February 22, 2018
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Ignore Wall Street’s Tsk-tsking

By David Farmer

It is past time that we stop caring about what Moody’s Investment Services and the other credit rating agencies have to say about Maine.

Last week, Moody’s put Maine’s credit on a negative watch, which means sometime in the future it might decide to downgrade the state’s credit rating, maybe.

Every major media outlet in the state covered the news, and politicians on both sides of the aisle attempted to take advantage of what Moody’s had to say.

The report, which is little more than a press release filled with jargon, on balance had more good things to say about Maine than bad. And those good things have been true for many years, under Democrats, Republicans and independents.

Our state pays back bonds — which we use for such things as roads and bridges, to support innovation and to conserve land and protect our water — quickly and maintains a low debt ratio.

The bad has also been consistent: Maine doesn’t have enough money in its reserve accounts, job growth is sluggish, our population is getting older and we have a structural budget gap because we haven’t found the right balance between taxation and spending.

In the real world — the one where families get up every day, go to work, pay their bills, take care of the kids or their parents — the tsk-tsking of a bunch of Wall Street hoodlums doesn’t matter one iota.

And here’s the thing: It shouldn’t matter.

For a little history, Moody’s is one of the big three credit rating agencies that make money by passing judgment on folks who want to sell bonds. Whether it’s private industry or the government, the rating agencies are supposedly the arbiters of risk.

If they give a borrower a good grade, it’s supposed to help investors know that the bonds being sold are a safe investment. That there is little risk of default.

The rating agencies make their money — and they make plenty of it — by charging would-be borrowers for the evaluation. Maine had to pay to receive last week’s dose of bad news.

In most circumstances, if a government or company wants to sell bonds, they have to have the rating, or investors could be scared off.

It is the scam of all scams, especially for a state like Maine or for U.S. Treasury bonds.

There is almost no chance that Maine will ever default on a general obligation bond. If state revenues absolutely collapsed, the first people getting paid are bondholders, even at the expense of the old, the sick and children.

Government bonds are as safe an investment as there is, which is why U.S. Treasury bonds pay so little to the people who buy them and why it’s such smart public policy for Maine to use bonding for needed investments.

In 2008, the entire world fell into an economic abyss, from which we are still struggling to recover.

That collapse was fueled by amoral risk-taking on Wall Street and aided and abetted by the rating agencies. In 2009, Congress created the Financial Crisis Inquiry Commission to figure out what caused the economic crisis.

Here’s what the report said about the rating agencies: “The failures of the credit rating agencies were essential cogs in the wheel of financial destruction. The three credit rating agencies were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval. Investors relied upon them, often blindly. In some cases, they were obligated to use them.”

Every story that mentions Moody’s or the other rating agencies should include that paragraph, just as a reminder.

Maine’s Constitution ensures that the state’s debt gets paid.

I trust that a lot more than I trust Moody’s or Standard & Poor’s, which have shown themselves to be poor arbiters of good governance and risk management.

They are a relic of an outdated and dangerous financial system that puts its own interests far ahead of the people who live and work in Maine and even the investors who they are supposed to protect.

They don’t advocate for policies that will create jobs, improve education for our kids or hold down the costs of health care. They don’t consider clean air or clean water. And they aren’t interested in helping the middle class or even growing the economy.

They’re just in it to get paid, regardless of the consequences for working families, the economy or investors.

It’s time we recognize them for what they are and treat their ratings accordingly.

David Farmer is a political and media consultant. He was formerly deputy chief of staff and communications director for Gov. John E. Baldacci and a longtime journalist. You can reach him at dfarmer14@hotmail.com.

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