Financially engineering a “self-generative” political economy of creditworthiness: Expertocratic exemption problems for sustainable debt and democracy

Introduction

Recurrent crises have proven neoliberal finance and democratic politics to be contested, uncertain, yet resilient. Neither did Anglo-American capitalism’s gravest existential threat since the Great Depression—2008 Great Recession/Global Financial Crisis (GFC)—signal its demise. Nor has its fallout, as it morphed into a sovereign debt crisis, whose austerity plagued the OECD to incite authoritarian populism (e.g., US Trump; UK Brexit), destroyed democratic chains of authority. Whether a “contested failure” (Best, 2014) or a “status-quo crisis” (Helleiner, 2014), given Covid-19 pandemic surging debt (distress)—OECD (2021) $19 trillion—PEC sustainability and systemic financial/credit risk face looming crises (IMF, 2022; IOSCO, 2020). Rising stagflation, income inequality, stagnant welfare, and dismal productivity aggravate “political risks,” plus zero-sum “deglobalization” (Birch and Muniesa, 2020; Svetlova, 2018). Should sharp long-term rates increases suddenly normalize, servicing record (total) global $296 trillion debt (355% debt-to-GDP—2021) (IMF, 2022) stresses fragile recoveries and national, democratic self-determination. “Business-as-usual” is unsustainable.

Unfortunately, I contend how a discredited “referentialist metaphysics” and predictive positivism of the natural/physical sciences (Maurer, 2002), or econophysics, blamed for precipitating and deepening severe corrections (e.g., 1997–98 “Asian Crisis”; GFC/Great Recession) (Krippner, 2011), exacerbates PEC instability and unsustainability. Taken for granted and promoted across financial enterprise, especially core operations like credit ratings, technoscientific “default risk/uncertainty” management expertise amplifies systemic (liquidity and valuation) dangers (Beckert, 2016). Despite reoccurring failures, which bankrupt other firms, Moody’s and S&P—who account for 81% of outstanding US ratings (PRI, 2022) (EU-73%)—emerge relatively unscathed, without substantial revision to methods or business. Targets for overdue reform (IMF, 2010), this comprehensive analysis reveals, CRA (default) anomaly and PEC “inertia” jeopardize democratic integrity and pandemic recovery.

Through the re-encodement of singular, socioeconomic uncertainties as aggregable, probabilistic measures, DSAs objectify the sovereign debt problem for portfolio securitization (Carruthers, 2013). Consequently, (disinflationary) neoliberal financial and democratic imperatives conflict. Suspect quantitative (quant) forecasting, notably (nonlinear) “environmental, social and governance” (ESG) datafication (IOSCO, 2020), compromises rebalancing the growing asymmetry between market (shareholder) “epistocracy/expertocracy”—knowledge-based expert rule—and national (stakeholder) democratic self-determination (Paudyn, 2014). Repeatedly, ratings threaten market and political failures. Yet, what accounts for CRA’s own expertocratic exemption from ruin and impedes amending ratings distortions? How does rating “default risk” bolster CRA reprieve from substantial reform? Ultimately, what are the repercussions of “business-as-usual” for sustainable fiscal sovereignty and financial stability?

Contributing to the “social studies of finance” (Lépinay, 2011; Mikes, 2009; Preda, 2009), through the “analytics of government” deconstructive/reconstructive tools (Best, 2014; de Goede, 2005; Langley, 2014), this paper problematizes rating constitution of the hegemonic (neoliberal) agencement PEC through hybrid “default risk/uncertainty” modality expertocracy (Callon, 2016). Combining assemblage and agency, agencements render PEC subjectivities meaningful and actions permissible (Deville, 2016). Sociotechnical devices of control and governmentality, ratings commanding capacity and utility intertwine with their “legitimate” production and circulation of the authoritative knowledge underpinning a seemingly “self-generative” agencement PEC (Lépinay, 2011). Divorcing technoscientific expertise from its politico-economic contexts, (micro-level) ratings align CRAs/investors with (macro-level) “transcendental,” “self-systemic/self-regulating” (Anglo-American) capitalism, particularly its preemptive temporal logics (Svetlova, 2018). Mutual franchise reinforcement results through the universal ratings scale (“AAA”-“D”), as uncertain PEC futures are captured, calculated, and then classified. Indexical authority facilitates ratings normative (neoliberal) referential/data infrastructure’s “distributed framing,” as creditworthiness “sociomaterial facticity” (Carruthers, 2013). Methods make markets and repeated valuations become social facts to leverage speculatively (MacKenzie, 2006). Rating “techniques of truth production” help reproduce an (artificial) “self-generative” PEC with (CRA) insulating effects.

Credit risk managerial modality econometric framing of DSA macroeconomic indicators (e.g., GDP/capita) monopolizes the sovereign debt problem’s definition (Moody’s, 2008/2019). Uncertainty eludes quantitative capture, however, demanding subjective estimations and contingent (claims) information about “satisfying ‘intertemporal budget constraints’ without defaulting,” or no “Ponzi new issuance financing long-term debt repayment,” DBRS’ analyst clarifies these “transversality conditions” (Best, 2014). Through hybrid (inductive/deductive) DSA qualculation, I indicate how quantitative (risk) calculations render qualitative (uncertainty) judgments about sovereign “debt-carrying capacity” equivalence, and vice versa (Cochoy, 2008). Increasingly, as “big data” and algorithmic trading compound time and cost constraints, this expertocratic agencement PEC prizes defensible, utilitarian risk calculus/geometrics (Gapen et al., 2008; Pasquale, 2015). Its universal modality across (multiple) expert domains assists enable and entangle mutual qualculative cognitive agencies in PEC materialization (Callon, 2016). Rating induces adequate cognitive interdependence, orienting the normative, analytical, and organizational expert convergence between CRAs, investors, and officials (Beunza and Stark, 2012). Synergies bolstered by their preemptive leverage reinforce this “conformity bias” sustaining agencement PEC status quo (Dittrich, 2007). Yet, a (false) confidence about market transparency, expectations, and asset class safety/liquidity (Dorn, 2012), especially among yield-starved, “passive” (index-tracking) asset managers, breeds due to diligence complacency and “herding” (Krippner, 2011).

