credit rating agencies

Still Superman?

Joseph M. Firestone — Sun, 07 Aug 2011 23:31:43 -0400

There have been many reactions to S & Ps action in downgrading the credit rating of the US, Apart from the widespread annoyance and repudiation of S & P and its procedures, there are some who are saying that it won't have much effect on interest rates. Others even saying that it is a “non-event,” and still others saying that S & P should be investigated and prosecuted on a number of grounds. However, I found two views of the “non-event” particularly interesting.

The first was Warren Buffet's quoted by Fox Business news:

Berkshire Hathaway Chairman and CEO Warren Buffett told the FOX Business Network that S&P's downgrade of the United States' triple-A credit rating "doesn't make sense."

"I don't get it," Buffett told FBN late Friday night. In fact, Buffett reaffirmed his belief in the quality of the United States' credit telling FBN, "In Omaha, the U.S. is still triple A. In fact, if there were a quadruple-A rating, I'd give the U.S. that.”

Buffett also said:

"Think about it. The U.S., to my knowledge owes no money in currency other than the U.S. dollar, which it can print at will. Now if you're talking about inflation, that's a different question."

And so, now we know that Warren Buffett gets a fundamental premise of MMT!

He knows that the US cannot become insolvent because it can make USD at will and it owes nothing that is not denominated in USD!

We can only hope that he'll clue in his friend Barack Obama that the US is NOT running out of money. Perhaps Mr. Buffett even knows about Proof Platinum Coin Seigniorage (PPCS) and he can tell his friend Barack that using it would be a good way to give S & P a sharp stick in the eye.

The other reaction was one to my post on S & P tugging Superman's cape. The commenter asserted that, considering the US Government's domination by an increasingly powerful oligarchy, “the US Government is not Superman.” This squares with views being expressed by Yves Smith and others that this downgrade is about a power struggle. People who write about this struggle characterize it differently.

I think it is a power struggle between sovereign nation states and globalizing international elites whose loyalties are to the emerging new international feudalism in which corporations and enormously wealthy individuals wield the only real power. Some write as if they think that nation states are already and irrevocably subordinate to international elites. But I think that is not yet true.

The forces of nationalism are not yet spent, and will still be used against the international elites when the reality of their growing power and its negative impacts on working people are both fully recognized. People still need nation states for physical protection. People without a favored position in the emerging plutocracy still owe their primary loyalties to their nations, and I don't think they will long accept the subordination of their national Governments and institutions to foreign powers, whether those are other nations or international financial interests. At the moment, the influence of globalizing elite institutions is very great and very real; but they still exist and function on the sufferance of nation states and their internal politics, however parasitical they may be.

Even with all its faults and the mess being made by the special interests and the parties, the US is still Superman if we can free ourselves from the constraints imposed by various Congresses in the past, and from the financial lilliputians.

1. As I say in this piece, and Marshall Auerback says in this one, the US (the Fed and the Treasury) can control interest rates contrary to the desires of the bond markets and the vigilantes. There is no realistic prospect that benchmark interest rates will go up unless the Government wants them to.

2. The US can also de-certify the ratings agencies and prosecute rating agency executives for fraud and other violations. I think they'd be well-advised to do so, if only to show S & P who's boss. And

3. The President, finally, can use very high value PPCS and kill the “austerity” trope of the international elites for good.

So, forgive me my optimism, I still think that's Superman!

(Cross-posted from Correntewire.

Standard & Poor's Tugs on Superman's Cape

Joseph M. Firestone — Sat, 06 Aug 2011 02:24:09 -0400

Last December, my friend, beowulf, had this to say at the time Moody's began to make noises about downgrading US debt. He said:

”I don’t think we’ll see Moody’s or any other rating service based in the US ever downgrade US Treasuries. It would cause a tremendous amount of financial loss and would leave Moody’s and its executives exposed to criminal prosecution. If I were Moody’s general counsel, I’d tell the CEO in no uncertain terms, Do Not Tug On Superman’s Cape.

