(International Political Economy Series) Bartholomew Paudyn (auth.)-Credit Ratings and Sovereign Debt_ The Political Economy of Creditworthiness through Risk and Uncertainty-Palgrave Macmillan UK (201.pdf

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CREDIT RATINGS AND SOVEREIGN DEBT
The Political Economy of Creditworthiness through Risk and Uncertainty
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Credit Ratings and Sovereign
Debt
The Political Economy of Creditworthiness
through Risk and Uncertainty
Bartholomew Paudyn
University of Victoria, Canada
© Bartholomew Paudyn 2014
Softcover reprint of the hardcover 1st edition 2014 978-1-137-30276-2
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First published 2014 by
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Contents
Preface and Acknowledgements vii
List of Acronyms x
Introduction: Credit Rating Crisis 1

New analytics of sovereign ratings 7
Socio-technical devices of control 11
Government through risk and uncertainty 17
Performative political economy of 21
creditworthiness
Overview 25
Chapter 1 Crisis and Control 30

Emerging sovereign bond markets 35
Asian Flu hits ratings 39
The quest for fiscal transparency 43
New century but even more of the old 46
Contagion risk of ratings 51
Rating legacy lingers on 53
Conceptual territory of sovereign creditworthiness 56
Authoritative knowledge 61
Beyond just ideational constructs 66
Performativity 68
Politics of resistance and resilience 74
Absence of a singular and totalizing 75
neoliberal capitalism
Absence of singular centre to democratic 78
resistance/resilience
Conclusion 81
Chapter 2 The Rise of Risk and Uncertainty 83

Conceptual lineage of risk 86
Period of hegemonic risk-centred financialization 90
Security 91
Profit 97
Market risk 99
Operational risk 101
Credit risk 106
v
vi Contents
Credit rating methodologies 113

Methodologies, models and assumptions 116
Sovereign rating analysis 120
Secretive and opaque 129
Modalities of government 131
Conclusion 133
Chapter 3 Rating Performativity 135

Performativity terrain 139
Illocutionary and perlocutionary performativity 144
Self-generative effects for credit rating agencies 148
Conditionality, reactivity and interactivity 150
of risk (and uncertainty)
Contagion amplified self-generation 151
Procyclical reinforcement 154
Constitutive effects for investors 160
Mainstream functionalist explanations 163
The naturalization of speculators 165
Prohibitive effects for governments 174
Potential performativity breakdown 177
Conclusion 181
Chapter 4 Epistocracy versus Democracy 183

Credit ratings and the European project 187
Regulating the ratings space 189
Conclusion 198
Conclusion: Problematizing the Ratings Space 203

Repoliticization of creditworthiness 207
Notes 214
References 220
Index 240
Preface and Acknowledgements
The impression that the sophistication and complexity of financial

markets imparts is one of meticulous precision stemming from exact
measurements. Calculations about the value of securities – even those
as trivial as penny stocks – are executed to 1/1000th of 1 per cent.
Ostensibly, the room for error seems to vanish as risk is supposedly dis-
aggregated, objectified and measured with such precision. In the
process, the scope for critical, qualitative input greatly diminishes; or at
least for the majority. Given how much is staked on the vast array of
methods and computations which underpin this enterprise, it is quite
astounding the degree to which it is plagued by serious inconsistencies
and distortions. Arguably, nowhere are these abuses as prevalent as in
the ratings space and the assessment of (sovereign) credit risk. Decades
of failure and lackluster performance, however, have failed to evoke
either a comprehensive regulatory response or fatal market backlash.
How is it that the field of finance, which is so compulsively obsessed
with accuracy, consistently tolerates the numerous failures that ensue
to keep credit ratings at its core? Moreover, how can the ‘opinions’ of
such discredited private agencies continue to produce such grave
public consequences; which threaten to undermine democratic gov-
ernance? These are some of the curiosities which captured my imagina-
tion. Although these issues have persisted for some time, it was the
shock and magnitude of the 2007–09 financial crash, and how it
morphed into the sovereign debt crisis, which amplified the urgency
and relevance of this problematic.
Searching for some insights into how ratings manage to exercise
their authoritative grip over markets and governments, I was surprised
to discover so few political economy accounts in the literature. The few
that did exist seemed to be preoccupied with the final product, as
‘ideas’ and ‘opinions’, without ever dissecting the analytics of ratings
to come to terms with what it is that these ‘masters of risk’ actually do.
Neither convinced that it is merely a matter of ‘informed opinions’ nor
of the neutral/objective character of risk management/discourse, the
following pages are an investigation of how governments across the
globe struggle to constitute the authoritative knowledge underpinning
the political economy of creditworthiness and what the (neoliberal)
‘fiscal normality/rectitude’ means for democratic self-determination. By
vii
viii Preface and Acknowledgements
problematizing the growing antagonistic relationship between the pro-

