CPI: Stiglitz — the agencies that downgraded the bonds lack legitimacy

On February 24, 2014, the Centro de Periodismo Investigativo (CPI) interviewed economist Joseph Stiglitz — Nobel Prize in Economics 2001 — during his visit to Puerto Rico as keynote speaker at the annual conference of the Center for a New Economy (CNE). The immediate topic: the rating agencies that had downgraded Puerto Rico government bonds.

Stiglitz argued those agencies “have no legitimacy to influence the economy” because of the corruption they displayed. After the 2008 subprime crisis — when Standard & Poor’s gave high ratings to junk mortgages and to institutions such as Lehman Brothers, which ended in bankruptcy — “I would have thought they would be totally discredited, their ability to rate should be disqualified,” he told CPI.

He explained dependence on agencies as a shortcut amid asymmetric information: many people do not investigate themselves, “so if you want an easy answer… you go to the rating agencies. The credit agencies were corrupt, we don’t know if they still are. But we have real documentation of the corruption of the credit agencies.”

He also noted “very little market response” to the downgrade of Puerto Rico bonds. One possible reading: “it was not new news” — agencies saying ‘you are not doing well’ tell no one anything they did not already know. At the Hotel Vanderbilt (Condado) he also spoke about inequality — the 1% metaphor from his book The Price of Inequality — and the knowledge economy before businesspeople, students and civic groups.

Stiglitz chaired Clinton’s Council of Economic Advisers and was World Bank chief economist. Sergio Marxuach (CNE) warned that a knowledge economy does not work in closed, opaque, clientelist societies. Criticism of rating agencies ≠ court judgment. A downgrade ≠ theft. Cousin: 589 (ENDI S&P junk). Primary: CPI 2014-02-24.

Source: Centro de Periodismo Investigativo. https://periodismoinvestigativo.com/2014/02/ilegitimas-las-casas-acreditadoras-que-degradaron-bonos-de-la-isla-dice-stiglitz/