While validating a neoliberal “politics of limits”—parameters defining fiscal sovereignty—I illuminate how ratings econophysics PEC depoliticization invalidates and marginalizes alternatives (Paudyn, 2014); or counter-agencement (MacKenzie, 2011). Counter-performative ESG datafication misfires amplify systemic financial and climate-related dangers, plus debt/democratic distress (Graeber, 2011). My in-depth study traces how sociotechnical rating constitution of PEC subjectivities, organizational affinities, and qualculative conditions (evidential spaces and cultures) masks contingent liabilities enough to shift/absolve responsibility (Mikes, 2009). Arguably, this expertocratic agencement exempts CRAs from serious contestation and reform.

Compounding corporate “myopia,” regulators like the European Securities and Markets Authority (ESMA) or US Securities and Exchange Commission (SEC) require/sanction technoscientific (sovereign) DSA risk validation (Paudyn, 2015). Inherent (reflexive) DSA/financial self-referentiality aggravates PEC intractable valuations, limiting effective governance (Preda, 2009). My better understanding of this black box paradox shows how the OECD’s democratic legitimacy crisis inciting populism is also self-inflicted: a negative externality of (quant) risk measurement overdependence to enhance transparency and preempt/correct capitalist excess (Dorn, 2012). Eager to rectify, but avoid political interference in rating analytics, ESMA/SEC seeks scientific objectivity and overemphasizes risk validation (Paudyn, 2015). Inadvertently complicit in depoliticizing the “politics of limits,” regulatory passivity suggests superficial CRA contestation.

Deconstruction problematizes how DSA qualculation skews “default risk/uncertainty” synthesis to render sovereign creditworthiness intelligible: “legitimate” authoritative knowledge implicating CRAs in sociotechnical agencement PEC performance. I clarify how Moody’s “dynamic cohorts” and S&P’s “static pools” “through-the-cycle” (TTC), plus newer “through-a-crisis” (TAC), platforms mediate PEC potentiality and materialization. Reconstruction reveals the obscured relationship between credit risk/uncertainty instrumentality, its counter-performative intensification of financial vulnerability, and the repercussions for national self-determination. Re-embedding this technoscientific agencement in its debt politics exposes how it naturalizes a crisis-prone (neoliberal) “self-generative” PEC threatening populist backlash. Cyclical rebalancing, consequently, may intensify elite expertocracy to “redress” populist follies (e.g., Brexit).

Subsequently, the article examines deficient, conventional (CRA) market failure accounts, plus ratings referential/data infrastructure. Second, PEC performance principal dimensions are analyzed: rating methods and outcomes. Three credit risk/uncertainty management elements facilitate PEC plasticity: conditionality, reactivity, and interactivity. Finally, how “contagion” and “procyclicality” amplify PEC “self-generation” triggering systemic crises concludes the study. Despite repeated failures, as demonstrated, rating performation induces sufficient qualculative (financial/fiscal) cognitions and reflexive agencies that keep ratings/CRAs relevant and a neoliberal agencement PEC resilient.

Methodology

The study of primary-source documentation and semi-structured interviews advance my contention. Analyzing PEC “inertia” normalization through CRA/rating intervention—leveraged through investment synergies—the scrutiny of updated methodologies, “outlooks/watches,” defaults reports, plus portfolio composition and security prospectuses provided initial comparative themes (e.g., CRA/investor DSA modeling/validation). Supplementing documents, CRA staff insights reveal a richer explanation of scoring. Several meetings with David Levey (MDL), Managing Director (Retired) of Sovereign Ratings (Moody’s), James McCormack (FJM), Fitch’s Managing Director and Global Head of Sovereigns, and a Dominion Bond Rating Service (DBRS) fixed-income analyst clarify analytics, deployment; including official and industry relations. The subscription to “robust risk measures” helps define CRA expert mentalities/mechanics, and the broader asset management correspondence underpinning agencement PEC financialization.

Concurrently (March 2012–December 2018), 25 (hourly) open-ended interviews with London and Toronto portfolio, bank, and fixed-income managers underscore analytical and empirical (CRA/rating) parallels. Assets under management (AUM) size, returns on investment (ROI), and diversity determined selection. Worldwide the quickest-expanding and Europe’s largest fund manager ($8.4 trillion AUM), Vanguard’s Head of Credit Research-Europe, Michael Pollitt (VG1), explains DSA modeling/methods, indexing/benchmarks, plus portfolio construction. Several sessions elaborate rating impact on bond market trends, including agencement PEC organizational dynamics. For a “holistic account” of fund strategies, Nick Eisinger (VG2), Vanguard’s Co-Head of Active Fixed Income Group, clarifies hybrid risk/uncertainty qualculative techniques, rating deployment, and ESG securitization.

Complementary (three) meetings regarding (default) modeling/metrics, especially ESG/“political risks,” involve a Country Insights for Roubini Global Economics/Continuum Economics (former) Managing Director (RGEM) and credit risk analyst (RGE1). DSA parameterization, validation, and strategic asset allocation disclosures by CI Financial’s asset manager and trader (CIF1/CIF2) confirm (CRA) commonalities. Further comparative conclusions derive from investment explanations by (three) national bank brokers (BB1/BB2/BB3)—off-premises. Upon request, anonymity is preserved. Preparation involved examining firm outlooks, technical/quarterly reports, plus prospectuses.

Unless declined, interviews were recorded and (dataset) transcribed using thematic analysis. Initial textually formulated themes were revised, as necessary, to reflect illuminated rating expertise, assessments, and investment practices. Empirical and analytical synthesis influenced chosen themes. Since this interdisciplinary study surpasses simple (auto)coding, manual codes include passive/active management; sovereign debt sustainability; quant financial expertise; and ratings referential/data infrastructure. Extensive (interview) notes and follow-up sessions verified statement details. Similar rating analytics/mechanics facilitated organizational cross-examinations and categorizing evaluations. Their operational affinities foster harmonization effects shaping PEC-defining investments and materiality.