grammatic/expertise and the operational/politics dimensions of fiscal
governance, we come to better understand the practices involved in
endowing the problem of sovereign debt with social facticity, and the
consequent explosive effects that this produces. Thus, the ambition is
to disturb some of the dubious principal categories and hegemonic dis-
cursive practices through which a relatively small group of experts
manages to control and depoliticize how democratic politics functions.
As the imperatives of private (global) markets are consistently privi-
leged over those of national publics, it is necessary to explore the
justifications for these trends. This led me beyond the act of rating to
the hegemonic discourse of risk, which underpins virtually every facet
of financialization; as well as most spheres of existence. Decentering
finance/ratings entails decentering risk/uncertainty.
Not only did the recent crises disrupt world economies but they
demanded that I reconsider my original postdoctoral project (i.e. euro
expansion). While the following contentions were never far from my
mind, their development and crystallization have been possible
because of various individuals to whom I owe my appreciation and
gratitude. I have been very fortunate to have the intellectual and men-
torial support of Randall Germain; who has helped me nurture my
intellectual sensibilities and orient myself in a vastly changing acad-
emic landscape. Through his network, I have been able to connect with
Tim Sinclair; which translated into a Visiting Fellowship in the Centre
for the Study of Globalisation and Regionalisation (CSGR) at the
University of Warwick during the summer of 2011. The stimulating
exchanges which I shared with Tim, Matthew Watson, Nick Vaughan-
Williams and other PAIS colleagues were essential to initiating this
project. Tim’s great support would continue well after I left the UK.
This translated into the first article upon which many of the forthcom-
ing themes are built: ‘Credit Rating Agencies and the Sovereign Debt
Crisis: Performing the Politics of Creditworthiness through Risk and
Uncertainty’, Review of International Political Economy, 20(4) (2013):
788–818. Many of the arguments contained within have also benefited
tremendously from discussions with R. B. J. Walker. Amy Verdun’s
guidance has proven quite helpful as well.
One can well imagine that conducting fieldwork during a time of
enormous flux and retrenchment posed some difficulties; but not as
many as expected. Fortunate to tap into various networks on both
sides of the pond, I was able to interview multiple asset/portfolio man-
agers, bankers, rating agencies, consultants, hedge funds and govern-
Preface and Acknowledgements ix
ment officials between July 2011 and November 2012. Apart from
ESMA officials in Paris, virtually all of them were located in either
Canary Wharf (London) or on Bay St (Toronto). Given the topic and
timing, confidentiality was their preference; the notable exception
being the Managing Director (Retired) of Sovereign Ratings (Moody’s),
David H. Levey. Nevertheless, I am grateful to all of them for their
insights.
Tim Shaw and Christina Brian at Palgrave Macmillan expressed
enthusiasm for the project and helped to smooth the process.
Finally, a very special thanks go to my parents, Barbara and Jack
Paudyn. If it was not for their loving support throughout the years, this
marvelous adventure would not have been possible.
Bartholomew Paudyn
List of Acronyms
ABS Asset backed securities

AMA Advanced Measurement Approaches
AUM Assets under management
BCA Baseline credit assessment
BCBS Basel Committee on Banking Supervision
BIS Bank for International Settlements
BRIC Brazil, Russia, India and China
CDO Collateralized debt obligations
CDS Credit default swap
CEREP Central repository
CESR Committee of European Securities Regulators
CLO Collateralized loan obligations
CMO Collateralized mortgage obligations
CPDO Constant proportion debt obligations
CRA Credit rating agency
DJIA Dow Jones Industrial Average
ECB European Central Bank
EDF Expected Default Frequency
EDP Excessive Deficit Procedure
EFSF European Financial Stability Facility
EMBI Emerging Market Bond Index
EMH Efficient market hypothesis
EMU Economic and Monetary Union
ERM Enterprise risk management
ESM European Security Mechanism
ESMA European Securities and Markets Authority
ESME European Securities Markets Experts Group
ETF Exchange-traded funds
EU European Union
FSAP Financial Services Action Plan
FSB Financial Stability Board
GDP Gross Domestic Product
G-SIB Global systemically important banks
G-SIFIs Global systematically important financial institutions
HICP Headline inflation
IMF International Monetary Fund
x
List of Acronyms xi
IPE International political economy