14th Amendment, Sect. 5

”. . . .the validity of the public debt of the United States, authorized by law… shall not be questioned”

Criminal Mischief statute

18 US 1361. Government property or contracts

"Whoever willfully injures or commits any depredation against any property of the United States, or of any department or agency thereof, or any property which has been or is being manufactured or constructed for the United States, or any department or agency thereof, or attempts to commit any of the foregoing offenses, shall be punished as follows:

If the damage or attempted damage to such property exceeds the sum of $1,000, by a fine under this title or imprisonment for not more than ten years, or both; if the damage or attempted damage to such property does not exceed the sum of $1,000, by a fine under this title or by imprisonment for not more than one year, or both."

But, Standard & Poor's has decided to tug on Superman's cape by downgrading US debt to Double A status for the first time in history. Don't get me wrong, I'd love to see S & P executives frog-marched out of their offices and imprisoned for a year for violating the criminal mischief this statute. After their role in the Crash of 2008, that's the least they should get from an outraged populace. However, I have to say that their action will be of little or no consequence if the Treasury responds correctly to their foolishness.

Contrary to popular belief, and also the apparent belief of this Administration, ratings agencies and the bond market itself don't actually control the interest rates that Governments like the United States must pay. Sure, they will determine interest rates if the Government sits idly by and lets them drive the market.

However, the Federal Reserve and the Treasury, can target bond interest rates and set these for the bond markets by manipulating bank reserves. Specifically, one way to do this (As Warren Mosler suggests), is that the Treasury can cease issuing long-term bonds, and sell only three-month bonds. Three-month bond interest rates are generally controlled by overnight rates for bank reserves, and overnight rates can be driven down to near zero by flooding the banks with excess reserves. That's basically how the Japanese keep their bond interest rates near zero, and that's how we can do the same.

Alternatively, another move we can make to remove the effects of the bond markets and the ratings agencies upon public finances, is for the Treasury to stop issuing debt in advance of deficit spending. If we did this, the credit rating agencies and the interest rates in the bond market would be irrelevant from that day forward. And we can do it using Proof Platinum Coin Seigniorage (PPCS) to generate revenues to pay back debt, and deficit spend current or future appropriations.

In short, the bond markets and the ratings agencies aren't in control of US public finances. They are not in a position to influence what our taxing or spending policies ought to be, or whether we will default on our obligations. So, their tug on Superman's cape is of no consequence for us, directly.

On the other hand, the ratings agencies are currently hurting US states, and Eurozone nations with their deeply corrupted ratings processes and judgments. We should take very seriously Bill Mitchell's Conclusion in his post on outlawing the credit rating agencies:

"The real question that I always ask is why governments allow these undemocratic criminal organisations to exist. They can just outlaw them. This would force the corporate players to create better ways of informing the markets about their risk characteristics and leave governments alone to do what they are democratically elected to do – advance public purpose.

(Cross-posted from Correntewire.

Standard and Poor's: Bring It On!

Joseph M. Firestone — Tue, 19 Apr 2011 02:54:34 -0400

(Author's Note: In December I posted a piece on Moody's threat to downgrade the US's Rating in International Bond markets. I argued that Moody's action was foolish. Today, Standard and Poor's actually revised the US ratings outlook from stable to negative, but continued its sovereign credit rating at ‘AAA/A-1+’. This roiled the markets yesterday and led the New York Times to carry a debate among 7 economists including Randy Wray, one of the best known among economists using the Modern Monetary Theory (MMT) paradigm in economics. Randy and a number of others in the Times debate, believe that the ratings change has little or no significance.

My post filed in December, presents a more detailed analysis of why Randy and the other skeptics are right, so I thought it deserved a reprise. Please use your imagination and just replace "Moody's" with "Standard and Poor's." The arguments against the ratings agency morons remain the same. In my view Congress should just put 'em out of business, and while they're at it, bring some indictments against them for the fraudulent AAA ratings they gave to the derivatives that, in turn, triggered the Crash that ruined the lives of so many people. Let's finally see some of these perps in jump suits.)

Yesterday, as reported in Money News, Moody's made me laugh, with the following pronouncements:

” . . . it could move a step closer to cutting the U.S. Aaa rating if President Barack Obama's tax and unemployment benefit package becomes law. . . .

“The plan agreed to by Obama and Republican leaders last week could push up debt levels, increasing the likelihood of a negative outlook on the United States rating in the coming two years . . .

“A negative outlook, if adopted, would make a rating cut more likely over the following 12-to-18 months.