Market failure

Given the pandemic’s “unprecedented shock,” global FDI (2020) plunged by 35% ($500 billion)—rebounded in 2021 (IMF, 2022). Again, central banks drove risk appetites through historically low-interest rates: like 2008–16, the US Federal Reserve funds rate decreased to 0–0.25% (March 2020). Negative rates/yields may cause more problems (e.g., moral hazard; “everything rallies”) than solve. Profits are privatized, but costs are socialized through $15 trillion “quantitative easing” (QE) (IMF, 2022)—Fed’s $8.77 trillion (January 2022) balance sheet enlargement. Surging debts, including Europe’s €3.6 trillion (2020) issuance, yet uneven recoveries compromise sustainable creditworthiness. Cheap credit chasing alpha—risk-adjusted active/excess return—fuels “rich” valuations, inflationary pressures, and financial vulnerabilities, which (crisis-prone) ratings exacerbate (IOSCO, 2020).

Three market failure accounts preoccupy conventional CRA/rating critiques: large macroeconomic externalities; agency and ideological problems, including poor judgment; or improper methods/models (Eijffinger, 2012; Reinhart and Rogoff, 2010; Stiglitz and Heymann, 2014). None completely or adequately explains their authoritative capacity and longevity. First, CRAs cannot fully account for how their actions designed to mitigate (credit) risk often amplify systemic dangers (Reinhart and Rogoff, 2010). Complete prescience in complex financial systems is impossible. Neither does rating produce tangible (negative) externalities directly attributable to S&P or Moody’s. Nor is precisely forecasting authoritative market knowledge circulation, regeneration, and sedimentation feasible. DBRS and FJM echo MDL that “ratings are informed opinions – not statements of fact.” Yet, “to grant the entire process material, statistical significance,” Fitch’s (2014: 6) Sovereign Rating Model (SRM) “uses empirical data, [and] does not allow for judgmental analyst input.” Incorporated discretion, nevertheless, defines the (bylaw-enforced) creditworthiness sociomaterial facticity actualizing (neoliberal capitalist) referential/data infrastructure prescriptions. Their repercussions threaten fiscal sovereignty and democratic legitimacy (Svetlova, 2018).

Second, excessive preoccupation with CRA institutional agency or capitalist “inertia” renders the problematic path dependent on official endorsement (Coffee, 2006). Vilified agents of “finance” (Sinclair, 2005), CRAs' ideological and judgmental errors’ (indirect) negative externalities subjugate populations. Ontological questions about intentions, causality, or incentivizing “correct” conduct burden us, but lack resolutions. No true creditworthiness essence exists to unearth or evoke as the “gatekeepers” “regulatory license” threshold (Partnoy, 2006). Instead of assuming ontological coherence or regulation, I trace how a ubiquitous, shared DSA mentality/mechanics expertocratic conditioning privileges (austere) agencement PEC social facticity financialization. Across temporal investment portfolios, ratings facilitate the convergence of debt normality/rectitude expectations and organizational conduct engendering PEC materialization.

Conflicts of interest linked to “issuer-pays model” incentive structures mainly ensue when CRAs blindly adopt Wall Street’s “collateralized debt obligations” (CDO) risk models, which precipitated the GFC (Gaillard, 2012). Despite ambitions “strengthening analytical independence from issuer influence”, S&P (2021b: 2) “does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives.” I reveal how rating monopolization with technoscientific (certainty equivalence) verification/validation jeopardizes efforts. Compromising autonomy, risk-leveraged ratings distributed cognitive interdependence induces sufficient normative, analytical, and organizational expert convergence pressures institutionalizing a “self-generative” (disinflationary) sociotechnical agencement PEC (Beunza and Stark, 2012). Forthcoming sections demonstrate how commercialized hybrid DSA techniques constitute and validate corresponding reflexive ontologies/organizational affinities through common risk calculus (Deville, 2016). Referential congruity effects compensate for deviation (Dittrich, 2007). Initially, PEC uncertainty-induced (ratings) adherence provokes mimetic responses, reducing poor judgment costs. Rating risk legitimized standardization, moreover, exerts (neoliberal) normative pressures. Particularly pertinent with elevated inflation (e.g., US 8.5%—Q1 2022) (IMF, 2022), broad compliance (temporarily) mitigates major consequences and insulates financial expertocrats, including CRAs (Paudyn, 2014).

Third, as an application problem involving tangible phenomena calculations (Löffler, 2013), ratings are considered neutral instruments measuring a pregiven, ontological (creditworthiness) reality (Afonso et al., 2014). Apolitical DSA econometrics employ fallacious dichotomies, economistic (power) conceptions, abstract agency, and (static) causality notions. Risk and uncertainty are juxtaposed as synthesizable or displaceable concrete matter (Eijffinger, 2012). Hybrid DSA qualculation “transforms” (idiosyncratic) uncertainty into a measurable risk propensity. Treating ratings as brute facts or opinions, like CRAs, mainstream accounts divorce technoscientific expertise from its politico-economic contexts (see Lowe, 2002; Stiglitz and Heymann, 2014).

This “instrumentalist rationality” shares affinities with (corporate) utilitarian risk calculus/geometrics fixation, especially its “referentialist metaphysics” and predictive positivism, on maximizing (credit) risk’s financial disintermediation, securitization, and trade (Langley, 2014). Reinforcing this sociotechnical agencement, similarly, S&P’s (2017) Rating Analysis Methodology Profile (RAMP) relies heavily on parametric statistics to backtest “institutional” factors, including elusive “sovereign debt repayment cultures” and (ESG) “legitimacy discourse.” “Following initial calibration,” FJM reports, (Fitch’s) “SRM econometrics ‘legitimate’ linear regression analysis leads the process,” whose “neutral verification contributes to material, statistical significance and detached commentary.” Granted independent observer status through DSA expertocracy, CRAs/investors assume a privileged position relative to the scrutinized objects: nation-states.

Acknowledging transparency’s significance in performance (risk) measurements (Mikes, 2009), yet a problem replicating financial model results (Svetlova, 2018), sovereign ratings resemble “fugitive social facts” or “black boxes” (MacKenzie, 2006; Pasquale, 2015). Overly secretive and technical internal structures make them opaque to outsiders. Rather than bankrupt CRAs, however, Partnoy (2006: 61) considers ratings an “unusual paradox” since:

rating changes are important, yet…possess little informational value…ratings do not help parties manage risk, yet parties increasingly rely on ratings…are not widely respected among sophisticated market participants, yet their franchise is increasingly valuable.

