition" in financial terms. They are there to provide credibility to what is inevitably incredible.

Derivative debt now amounts to something like US$500 trillion, worldwide (no one really knows). If the system begins to collapse (and it will), there is no way that any single financial entity is solvent as a practical matter. Yet still the ratings agencies ply their craft and issue AAA ratings to public and private enterprises.

None of it is real. All of it is as make believe as the paper money that central banks keep printing. The entire financial system at this point is ever-more-clearly a mirage – a shadow play exhibited for the masses who, presumably, will keep on believing it.

But the larger, Western populace is waking up now in part because of the financial crisis and also because of the truth-telling of the Internet. This Internet Reformation has affected the behavior of the rating agencies as well. One of the reasons they are being tough on the PIGS is because they are now perceived as incompetent due to their behavior during the financial crisis.

It is these incompetent and dysfunctional businesses that Barroso and Nowotny paint as the height of the free-market run amuck. These agencies that are entirely integrated into the larger weavings of the elite financial program. They are no more maverick than a Goldman Sachs banker who has quit to set up his own boutique.

They are in other words, the controlled opposition. But this makes the rhetoric being spewed at them even worse. The entire dialogue is nothing more than a kind of verbal façade, devoid of any substance, though abysmally degrading nonetheless.

Ratings agencies once no doubt performed a valuable function within the larger capitalist construct. But just as other private sector watchdogs have been made redundant by the state takeover of private functions, so the current ratings agencies have been devalued. Such entities only function in a worthwhile way in a free-enterprise system.

The current crop of ratings agencies perform a kind of public relations function for Wall Street. Their performance during the financial of 2008 was ludicrously incompetent. They have further complicated their woes by turning aggressive when it comes to the EU PIGS – which makes the Europeans supicious.

Barroso and Nowotny have used these incompetent agencies as a foil to make their own authoritarian points. These two men, however, are the controlled opposition as well. And in the background, pulling the strings, are, ironically, the Anglosphere banking elites.

It is a kind of totalitarian twofer. First, Barroso and Nowotny further degrade what is left of a competitive, free-market system of credit analysis. (They are providing a rhetorical base for what amounts to a kind of return of fascism.) And second, the solutions they propose would bring ratings under the state itself.

After Thoughts

But there is yet a third, and even more important outcome in our view. We are more and more convinced that the powers-that-be are stage-managing the process to bring maximum chaos to the EU. This latter effort is perhaps the most secretive. It is the culmination of the elite's determined and evil MO: out of chaos, order. By casting doubt on the ratings agencies, Nowotny, Barroso et al. further this deepest agenda.

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