“For the United States, a loss of the top Aaa rating, reduce the appeal of U.S. Treasurys, which currently rank as among the world's safest investments.

"From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth," Moody's analyst Steven Hess said in a report sent late on Sunday.”

Here Moody's is referring to the increase in the debt, and the debt-to-GDP ratio caused by the tax deal, and also to the predicted lesser value of Treasuries which will presumably lead to the US paying higher interest rates and having greater interest costs on the national debt than it otherwise would have had. In addition, Moody's believes that the likely $900 billion cost of the tax deal will make the US more likely to default on the national debt.

I found this a laughing matter for a number of reasons. First, as Jane Hamsher points, out only 5 days earlier Moody's had said there was no prospect of a ratings cut if the tax deal passed. Their sudden change of opinion greatly undercuts their credibility.

Second, as is widely known, all the ratings agencies including Moody's gave the CDOs and CDSs that led to the collapse of AIG their highest ratings. In addition they downgraded Japan's credit ratings a long time ago, with no measurable impact on its bond interest rates or costs, even though Japan's debt-to-GDP ratio has continued to increase over time and is now in the neighborhood of 200%. So, one may be forgiven for wondering why anyone should listen to the ratings ravings of Moody's and the other agencies at all. In fact, one may begin to suspect that their ratings have little influence on the bond markets, and also, given the Japanese case, that the bond markets don't control the interest rates that Governments sovereign in their own currency must pay.

default could be caused by a Congress which acts stupidly, and in a manner contrary to the Constitution, to constrain the Treasury from paying its obligations when they come due, coupled with a Treasury that accepts Congress's constraint in conflict with the clear admonition of the Constitution that the debts of the United State shall not be questioned.

The objective risk of default by the US Government is not increased by the increased size of the deficit, debt, or debt-to-GDP ratio. And Moody's view that the risk of default is increased by such increases, only shows that Moody's doesn't understand the monetary operations of nations sovereign in their own currencies. Increases in these numbers don't in any way lessen the constitutional authority of the Government (including the Congress) to spend or make money. It's basic solvency, in other words is untouched by the tax deal, and if Congress allows the Executive to use its currency powers, then the risk of default as a result of the deal is exactly zero. Whatever additional risk exists as a result of the deal, comes only from the increased likelihood that Congress, mistakenly thinking that the Government is like a household, or, or ideological reasons, determined to "starve the beast" might constrain the Executive from meeting its obligations, and declare a US default of its obligations when there is no reason to do so.

Fourth, my biggest laugh came at the underlying assumption of Moody's report, namely that its ratings and the bond market itself actually control the interest rates that Governments like the United States must pay. Sure, they will determine interest rates if the Government sits idly by and lets them drive the market. However, the Federal Reserve and the Treasury, can target bond interest rates and set these for the bond markets by manipulating bank reserves. Specifically, one way to do this, is that the Treasury can cease issuing long-term bonds, and sell only three-month bonds. Three-month bond interest rates are generally controlled by overnight rates for bank reserves, and overnight rates can be driven down to near zero by flooding the banks with excess reserves. That's basically how the Japanese keep their bond interest near zero, and that's how we can do the same.

Alternatively, another move we can make to remove the effects of the bond markets and the ratings agencies upon public finances, is for Congress to stop requiring new debt issuance in coordination with deficit spending, and for the Treasury to stop issuing debt. If we did this the credit rating agencies and the interest rates in the bond market would be irrelevant from that day forward.

In short, the bond markets and the ratings agencies aren't in control of US public finances. They are not in a position to influence what our taxing or spending policies ought to be, or whether we will default on our obligations. In fact, at this point in our history, Congress is mandating that we have a national debt. It is forcing us to have one.

Congress mandates that we borrow our own previously created money from the Chinese, Japanese, and Middle Eastern nations and pay them interest on a commodity (our money), that we have an unlimited ability to create, while they also complain about the very same national debt they are always re-creating and increasing, and then tell us that we can't afford unemployment insurance, enough Federal Spending to create full employment, Social Security, Medicare for All, good educations for our kids and grandkids, and emergency programs to create new energy foundations for our economy.