Unpacking ratings anomaly through deconstructive/reconstructive tools, my better account of this enigma explains CRA survivability of repeated crises via rating facilitation of agencement PEC plasticity. Sovereign creditworthiness objectification and commercialization through risk/uncertainty expertocratic modalities bolster ratings/CRA authoritative utility and organizational affinities. Constitution of principal PEC players and conditions validates their neoliberal “politics of limits,” thereby compensating for failures (Best, 2014).

Referential data infrastructure

Similar to Preda’s (2009) study of the stock ticker precipitating new arbitrage calculations, or Lépinay’s (2011) research into derivatives trading reliance on geometric Brownian motion, I reveal how ratings scales “[construct] data that, owing to their format, [produce] specific effects of cognition and action,” which “distribute their calculative activities” (Callon and Muniesa, 2005: 1237). “Illocutionary” performatives, especially “junk” downgrades (below “BBB−”), ratings are easily distinguishable utterances/scores, whose indexical authority communicates creditworthiness judgments (MacKenzie, 2011). “Significant ‘indices constructors’,” VG1 observes, “CRA investment-grades define indices design…against which funds are benchmarked.” Their distributed referentiality facilitates “generating income streams from bond’s present (fair) valuation of discounted future cash flows and face/par values,” VG1 clarifies, through heterogenous PECs’ synchronic connection, comparison, securitization, and trade. Notwithstanding failures, hegemonic risk management/discourse (re)empowers ratings indexical illocution with an aggregating “sovereign” character (re)legitimizing their actionable capacity to influence PEC conduct, by assigning it meaning (Callon, 2016). Action and authority combine to “govern-at-a-distance” (De Goede, 2005), as these sociotechnical vehicles drive agencement PEC distribution and performance: “perception is reality.”

Leveraged through their (ordinal) scale, as expected value variance from “AAA,” ratings naturalize the development of budgetary deviance and debt normality/rectitude causal knowledge (Sinclair, 2005). Re-encoding fiscal relations according to “transcendental” (Anglo-American) capitalist logics, econophysics DSAs (re)align them with its automatic, “self-systemic/self-equilibrating” dynamics promoting “self-generative” PEC performance (Maurer, 2002). Framing the sovereign debt problem, this expertocratic agencement PEC elevates “supply-side” economics above “demand-side” management to curb deficits, stabilize prices, protect asset values, and suppress interest rates (Beckert, 2016). Ratings referential infrastructure constitution reinforces ratings/CRA authoritative (financial) utility and durability, fostering mutual correspondence across corporate enterprise, from accounting (Mikes, 2009) to trading (Binici et al., 2020).

Hybrid DSA qualculation conditions this expertocratic (CRA/investor) cognitive agency of debt investment, along with budgetary policies (Deville, 2016), as “normal and taken-for-granted business practice” (Carruthers, 2013: 17). Successfully rendering (idiosyncratic) fiscal contingencies amenable to (universal) predatory risk investment, without tangible liability, ratings referential/data infrastructure dissemination induces (varied) investor and official cognitive interdependence and conduct convergence (Beunza and Stark, 2012; Helleiner, 2014). BB1 acknowledges:

Basel II [credit risk] Standardized Approach business modeling compatibility helps scores shape the overarching referential framework defining expectations and trade triggers, boosting index-tracking ROI…thereby, despite fueling “rich” valuations…enhancing expected portfolio value maximization.

Widely internalized as creditworthiness (sociomaterial) facticity constituted and legitimized via technoscientific expertocracy, plus bylaws/statutes, rating indexicality intensifies this agencement PEC normative, analytical, and organizational expert congruence (Callon and Muniesa, 2005). Potentially reducing the scope for poor judgment, namely speculating against market trends, nevertheless, this cognitive interdependence heightens herding and “cliff effects” (Lowe, 2002).

“Self-generative” performance

Convention claims that effective credit risk analysis should:

Communicated via ratings identifiable scale, the uncertainty of (idiosyncratic) fiscal failure is qualculatively re-encoded as “default risk.” Hybrid risk/uncertainty DSAs help CRAs (and funds) blur and map (inductive) “bottom-up” (fundamentals) reduced-form/intensity (Duffie and Singleton, 2003; Jarrow and Turnbull, 1995) with (deductive) “top-down” structural credit risk models (Black-Scholes, 1973; Merton, 1973). Modality manipulation “transforms”/misrepresents uncertainty into/as risk, thereby masking contingent liabilities and expert accountability (Carruthers, 2013). Forthcoming sections document how quant DSA mechanics “(re)legitimize” this (discredited) discretionary epistocracy crucial to accommodating/incorporating heterogenous fiscal relations: government through uncertainty (Best, 2014). By constructing the preemptive (artificial) budgetary uniformity and debt normality facilitating sovereign creditworthiness securitization, technoscientific ratings render normative social facts to leverage speculatively.

Market outperforming “sustainable investments,” including $269.5 billion “green bonds” (2020), increasingly concern regulators, (democratic) stakeholders, and investors (e.g., BlackRock) (Moody’s, 2020b). Accordingly, qualculative ESG contingencies adjustments prove paramount to financial prosperity, decarbonization for net-zero emissions, without inciting (PEC) instability. The UN Principles for Responsible Investment (PRI, 2022) network’s ESG in Credit Risk and Ratings Initiative involves 180 investors, $40 trillion in AUM, and 27 CRAs. Qualculation facilitates “Vanguard’s Capital Markets Model (VCMM)/Sovereign Dashboard’s (VSD) rating replication of broad ESG factors relevant for determining bond market valuations and alpha generation,” reckons VG2. I contend how similar hybrid DSA methods and (contagion-/procyclically reinforced) rating outcomes, produce positive, synchronizing feedback loops/reflexivity entangling CRAs in ostensibly “self-generative” PEC (status quo) performation (Callon, 2016).