LCR Liquidity coverage ratio
LDC Less developed countries
LTCM Long-Term Capital Management
MBS Mortgage-backed securities
MTBR Medium-Term Budgetary Review
MTO Medium-Term Budgetary Objective
NASDAQ National Association of Securities Dealers Automated
Quotations
NRSRO Nationally Recognized Statistical Rating Organizations
OECD Organization for Economic Co-operation and
Development
OFS Office of Financial Stability
OMT Outright Monetary Transactions
OPEC Organization of the Petroleum Exporting Countries
PEFA Public expenditure and financial accountability
PIT Point-in-time
RAMP Rating Analysis Methodology Profile
RAROC Risk-adjusted return on capital
RMBS Residential mortgage backed securities
ROSC Report on Observance of Standards and Codes
RTS Regulatory Technical Standards
S&P Standard & Poor’s
SD Selective Default
SEC Securities and Exchange Commission
SGP Stability and Growth Pact
SME Small and medium enterprises
SPIVA S&P Indices Versus Active
TARP Troubled Asset Relief Program
TTC Through-the-cycle
VaR Value-at-Risk
WGI Worldwide Governance Indicators
Introduction: Credit Rating Crisis
As the financial crisis morphed into the sovereign debt debacle, and
escalating contagion undermined the integrity of Economic and
Monetary Union (EMU), plus the global economic recovery, interna-
tional attention became fixated on what constitutes as the ‘real’ risk of
sovereign debt default. While the immediate catastrophe may have
been averted, for the moment, the legacy of the crisis still lingers on.
Public finances remain strained as governments struggle to retain the
investment grades necessary to finance their governmental operations
at a reasonable cost. At the heart of the crisis, credit rating agencies
(CRAs) have been lambasted for their ‘irresponsible’ behavior and the
speculative activity that it fuels which, in the words of the former
Greek Prime Minister, George Papandreou, has inflicted ‘psychological
terror’ on the poor people of Europe (quoted in The Economist, 22 July
2010). To varying degrees, these ‘masters of risk’ – Moody’s Investors
Service (Moody’s), Standard & Poor’s (S&P) and Fitch Ratings (Fitch) –
dominate the ratings space and have been implicated in virtually every
severe financial and fiscal crisis in recent memory.
Ranging from the 1998 Asian crisis to corporate scandals, such as the
2001 demise of the energy-trading giant Enron or the 2003 fraudulent
Parmalat debacle, to the 2007–08 credit crisis, these financial interme-
diaries have been blamed for a slew of erroneous assessments and for
escalating market turmoil through their (rash or late) procyclical
behavior (Gamble 2009; Kerwer 2005; Partnoy 2006; Sinclair 2005).
High investment grade ratings were assigned to dodgy sub-prime
backed securities one moment, only to witness these very ‘toxic assets’
implode the next (cf. Helleiner et al. 2009). As economic conditions
deteriorated and governments sought to secure the stability of their
own financial sectors through multi-billion dollar rescue packages,
1
2 Credit Ratings and Sovereign Debt
subsequent sovereign downgrades helped the credit crisis mutate into