Forget about Moody's! They're part of the great distraction preventing us from focusing on our real problems. There's nothing that Moody's and the bond markets can do to hurt us, unless we let them. Let's not let them. Tell them to bring it on! And, if they do, tell them to keep in mind Beowulf's admonition:

”I don’t think we’ll see Moody’s or any other rating service based in the US ever downgrade US Treasuries. It would cause a tremendous amount of financial loss and would leave Moody’s and its executives exposed to criminal prosecution. If I were Moody’s general counsel, I’d tell the CEO in no uncertain terms, Do Not Tug On Superman’s Cape.

14th Amendment, Sect. 5

”. . . .the validity of the public debt of the United States, authorized by law… shall not be questioned”

Criminal Mischief statute

18 US 1361. Government property or contracts

"Whoever willfully injures or commits any depredation against any property of the United States, or of any department or agency thereof, or any property which has been or is being manufactured or constructed for the United States, or any department or agency thereof, or attempts to commit any of the foregoing offenses, shall be punished as follows:

If the damage or attempted damage to such property exceeds the sum of $1,000, by a fine under this title or imprisonment for not more than ten years, or both; if the damage or attempted damage to such property does not exceed the sum of $1,000, by a fine under this title or by imprisonment for not more than one year, or both."

And Bill Mitchell's Conclusion in his post on outlawing the credit rating agencies:

"The real question that I always ask is why governments allow these undemocratic criminal organisations to exist. They can just outlaw them. This would force the corporate players to create better ways of informing the markets about their risk characteristics and leave governments alone to do what they are democratically elected to do – advance public purpose.

Further. as part of my preferred financial market reforms I would render illegal a whole swag of derivative assets which would lessen the problem of pricing risk.

It is time to wean the private financial markets off these agencies. The best way would be to declare them illegal.

The last thing that a sovereign government should be doing right now is cutting back on its fiscal stimulus."

Which, of course, is exactly what Moody's wants us to do.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

Moody's: Bring It On!

Joseph M. Firestone — Tue, 14 Dec 2010 21:21:17 -0500

Yesterday, as reported in Money News, Moody's made me laugh, with the following pronouncements:

” . . . it could move a step closer to cutting the U.S. Aaa rating if President Barack Obama's tax and unemployment benefit package becomes law. . . .

“The plan agreed to by Obama and Republican leaders last week could push up debt levels, increasing the likelihood of a negative outlook on the United States rating in the coming two years . . .

“A negative outlook, if adopted, would make a rating cut more likely over the following 12-to-18 months.

“For the United States, a loss of the top Aaa rating, reduce the appeal of U.S. Treasurys, which currently rank as among the world's safest investments.

"From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth," Moody's analyst Steven Hess said in a report sent late on Sunday.”

I found this a laughing matter for a number of reasons. First, as Jane Hamsher points out, only 5 days earlier Moody's had said there was no prospect of a ratings cut if the tax deal passed. Their sudden change of opinion greatly undercuts their credibility.

Third, since the United States is a nation with a fiat non-convertible currency system, with a floating exchange rate, and no debt denominated in any foreign currency, it is impossible for the United States to be forced into a default by any external party, simply because its ability to create the money it owes its obligations in is unlimited. Voluntary default could be caused by a Congress which acts stupidly, and in a manner contrary to the Constitution, to constrain the Treasury from paying its obligations when they come due, coupled with a Treasury that accepts Congress's constraint in conflict with the clear admonition of the Constitution that the debts of the United State shall not be questioned.

In short, the bond markets and the ratings agencies aren't in control of US public finances. They are not in a position to influence what our taxing or spending policies ought to be, or whether we will default on our obligations. In fact, at this point in our history, Congress is mandating that we have a national debt. It is forcing us to have one.

”I don’t think we’ll see Moody’s or any other rating service based in the US ever downgrade US Treasuries. It would cause a tremendous amount of financial loss and would leave Moody’s and its executives exposed to criminal prosecution. If I were Moody’s general counsel, I’d tell the CEO in no uncertain terms, Do Not Tug On Superman’s Cape.