DSA qualculation blends quantitative/qualitative analyses to (re)engage CRAs in self-referential verification processes, which implicate them as agencement PEC subjects/experts. Ambitious to replicate predictive positivism—fundamental to prescriptive authority—defensible econometric modeling is routinely privileged over discretion in “physical default probability” calculation (Fitch, 2021). MDL clarifies that “‘physical’ means ‘real world’ default probabilities…without risk aversion premiums,” namely displaceable or synthesizable (exogenous) brute facts. PEC surveillance, increasingly, deploys complicated quant models, strategies, and instruments (Krippner, 2011). Highly educated physicists/quants are imported into corporate enterprise (Pasquale, 2015). Previously “completing three CERN Geneva ‘Large Hadron Collider’ postdocs in quantum mechanics,” BB2 “recognized the [Heisenberg] uncertainty principle in portfolio valuations”; or predicting exact simultaneous (position and momentum) geometrics. “Regulatory demands and investor appetites for quant [defensible] ‘equivalence’ validation and technical proficiency reinforce risk’s mutual [speculative] utility,” RGE1 reports. Divorcing technoscientific expertocracy from their own/targets’ operational, politico-economic contexts, CRAs assume independent, objective observer status, however invalid and unsustainable said exemption.

Purporting scientific objectivity, Moody’s Steps or S&P’s RAMP hybrid risk/uncertainty DSA conditionality, reactivity, and interactivity serve to generate “credible” PEC self-referential cognitions, which foster organizational interdependence (Garland, 2003). Subsequent sections problematize how DSA methods enable and entangle CRAs (and investors) in mutually reinforcing reflexive effects, thereby implication in neoliberal agencement PEC governmentality relations. CRA PEC oligopoly helps common sociotechnical DSAs induce sufficient analytical, organizational expert convergence (Dittrich, 2007). Consequently, parallel rating feedback intensifies expert agency and “self-generative” PEC performance (Paudyn, 2014). Contagion and procyclicality advance ratings programmatic translation into material fiscal reality, embedding (neoliberal) capitalist rectitude and debt normality dominance, as austere “politics of limits” (Deville, 2016).

Qualculative expertise

Next, I trace how said three dimensions of risk/uncertainty modality DSA assist induce CRA self-referential cognitive agency, with (regulation-reinforcing) self-validating expert effects (de Goede, 2005). Whereas S&P’s RAMP (2017) privileges default probability with payment willingness, MDL confirms that Moody’s Steps (2008/2019) evaluates expected loss and payment ability, while FJM integrates them. Deconstruction of Steps “dynamic cohorts” and RAMP “static pools” TTC/TAC platforms reveals the CRA reflexive feedback loops mediated through these methods. Transforming (future) debt contingency into ergodic risk for (present) discounted valuations, as Best’s (2014) “technocratic exceptionalism” account, TTC/TAC expertocracy manipulates creditworthiness temporality. Particularly appraising long-term ESG uncertainties through shorter-term DSA metrics (PRI, 2022), CRAs deploy stochastic processes in continuous-/discrete-time hazard modeling (Löffler, 2013). Indicative of (math/natural sciences) technoscientific model validation techniques, this geometric averaging of fair-value CDS spreads (FVS-CDS) provides forward-looking estimations whose “legitimacy” portfolio managers recognize and employ (Svetlova, 2018).

Broader quant/technoscientific finance boosts expertocratic agencement PEC/CRA performance. Akin to Lépinay (2011), MacKenzie (2006) contends how fair option pricing is determined by the Black-Scholes-Merton framework’s geometric dependence. Similarly, as market-based estimates of physical default probability, Moody’s Analytics (2010) Expected Default Frequency (EDF) incorporates Brownian motion. Insufficient data, however, hampers parameterizing sovereign ESG “default risk” as geometrics/physics or corporates. Thus, CRAs and investors disclose qualculatively blurring and mapping (statistical) reduced-form/intensity modeling (Duffie and Singleton, 2003; Jarrow and Turnbull, 1995), with (option-theoretic) structural approaches (Black-Scholes, 1973; Merton, 1973).

Precision, pricing, and hedging may be “bottom-up” (exogenous) reduced-form/intensity modeling advantages (Gapen et al., 2008). Contingency, however, including future cash flows, constrains formulistic fundamentals analyses. Yet, no obvious referential (sovereign) asset value hinders “top-down” (endogenous) structural methods. Inadequate data or inconsistent reaggregation notwithstanding, hybrid DSA qualculation’s inductive/deductive blending compensates. Comparability may trump accuracy, which defines ratings discriminatory power, especially with excluded or random key qualitative factors (Lowe, 2002). Obscuring contingent liabilities, geometric validation helps shape reflexive (expert) CRA cognitive agency (Paudyn, 2014). “Lacking serious public scrutiny into rating analytics, which are a sham…yet increasing pressures for quant metrics,” MDL notes, cursory official oversight, arguably, sanctions DSA contrived creditworthiness “equivalence.” Institutionalizing technoscientific validation, the article argues, this underpins “self-generative” agencement PEC/CRA performance, with insulating effects.

Rating contagion and procyclicality

Technoscientific ratings shape and naturalize (expertocratic) agencement PEC cognitive interdependence. Its distribution actualizes a (disinflationary) debt normality (Deville, 2016). Material PEC transformations in budgetary conduct and market portfolios/conditions reflect referential infrastructure prescriptions (Callon, 2016). Institutionalizing transcendental (“self-generative”) neoliberal capitalist logics (Graeber, 2011), convergent PEC adjustments feedback (re)validates CRA expertocratic leverage (and anomaly). Two everyday economics promote transnational convergence through adoption and compliance rendering ratings austere programmatic real: contagion and procyclicality.

Institutionalized CRA or fund qualculative cultures may disturb automatic model-centric performation (Mikes, 2009), as MacKenzie’s (2006) Black-Scholes-Merton analysis (arguably) suggests. Ubiquitous DSA econophysics sufficiently homogenizes rating analytics, however. Skewing social facticity as natural ontology for speculative (curve) comparison, this mitigates major discretionary valuations or outcome deviations (Carruthers, 2013). “Without credible, profitable alternatives…ratings lower volatility, information, and trading costs enhance yield targets, index rebalancing…[plus] ROI,” BB3 admits. Adoption/deployment (endogenously) reinforces cognitive interdependence through interactive risk/uncertainty management (Beunza and Stark, 2012). Contagion and procyclicality (exogenously) strengthen variable (CRA, treasury, and investor) organizational congruence pressures (Dittrich, 2007).