one of sovereign debt.
Once again, rating agencies have become the target of consistent
criticism for providing much of the firepower for the onslaught against
an already beleaguered European periphery and, consequently, dashing
hopes of a quick rebound from the depths of the ‘Great Recession’ of
2007/2009 (de Larosière Report 2009; FSB 2010; IMF 2010; Issing
Committee 2009; Turner Review 2009). Bond market speculation –
often triggered by the coercive tactics of CRAs (Kerwer 2005: 461) –
only aggravates the intense frictions which these crises fuel between
rating agencies and government officials. Representative of an increas-
ingly antagonistic relationship between private financial markets and
democratic nation-states, sovereign governments must cope with the
fact that the actions of a private entity can produce such severe public
consequences. Rarely are the stakes any higher as the way that fiscal
profligacy is rendered intelligible as a ‘problem of government’ (Miller
and Rose 1990), and therefore the premium paid to finance borrowing,
can adversely affect entire populations and even push economies into
recession. If severe enough, this can provoke a bailout and impose
strict ‘conditionality’ on the nation by outside forces.
Although recent turmoil has also cast a light on growing tensions
with other financial institutions – most notably banks (see Rethel and
Sinclair 2012) – arguably, as this book shows, nowhere does this strug-
gle to constitute what counts as authoritative knowledge in the market
play itself out more than in the ‘battle’ between sovereign states and
Moody’s or S&P over the political economy of creditworthiness.
Regulatory efforts to correct some of the most egregious elements of
ratings may only compound the problem. Thus, through the sovereign
debt crisis, and government attempts to manage its intensifying effects,
we come to better understand the growing asymmetry in power
between ‘epistocracy’ – knowledge-based expert rule – and ‘democracy’
(Collignon 2010; Estlund 2008), the practices involved in its constitu-
tion, regeneration and sedimentation, as well as the subsequent conse-
quences for markets and states.
Of course, these tensions are not restricted to Europe alone.
Democratic governments around the world must vie with this
unelected cabal of monopolists in the constitution of authoritative
knowledge underpinning the ‘politics of limits’ – the construction of
the parameters defining the budgetary realities facing governments.
Ratings endow the problem of sovereign creditworthiness with ‘social
facticity’ (Sinclair 2005). Presented as a calculable propensity towards
fiscal failure, they help grant national officials access to liquid capital
markets, and thus the necessary debt financing which helps facilitate
programs of national self-determination, such as fiscal stimulus or
health care. More favorable ratings translate into lower costs of bor-
rowing.1 Conversely, those credit channels demand a higher premium,
or dry up, with consecutive downgrades. Europe may be the most dis-
tressing and immediate example of the disruption – localized and sys-
temic – which ensues but, to different degrees, this scenario plays itself
out in the context of most countries; especially with developing
economies, such as the BRICs (Brazil, Russia, India and China). Not
even the United States is immune from such epistocracy; as its
5th August 2011 downgrade from ‘AAA’ to ‘AA+’ by S&P demonstrates.
Although the modulating effect of ratings varies according to the polit-
ical economy, ostensibly, when financial markets dictate, sovereign
governments seem to capitulate. In order to understand how this
happens, the practice of rating sovereign creditworthiness must be
problematized.
There are two dimensions to this struggle. On the one hand, this
book demonstrates how a monopoly of private CRAs deploy their
expertise in risk management – virtually free from any serious regula-
tion – to set the terms (of creditworthiness) which compound the
problems facing sovereign governments. Only three rating agencies
can truly be labeled as global full-spectrum CRAs. Of these, Fitch
remains a distant third in terms of prominence (Sinclair 2005: 1).
Broad in product diversification, it is the scope and reach of their sov-
ereign ratings which dwarf their nearest rivals. Whereas by 2011, Kroll
Bond Ratings rated a mere 59 sovereigns, Moody’s issued 112 sovereign
ratings, S&P 126 and Fitch 107 (Kroll Bond Ratings 2011; Moody’s
Investors Service 2011a; Standard & Poor’s 2011a). Extrapolated to the
broader context, the scale of this dominance becomes even more pro-
nounced. Both the European Commission (2011a) and the US
Securities and Exchange Commission (SEC 2009) calculate that the
main three CRAs are responsible for a staggering 95–97 per cent of all
outstanding ratings across all categories. By definition, monopolies are
inefficient (Friedman 1962).
What has unnerved governments around the globe – but especially
in Europe – is the reckless use of the authority which, in large part,
CRAs derive from their monopoly over the constitution of a ‘neolib-
eral’ or ‘advanced liberal’ politics of limits (Paudyn 2013; Rose 1996).
Integral to this apparatus of contemporary rule – where the entrepre-
neurialization of expertise allows it to exercise judgment over authority
– risk ratings promote disinflationary logics aligned with what has