14th Amendment, Sect. 5

”. . . .the validity of the public debt of the United States, authorized by law… shall not be questioned”

Criminal Mischief statute

18 US 1361. Government property or contracts

"Whoever willfully injures or commits any depredation against any property of the United States, or of any department or agency thereof, or any property which has been or is being manufactured or constructed for the United States, or any department or agency thereof, or attempts to commit any of the foregoing offenses, shall be punished as follows:

If the damage or attempted damage to such property exceeds the sum of $1,000, by a fine under this title or imprisonment for not more than ten years, or both; if the damage or attempted damage to such property does not exceed the sum of $1,000, by a fine under this title or by imprisonment for not more than one year, or both."

And Bill Michell's Conclusion in his post on outlawing the credit rating agencies:

"The real question that I always ask is why governments allow these undemocratic criminal organisations to exist. They can just outlaw them. This would force the corporate players to create better ways of informing the markets about their risk characteristics and leave governments alone to do what they are democratically elected to do – advance public purpose.

Further. as part of my preferred financial market reforms I would render illegal a whole swag of derivative assets which would lessen the problem of pricing risk.

It is time to wean the private financial markets off these agencies. The best way would be to declare them illegal.

The last thing that a sovereign government should be doing right now is cutting back on its fiscal stimulus."

Which, of course, is exactly what Moody's wants us to do.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

Insanity: After the Big Crash, The GOP Wants to Deregulate ... Again

Richard Eskow — Thu, 26 Aug 2010 17:09:58 -0400

Millions of Americans are struggling to survive in the ruins of a once-healthy economy. A bipartisan frenzy of bank deregulation led to this catastrophe, and the financial reform bill passed this year is only a first step toward repairing the damage. We should be talking about the additional actions needed to prevent future disasters. But the "solution" being proposed by the Republican Party isn't just incomplete, or inadequate, or even incorrect.

It's insane.

The campaign cornerstone of Republican financial policy isn't really a policy at all. It consists of one word: "Repeal." That's right: Banker greed has driven the economy into the ground, and the Republicans' only concrete solution is to undo the only actions that have been taken to restrain that greed in the future.

The call for repeal has been voiced early and often, most prominently by the perpetually tanned John Boehner. It was Boehner, you may recall, who likened the financial bill to "killing an ant with a nuclear weapon." Stop for a second and consider: 15.9 million Americans are unemployed. Millions more are teetering on the edge of financial disaster. More than 1.1 million homes have already been foreclosed, and more than 1.65 million received foreclosure filings in the first half of 2010. 1 out of every 7 mortgages are delinquent or are in foreclosure.

An "ant."

Boehner is slated to become Speaker of the House if the Republicans win Congress (the first time in history that position would be held by an Orange American). That means his words must be given great weight. And his call for repeal has been repeated by Mike Pence, Chairman of the House Republican Conference, and by a whole lot of other GOP politicians, too. It's become a bedrock party principle.

There is no credible argument for that position. None. No credible ideology against deregulation is so inflexible that it would lead rational people to endorse repealing moderate banking controls - not after the crises we've seen. Their position is so illogical, in fact, that it's tempting to believe that the Republican Party has been hijacked by nihilists bent on destruction for its own sake. ("We are nihilists, Lebowski! We believe in nothing!")

It's not nihilism, of course: It's cynicism. There's no other rational explanation. The GOP's been trolling hard for Wall Street cash - and shamelessly so, as could be seen when leading GOP Senators met with bank executives right before the financial reform vote. And that "hey, sailor!" attitude is paying off. A recent study by the Center for Responsive Politics shows a dramatic shift in Wall Street money away from Democrats, with Republicans now receiving 70 percent of money from people and PACs associated with the securities and investment industry.

To be fair, today's economic crisis isn't solely a Republican creation. It's the product of Republican and Democratic actions that go back thirty years. Deregulation of savings and loan associations under Reagan led to the S&L crisis, creating a massive wave of institutional failures that cost taxpayers more than $120 billion. Then a bipartisan push for deregulation during the Clinton era led to our current crisis, which was far more costly but which resembled the S&L crisis in many ways. Once again bankers were free to gamble recklessly, in a real estate market that provided incentives for issuing bad loans, knowing that the government would be forced to bail them out if things went wrong.

Fool me once, shame on you. Fool me twice, shame on me. Fool me three times, as the Republicans propose, and ... well, what is there to say? It would be insane.