First, as Argentina and Greece remind, downgrade contagion may forebode adverse, systemic consequences implicating neighbors, and financial markets (IMF, 2010). In reaction to (unanticipated) downgrades, bond prices plummet, yields rise, which elevates financing costs, plus impacts securities like equities. Studies document bivariate Granger causality between ratings cuts and bond yield (and CDS) spreads. Between January 1995 and October 2011, Afonso et al. (2014) observed statistically significant equity and bond volatility asymmetric effects, notably with downgrades, evident with a conditional coefficients estimation model. Similarly, Gärtner et al.’s (2011) 26 OECD countries (1999–2010) test concluded credit spreads react to ratings systematic and arbitrary (uncertainty modality) elements. Speculative “downgrades trigger panic, [Fed/ECB] collateral statute clauses, CDS contracts, bank and investment bylaws…prompting large bond sell-offs,” RGEM reports—being “market movers.”

Caution should be exercised, however, given negative externalities. Conventional Granger vector autoregression cannot accommodate complex PEC interactions. Highly entangled political economies and sophisticated financial systems thwart contagion’s (transmission/amplification) systematic, continuous-time diffusion modeling. Nonlinear pandemics and “tail/event risks” (e.g., GFC; war) further frustrate (lognormal distribution) Brownian geometrics structural forecasts (Maurer, 2002). Contagion’s systemic shocks qualculation may compensate but eludes IOSCO or ESMA simple DSA disclosure.

More unequivocal are ratings prohibitive effects constraining fiscal sovereignty. While $15 trillion of corporate welfare/bailouts erased toxic (GFC) liabilities, market-imposed austerity curtailed public investment (Helleiner, 2014). By 2015, contractions in government spending exceeded 10% in 16 EU states (European Commission 2021). Rather than enhance export competitiveness, GDP, or employment, however, the fiscal policy and economic health negative feedback loop produced stunted growth, high unemployment, plus populist sentiments. EU debt ballooned from 58.7% of GDP (2007) to 95% (2020)—EMU reached 102% (European Commission 2021). Covid-19 and war exacerbate recovery, particularly “periphery” EU/EMU macroeconomic imbalances. Surging debt, protracted growth, yet fixed exchange rates, demand internal devaluation (i.e., wage cuts) to recover competitiveness. Politically destabilizing, like Italy, persistent imbalances with the Germanic core jeopardize EU/EMU cohesiveness and integrity (Eijffinger, 2012).

Since EMU increases cross-border (sovereign) securities holdings, ratings contagion can adversely affect neighboring banks/finances to intensify downward pressures (Coffee, 2006). Similar Greek, Italian, Spanish, and Portuguese “periphery” credit profiles, specifically weak government balance sheets, heighten vulnerability to comparable shocks: ESG hazards (e.g., wildfires) or banking “event risks” like nonperforming loans and lackluster profitability (European Commission 2021). “Common, chronic [structural] headwinds, including poor, ‘super-aged’ demographics and sluggish productivity growth…compound knock-on effects,” remarks CIF2 (and CRAs). Rating-prompted arbitrage magnifies EMU susceptibility to downgrade contagion, extending ratings/CRA scope and leverage.

Expertocratic agencement cognitive interdependence amplifies ratings transmission resembling “self-generative” PEC performance. On 5 July 2011, negative spillover effects from Greece’s imminent (structured) default compelled Moody’s to cut Portuguese debt to “junk”—“Ba2”/negative outlook from “Baa1.” Additional bailout anxieties, including private sector “haircut,” drove its 10-year bond yield above 13%—euro-era record against Bunds. On 13 January 2012, S&P followed suit declaring Portugal “junk”—“BB”/negative outlook from “BBB−.” Said benchmark bond yield jumped by 2.04% to 17.26%. Prompting internal/external imbalances adjustments, subsequently, yields paralleled Portugal’s 5-year cumulative EDF decline—convergence confirms DSA qualculation. Temporary, given the coalition government’s near collapse, its (July 12/2013-high) EDF 4.89% spike validated CRA prescriptions that politics is a mitigatable liability (Moody’s Analytics, 2013). During ESG/PEC flux, technoscientific DSAs retain command, as post-crisis.

Like “Brexit,” EMU “Grexit” fears deteriorated market sentiment, and Spanish banks exceeded credit losses expectations, which amplified Portugal’s downgrade. CRA-stoked alarm of its (5-year) 70% “default risk” drove Portuguese CDSs to record highs. Counter-agencement mounting protests and “social upheaval” helped abort subsequent “fiscal devaluation,” including a 7% “tax-swap” (Eijffinger, 2012). While Bunds flight-to-safety positively benefited Austrian, Finnish, or Dutch spreads, Greek downgrade contagion negatively impacted Portuguese, Italian, Spanish, Belgium, and French debt (Afonso et al., 2014).

Even before Covid-19, compounding contagion effects proved precarious for the “elephant in the room”: Italy (Moody’s, 2012; 2018b). With €2 trillion in gross debt (140% of GDP), Rome was scheduled to refinance €415 billion (25% of GDP) in 2012-13. Elevated financing costs originating from neighbors/abroad strained affordable credit accessibility. Denied inexpensive channels, Italian emergency European Security Mechanism (ESM) intervention would severely tax EMU’s new firewall. On 13 July 2012, citing “Italy’s increased susceptibility to event and liquidity risks,” particularly “an eroding nondomestic investor base,” Moody’s (2012) axed its “A3” grade to “Baa2.” Global capital attraction is vital for national programs, whilst controlling profligacy through neoliberal agencement PEC convergence. Although €5.25 billion of medium-/long-term notes sold, domestic banks bought most not foreign investors. Facilitating the cross-border cognitive interdependence informing asset allocation, ratings referential/data infrastructure dissemination expands contagion. Yet, MDL notes how “negative spillover effects can jeopardize the necessary sociopolitical stability sustaining the “democratic advantage” that agencies prize.” Hindering national self-determination, imposed austerity’s counter-agencement intensifies “political risks”: rising inequality, protectionist populism, and zero-sum deglobalization (Birch and Muniesa, 2020).