become identified as Anglo-American versions of capitalism (Gamble
2009; Langley 2008a; Roy et al. 2007). Here curbed budgetary deficits
are thought to help stabilize prices, and thus protect the value of
assets; while keeping interest rates low. Deficit financing undermines
confidence in the price stability-oriented monetary policy of central
banks and must be avoided (Friedman 1962). Self-systemic, and
thereby self-regulating, the imposition of this neoliberal orthodoxy
produces explosive effects – visible across Europe – as its uniform
prescription of austerity conflicts with heterogeneous, national forms
of capitalism and the ‘singular nature’ of fiscal sovereignty to unleash
unsuspecting forces of instability.
On the other hand, there are beleaguered national governments
whose deteriorated fiscal imbalances, and subsequent credit scores,
undermine their capacity to finance their governmental operations –
plus refinance existing debt obligations – on tolerable terms and estab-
lish the limits of political discretion in the economy. By no means
should this conflict be misconstrued as a simple binary opposition
between institutional agencies (CRAs) and uniform ‘democracies’.
Neither sovereignty nor democracy is a natural or incontestable phe-
nomenon. Variations between democratic political systems are exten-
sive and profound. Acknowledgement of these unique contingencies
and national characters is fundamental to the thrust of this argument.
But the provision of programs in any context costs money. Austere
budgets constrain the delivery of public goods which, if excessive,
threaten to ‘impose an intolerable economic sacrifice on [the] popula-
tion’ (Moody’s Investors Service 2008a: 6). Savage cuts in Greece have
reduced public expenditure on health care by about 25 per cent
(US$12 billion) since the crisis began;2 with especially steep claw backs
in hospital operating costs – €840 million in 2011 alone (European
Observatory on Health Systems and Policies 2012: 13). Similar over-
hauls and structural reforms across the periphery of Europe point to
why alignment with the disinflationary rationality advanced through
sovereign ratings is so vital. Without those investment-grade scores
(read borrowing capacity), the business of government is greatly
impaired; or even stops.
Unfortunately, given that the construction of ratings helps enable this
particular social facticity of creditworthiness, the asymmetry is skewed in
favor of ratings agencies. As a technology of financial control, to a great
degree, the authoritative capacity of sovereign ratings to act on market
participants stems from how convincingly ratings naturalize a (fictitious)
bifurcation between the ‘economy’ and ‘politics’ in the constitution of

what is considered as authoritative knowledge in the market; which
mediates the legitimation of creditworthiness. Political discretion
becomes increasingly marginalized and censured in the assessment
and articulation of (uncertain) fiscal relations as normalizing mathemat-
ical/risk propriety models ‘depoliticize’ the decision-making process
(de Goede 2005; Langley 2008a; Luhmann 1993).
Rather than simply ‘informed opinions’, it is through their ‘perfor-
mative’ effects (Austin 1962; Callon 1998; MacKenzie 2004), as a socio-
technical device of ‘control’ (Deleuze 1995), that sovereign ratings
promote this separation by ‘disassembling’ the nation-state into a cata-
logue of analytical categories, such as (quantitative) debt dynamics or
(qualitative) ‘political risks’, which, in turn, they claim to individually
calculate and then reassemble again. Expertise mediates this represen-
tational process of surveillance as regulation, which seeks to divorce
technoscientific epistemology from its messy politico-economic
context, through the deployment of defendable risk techniques (Miller
2001); a luxury not readily afforded to politicians or civil society. This
dubious dissection/assessment helps to naturalize the impression that
these constitutive elements which comprise a national political
economy are distinctly autonomous spheres capable of ontological
isolationism. As such, this rationality makes them more susceptible to
and manageable through risk expertise.
An infrastructure of referentiality – via the rating scale – is devised,
denoting what ‘correct’ and ‘normal’ fiscal conduct should entail, and
thus the complexion of the politics of limits. Everyone covets the
‘AAA’ grade. Closest convergence with this normative disinflationary
prescription helps earn that reward. The salience of sovereign ratings,
therefore, derives from how persuasively they manage to constitute
this neoliberal notion of budgetary normality as the hegemonic dis-
course against which democratic governments are judged and gov-
erned. As Ian Hacking (1990: vii) reminds us, normality ‘has become
one of the most powerful ideological tools of the twentieth century’.
Increasingly, however, this prized status of creditworthiness is becom-
ing ever more elusive as the balance that governments must strike
between satisfying financial markets and being responsible to their
electorates is proving extremely tenuous and fraught with what are,
ostensibly, irreconcilable differences. Hence, this book explains how
this ‘battle’ between CRAs and the European Union (EU) is reflective of
the broader conflict between private markets and democratic sovereign
states in the construction of the politics of limits.
Given that so little is known about the actual act of sovereign rating,
its capacity to exert isomorphic pressures on markets and governments
to conform to a prescribed fiscal rectitude is striking. Obvious disjunc-
tures between the (poor) performance of Moody’s and S&P, and their
resiliency to remain at the heart of global finance, only contribute to
this enigma. Sovereign ratings may be considered as ‘fugitive social
facts’ (Holmes and Marcus 2005: 237) or ‘black boxes’ (MacKenzie
2005) – whose overly secretive and technical internal structures make
them opaque to outsiders. For a better understanding of how they
shape the political economy of creditworthiness, they must be
unpacked. Thus, insofar as ratings exercise a certain degree of control
over the constitution of creditworthiness, what serves to create the
conditions and subjectivities that help to validate the specific (neolib-
eral) politics of limits advanced in sovereign ratings; which helps grant
them their utility and authority? To this effect, how does the control-
ling performative capacity of sovereign bond ratings stem from how
CRAs deploy and commercialize practices of risk and uncertainty?
Furthermore, once operationalized what does the redefinition of this
politics of limits mean for how competing notions of budgetary nor-
mality are ascertained and articulated, such as by politicians or civil
society, and thus the relationship between democracy and epistocracy?
Given that the ensuing asymmetry and antagonisms are not simply
confined to Europe, it is also wise to ask how governments around the
world are managing to redress some of the most egregious elements of
sovereign ratings in order to make themselves less susceptible to such
destabilizing attacks? Insights into the dilemmas facing the ‘Atlantic
Rim’ can then be applied to the looming conflicts on the ‘Pacific Rim’
(i.e., BRICs); as well as the home of Moody’s/S&P and that prolonged,
but unavoidable, fiscal reckoning: America.
How we understand the act of (sovereign) rating, and its institutional
agency (CRAs), within the context of the sovereign debt crisis and the
ability of governments to establish the parameters of the political
within the economy is at the core of this book. Each one of these ques-
tions is addressed in the following chapters. Together they help prob-
lematize the political economy of creditworthiness to reveal the scope
and severity of the difficulty facing democratic governments as they
strive to reassert their sovereign authority to decide the complexion of
their national fiscal politics in an increasingly depoliticizing field of
global finance. For this purpose, it is necessary to determine how the
authoritative knowledge underpinning the political economy of credit-
worthiness is constituted to render sovereign debt as a ‘knowable, cal-
culable and administrable’ problem of government (Miller and Rose