The GOP's defenders may say that it's unfair to accuse these politicians of cynicism. They'll argue that they really do believe that regulation is so evil that even a cycle of endlessly repeated financial crises - brought on each time by greed and fraud - would be better than allowing the evil tentacles of government to expand their grip. Yet these politicians don't object to laws that allow the government to stop other forms of crime, or to prevent terrorism. So this line of defense boils down to: They're not cynical. They're incoherent - in a way that fortuitously encourages a shower of cash from Wall Street.

Whatever their motivations, here's what we would happen under the GOP's "repeal" plan: The Federal Reserve audit would never be released, so we'd never know who received emergency aid (Goldman Sachs, we presume?) or how much they got. The Consumer Financial Protection Bureau would be dismantled, perhaps even before it got started, leaving banks and credit card companies free to invent new ways of ripping off their customers. New rules would be eliminated that prevent speculators from playing greedy games with necessities of life like food and fuel, leaving us vulnerable to the spikes in food prices that harmed consumers in 2008 -- or to another round of $4.00 per gallon gas prices.

The bill's steps toward transparency in derivatives trading would also be eliminated under the GOP "nihilist economics" plan ("nihilinomics"?) So would the requirement that regulators find ways to reform the credit ratings agencies -- private companies that were so compromised by conflict of interest that they failed to perform as they should.

There was another small victory for the bill this week: The Securities and Exchange Commission voted to give shareholders more control over a company's Board of Directors, as permitted by the new law. While this first step is insufficient, putting too many constraints on the process, at least it's a start. And it highlights an important issue: Senior executives typically nominate Board members who'll give in to their demands - which usually include outrageous pay packages that reward them whether they do a good job or not. This cozy "one hand washes the other" relationship leaves shareholders doling out huge sums for even the most miserably underperforming executives. The Republican solution to this problem? "Repeal."

But then, Republicans have been echoing the rhetoric of big corporate CEOs all along. Republicans claim to represent "business" - a category that includes the small and medium employers who drive job growth. But today's GOP leaders are merely echoing the spin of corporate executives at the very largest corporations. Predictably, these executives are trying to maximize profits by opposing reasonable regulations that protect the public. We're seeing the results of that anti-regulation approach today in the Gulf. Nevertheless, the big-CEO spin was dutifully repeated by Fareed Zakaria, and was echoed by Boehner in his recent economic speech. The problem is "government run amok," Boehner said, adding: "The prospect of higher taxes, stricter rules, and more regulations has employers sitting on their hands."

The facts say otherwise. One of the biggest reasons corporations aren't spending the cash they have on hand is that, as the Wall Street Journal reported, they were unable to get the short-term loans they need for routine operations during the 2008 crisis. In other words, they can't trust their banks to be reliable business partners, because bank executives are free to behave irresponsibly (and reward themselves for it.) The GOP "solution" would make that problem even worse, leaving America's employers with less access to the loans they need to stay in business. The result? Less profit. Fewer jobs. An unsafe nation.

There's no question that much more needs to be done. We haven't fixed the "too big to fail" problem. Banks will probably find ways around the bill's restrictions on gambling with publicly guaranteed money. Underwater homeowners are being left to drown, holding the note for the banks' bad investment and loan practices. Financial institutions can still gamble in many cases, without being taxed to discourage recklessness or help fix the damage they caused.

But the Republican alternative is no alternative at all. It's not even just "a return to the failed policies of the past," to use the Democratic catchphrase - although it's certainly that too.

It's insane.

Frank and Franken: The Gentleman From Massachusetts Wins One For Wall Street

Richard Eskow — Wed, 16 Jun 2010 13:17:06 -0400

It was a fight to the finish between two heavyweight contenders. In this corner, representing the big Wall Street interests and wearing green trunks the color of money, Representative Barney Frank of Massachusetts. And in this corner, representing common sense and the American people, wearing red, white, and blue trunks, Sen. Al Franken of Minnesota. The gentleman from Massachusetts had the refs were on his side, thanks to the bout's corporate sponsors, so the outcome was a foregone conclusion. It was impressive that the fight got as far as it did, and in the end it was a split decision, but it's as they say in the boxing world: In a split decision the reigning contender always wins.

And when it comes to Capitol Hill, banks are always the reigning contender.