Ratings indexical authority helps distribute PEC cognitive agency widely. Bordering “junk,” Italy’s populist La Lega-Five Star Movement (M5S) government’s (May 2018) “fiscal shock” stimulus pledge breaching (Stability and Growth Pact) budgetary rules only deterred foreign investment. Threatening “particularly serious non-compliance” provocation of the “excessive deficit procedure” (EDP), it instigated a Brussels crackdown. Moody’s (19 October 2018) “Baa3” downgrade further eroded market confidence, which precipitated its government’s implosion. “Fueling fears and drama concerning overly conservative mispriced political risk,” RGE1 reports, “bond vigilante short bets arbitrarily priced “redenomination risk” into Italian yields.” Without prior evidence of EMU contagion (Q3 2018), he estimates the “rating action contributed to about half the 10-year benchmark’s spike to four-year highs [3.71%]”. Arbitrage advantage from exploiting “junk’s” (artificial) investment-grade threshold also threatened “Spain’s higher credit quality and non-resident investors’ robust demand,” plus “Portugal’s increasingly diversified funding sources” (Moody’s, 2018b). Yet, June 2019 budgetary adjustments curtailed EU/EDP censure, investor anxiety diminished, while Italy’s 10-year yield declined below 2%. Corresponding Spanish and Portuguese borrowing costs fell to new lows.

Fragile PECs, after annual-record (2020) defaults (seven) from (Covid-19) downgrades—S&P (2021a) slashed 26 sovereigns (Fitch 24), including Italy to “BBB/BBB3”—threaten intensifying contagion. Financial volatility endangers broader fiscal sovereignty underpinning recovery sustainability. Gross financing needs (GFN) have doubled: EU 23% GFN-to-GDP (2021). ECB €1.85tn QE intervention—annual €760 billion public debt purchases—reduced financing pressures. Approaching 157% debt-to-GDP (2021), however, Italy’s 27% GFN-to-GDP imposes “severe limits to cushion future shocks” (European Commission, 2021). Breaching IMF 15–20% sustainability guidelines, it heightens Rome’s susceptibility to arbitrary “junk” qualculation. Significant short-term debt issuance—25% of OECD (2021) total debt matured in 2021—means looming larger rollover ratios, refinancing risk, and downgrade contagion volatility. Russian coupon payment “redenomination” default looms large. Turmoil abroad, as China’s GDP (2020) (double-digit) plunge to −6%, “magnifies stressors jeopardizing better recovery and transition to a post-QE environment” (S&P, 2021a), EMU, and rallies populists, or counter-agencement.

Spillover effects promote ratings sociomaterial facticity cross-border distribution and analytical, organizational congruity translation into PEC reality (Lépinay, 2011). Unfortunately, neither Steps nor RAMP DSAs account for CRA-triggered contagion risk (Gaillard, 2012). Quant DSA dominance constrains interactive CRA self-reflexivity enough to muddle their (performance) role as “market movers.” Instead, econophysics qualculation “(re)legitimizes” (risk-neutral) financial expertocratic exemption (Best, 2014). Even if priced into market expectations, rating event transmissions or precisely assigning one CRA blame are difficult to determine, given bank collateral statutes, investment bylaws, etc. (Coffee, 2006). CRA self-analysis/-referentiality may also entrap in causal circularity, which technoscientific rating precludes.

Second, ratings’ procyclical bias bolsters CRA self-validating effects, yet with systemic repercussions. Downgrades and negative “outlooks/watches” help deteriorate conditions precipitating further cuts (Binici et al., 2020). “Procyclicality-induced feedback effects” intensify “excessive deleveraging in falling asset markets,” collapsing credit channels, “cliff effects,” with “serious financial stability and real economy consequences” (IMF, 2010: 69). Financial ad-hoc (external) TTC EDF mapping to (internal) PIT scores exacerbates procyclical fluctuations. Inconsistent rating and migration matrix methods miscalculate portfolio risks (Kiff and Kisser, 2020). Relative to CRAs, BB3 recalls:

greater risk aversion among investors, which [pre-downgrade] growing yield spreads and CDS-implied ratings demonstrated…meant mispricings accelerated 1997 or GFC panicked selling and herding.

Referential agencement PEC interdependence amplifies the alarm of breaching “junk.” Evidenced in Asian and European bond movements, within 2 days of “junk” downgrades, growing risk aversion and distress widened spreads—unobserved in bond trends between days -60/-30 and -1 (Gaillard, 2012). Corresponding market interactivity (re)endorses ratings utility merits—expertocratic feedback prolongs CRA longevity.

TTC long-term bias lags help render PEC performance procyclical (Löffler, 2013). Smoothed over extended default horizons, TTC ratings “wait to detect whether [creditworthiness] degradation is more permanent than temporary…exceeding one notch” (IMF, 2010: xiii). Slow (reactive) adjustments to credit quality changes (e.g., Asian and Greek crises) mean “Moody’s EDF stability produces ‘stickier’ ratings than S&P’s or Fitch’s more market-correlated grades,” acknowledges MDL. Thus, Moody’s delayed (December 2009) Greek “A2” downgrade from “A1”—already cut thrice by S&P (“junk”) and Fitch (“BBB−”). Again, Greek 10-year bond spreads surged from 0.5% over Bunds, surpassing 3% (January 2010) (IMF, 2010). Interactive debt investment enables agencement PEC convergence, reaffirming expertocratic CRA (self-referential) performance.

Once triggered, (reactive) multiple-notch “junk” downgrades often slash sovereigns abruptly and beyond what fundamentals justify—heightening alarm (Eijffinger, 2012). Whereas Moody’s and S&P’s (1987–2010) annual downgrade average was 5.25 and 15.28, respectively, in 1998, they separately slashed 23 and 24 states. Only Malaysia escaped Moody’s (48) and S&P’s (48) erratic (several-notch) “junk” cuts (Lowe, 2002). Similar GFC multiple downgrades of 37 and 64, respectively, procyclically pushed Greece’s spread to 10.21% (April 2010). Clipped 15 notches, Greek real GDP contracted by 25%, procyclical herding “cliff effects” amplified the crisis, while contagion gripped Europe’s “periphery” (Gärtner et al., 2011). Extinguishing PEC fires, few (superficially) problematize their sociotechnical source/CRAs.

Post-GFC, OECD (2021) gross public debt has tripled ($61 trillion)—90% debt-to-GDP from 49.5%. Emergency stimulus (e.g., $1.9 trillion American Rescue Plan—8.5% of GDP) expands record borrowing of $19 trillion (2021) (29% of GDP). Near-zero/negative rates have cushioned a heavily indebted OECD, which (above target) monetization-induced inflation may diminish. With mounting stagflationary pressures—multidecade high prices but stagnant growth—indeterminate central bank overshooting frustrates monetary policy predictability, heightening DSA rate hike and payments uncertainty, which trigger bond selloffs (IMF, 2022). Premature Fed/ECB (liquidity/solvency) policy withdrawal threatens procyclical, cross-border spillovers, downgrades, plus elevated costs of debt. Constrained democratic self-determination financing, reconstruction demonstrates, engenders counter-agencement distress.

Pandemic debt overhang and troubling inflation challenge restoring disinflationary PEC “normality.” Temporarily curbed “rectitude,” neoliberal “self-generative” PEC (market) imperatives remain medium-/long-term prescriptions (PRI, 2022; S&P, 2021a). Soaring prices bolster this impetus, including the dubious default risk/uncertainty expertocracy and CRAs that amplify misguided valuations. Unproven as the self-evident “correct” policy (Langley, 2014), said programmatic remains taken for granted (Krippner, 2011). Neoliberal privilege often comes at the expense of broader socioeconomic prosperity and national stability (Graeber, 2011). Given volatile financial outflows/inflows, price dislocations, geopolitics, but stagnating economies, again, over-leveraged households and governments clean up the mess. Intensifying inequality and inward-oriented protectionism, like retaliatory measures for US tariffs or sanctions, its austere PEC heightens precarity and nationalist backlash. Zero-sum populism aggravates “ESG/political risks,” I explain, thus qualculative DSA intractable valuations and reckless debt speculation (Helleiner, 2014).

Unfortunately, utilitarian risk calculus/geometrics “(re)legitimizes” (discredited) depoliticized forms of non-majoritarian decision-making amidst considerable political hostility against elites (Birch and Muniesa, 2020). Anti-establishment governments, including Brazil’s Bolsonaro presidency, UK Brexiteers, or Hungary’s Fidesz, promote economic nationalism. Contrary to secretive, inaccessible expertocrats (Pasquale, 2015), their flamboyance, explosive temperaments, plus estranged relationships with facts/“truth,” fuel an illiberal backlash “reasserting” democratic government. Imprudent financial services deregulation, moreover, like Trump’s February 2017 executive order cannibalizing the 2010 Dodd-Frank Act, sanctions this distortive risk management. Knee-jerk counter-agencement reactions erode credibility.

Against this authoritarian populist wave, regulatory reluctance to repoliticize business operations means cursory ESMA/IOSCO (2020) oversight. Like SFDR, ESMA (2017, Art. 8.3) demands DSA technoscientific “backtesting…validation of continuity, transparency, rigorousness, and systematicity.” Albeit quant defensible creditworthiness “equivalence” satisfies technocratic imperatives (Löffler, 2013), this endorses the expertocratic DSA scientific objectivity that renders a “self-generative” agencement PEC the status quo. The more heated the politics, the less inclined are regulators to address directly ratings reflexivity; lest it compromises their supposed objective neutrality.

Pandemic, information overload hinders officials further (Dorn, 2012). Superficial (ESG) analytics assessments reaffirm qualculative DSA econophysics, thereby exposing imbalances endangering fiscal sovereignty. New EU MiFID II best execution regulations prevent bundling research costs with trading fees to reduce substantially banks’ and brokerages’ conducted homework. Consequent “20% research budget cutbacks further downsize allocations the passive investment trend shrinks,” BB1 concludes, as “transaction cost analysis defines competitive differentiation.” Deterring more endogenous due diligence, concurrently, it legitimizes regulatory passivity (Best, 2014). Inadvertently jeopardizing economic recovery/prosperity, further polarizing politics, this undermines viable (neoliberal) PEC alternatives necessary for sustainable democratic integrity (Graeber, 2011). As counter-agencement opposes ratings austere programmatic, a vicious circle ensues.

Conclusion

Despite ridicule and contempt, arguably, CRA/ratings repudiation is superficial. Regular deployment facilitates ratings expertocratic agencement PEC performance, and anomaly’s uncomfortable complacency. Investment portfolio affinities with Moody’s/S&P’s DSA qualculation through (hybrid) risk/uncertainty modality manipulation of reduced-form/intensity (Jarrow and Turnbull, 1995) and structural default models reaffirm their expertocracy (Black-Scholes, 1973). Regulation reinforces ratings alignment with hegemonic risk management/discourse bolstering their utility (Krippner, 2011). Corresponding market and treasury feedback validate DSA constituted cognitive agency effects. I deconstruct how rating enhances sociotechnical agencement PEC capacity to condition qualculability spaces, subjectivities, cultures, and organization (Mikes, 2009). Ratings referential/data infrastructure constitution and distribution of normative (neoliberal) capitalist “self-systemic/self-generative” logics facilitates its sociomaterial facticity (Beckert, 2016). This engenders enough analytical/organizational congruence pressures preserving the status quo (Beunza and Stark, 2012). Contagion and procyclicality, I contend, amplify ratings distributed cognitive interdependence and conduct convergence actualizing PEC plasticity.

Reconstruction reveals how ratings constitution of authoritative knowledge informs neoliberal agencement PEC performance. Its “politics of limits” censure/invalidate sustainable discretionary divergence to aggravate asymmetric epistocratic/democratic dynamics. As analyzed, repeated technoscientific DSAs sufficiently marginalize already bounded critical faculties, or counter-agencement, and stunt the entrepreneurial freedom to oppose successfully PEC compliance. Initially exempting private expertise from serious public scrutiny/reform, consequently, its broader counter-agencement undermines ratings (neoliberal) programmatic. My better grasp of this antagonistic relationship contributes to explaining the populist backlash and how “business-as-usual” is unsustainable.