Here's what happened: Sen. Franken introduced an amendment in the Senate that would eliminate the "pay for play" system of credit ratings agencies, where the big, publicly-traded raters peddle their services to the big banks in return for revenue to their bottom line. Naturally, the banks want to use the agencies that will give the best possible rating to every risky piece of crap business they toss together so they can earn a quick buck at everyone else's expense. Credit agencies have enormous power, and the fact that banks choose - and then pay - these agencies played an enormous part in the last disaster.

As we reported in "The Rating Game," more than 500 pages of emails, Powerpoints, and phone transcripts obtained by a Senate Subcommittee showed just how broken this process had become. The raters entrusted with our financial security talked openly about being stockholders in their own companies, afraid of losing revenue if they're not flexible enough to please the bankers they're rating. The Franken Amendment was urgently needed, critically important, and just good common sense.

Miraculously, it passed. What's more, it had the kind of bipartisan support that we're told is a virtue unto itself in Washington.

Enter Barney Frank. Frank made it clearly at the beginning of the week that the Franken Amendment was a non-starter as far as he was concerned. Frank's counter-proposal regarding the conflicted and implicitly corrupt system that helped bring the American system to its knees, and which continues to leave it unstable and imperiled, was ... a study. A two-year study, as a matter of fact, after which regulators might decide to change the system.

Franken fought back vigorously, from the looks of things, and Frank expressed annoyance when the conflict became public. "We don't believe a study is necessary," Franken Press Secretary Jess McIntosh told The Huffington Post. A spokesperson for Frank's Committee huffed back, " "The time for debate will be tomorrow at 11:00 am, not through the press by spokespeople protecting the people who sign their paycheck."

Right - it's all about the "paycheck." We all know that being a Congressional staffer is where the big money is (as opposed to, say, the more than $2 million Rep. Frank has received in Wall Street contributions since 1989.) And what about Rep. Frank's much-vaunted claim that we would have a "transparent" process for reconciling the House and Senate bills? When it comes to letting the public know where the differences lie, apparently his enthusiasm has waned.

And why wouldn't it? Rep. Frank, whose accomplishments in financial reform should not be slighted, is on the wrong side of this issue. The Levin Subcommittee conducted all the investigation we need. A two-year delay only gives the big banks and their highly-paid lobbyists time to construct arguments that are vacuous when you study them, but provide enough of a flimsy facade to justify blocking real reform. That's the real reason for the huffiness: Franken and his staff obviously don't know how Washington works yet - you're supposed watch silently and courteously as special interests gut the urgently-needed provisions you've won for the American people.

Franken and his Senate allies fought hard, and the fruits of their labors can be seen in the final agreement. His proposal is, as Hill staffers describe, "at the top of the list" for action after the study is done. That means lobbyists will have to put in some extra work to justify killing it. Sen. Franken himself says he can live with the compromise, saying "the language agreed on by the conference committee means more time and more study than I think is necessary, but it also means definite action will be taken."

It's true that lobbyists will have a higher bar than usual to jump, when it comes time to justify further inaction two years from now. But we're not a party to the negotiation process, so we're free to say that a two-year delay is a disaster. And I've seen how these deals were worked out in my insurance days: all they need to do is come up with a rationale for not implementing Franken - it would be too disruptive, or as Sen. Dodd said today, too "complicated" - and insist on a "strict" system of self-reporting and self-regulation by the credit agencies. (Actually, it's not complicated at all.)

Barney Frank won a decisive victory for Wall Street yesterday. He won them at least two more years of a broken system, two more years of selling aggressive, highly-risky products while the agencies entrusted with evaluating the risk have an incentive to look the other way. And, thanks to Rep. Frank, the banks now have two years to come up with a rationale for preserving this broken system forever. Rep. Frank will reportedly address the credit rating issue today but, as they say, actions speak louder than words.

Why not let Rep. Frank let him know how you feel about his actions? (You can use this Congressional website - choose "Massachusetts" for state and "02415" for zip code, but if you're not a constituent please make that clear.) It's worth the effort: This round is over, but the fight goes on.

UPDATE: On the upside, David Dayen reports that reformers won a round today. Sen. Dodd agreed to strike a provision that exempted ratings agencies from the same liability for negligence that other financial institutions face. As David rightly notes, that's a win for the good guys. (And another note: I don't feel as negative about yesterday as I did when I talked to him yesterday, so view my quotes accordingly.)