1990: 5), aligned with perceptions of contingency and normality, and
interwoven into the political discourse of nation-states. In other words,
how budgetary profligacy is made into a social fact contributes to the
development of this antagonistic relationship between the program-
matic/expertise and operational/politics dimensions of fiscal gov-
ernance. From this problematization, austere forms of intervention are
derived to address noted deficits; which threaten to undermine the
democratic legitimacy of elected governments. Sovereign credit ratings,
therefore, are the internal forms of governmentality involved in the
promotion and reiteration of a neoliberal politics of limits underpin-
ning virtually all budgetary relations.
New analytics of sovereign ratings
In light of the intense scrutiny which rating agencies have received sur-
rounding a litany of alleged abuses, a comprehensive account of their
authoritative capacity to shape the political economy of creditworthi-
ness is only thwarted by the glaring deficit in the International
Political Economy (IPE) literature on the subject. As we shall see, the
vast majority of contributions to the debate approach the problematic
from two main fields of study: law and finance. What few IPE accounts
that do exist tend to borrow extensively from them (e.g., Kerwer 2005;
Kruck 2011). On the one hand, there are the legal perspectives (Hill
2004; Partnoy 2006; Schwarcz 2002) that conceptualize the rating
agencies as a government-generated monopoly, which have been dele-
gated their powers by the state. Governments have precipitated their
own demise by endowing CRAs with the capacity to ‘possess’ a legal
right, or a ‘regulatory license’ (Partnoy 1999), through vague
certification schemes, such as the Nationally Recognized Statistical
Rating Organizations’ (NRSRO) designation in the United States.3
Regulation is a significant factor in the visibility of ratings; especially
mandates instructing which investment grade securities financial insti-
tutions can hold. Yet if it were only a matter of ‘merit regulation’
(Schwarcz 2002: 21) and a state-enabled monopoly, then the recourse
simply would be to strip CRAs of this legal leverage (Pollock 2005). But
it is not that simple.
On the other hand, there are an array of economists and financial
analysts (Cantor and Packer 1995; Lowe 2002; Pollock 2005; Reinhart
2002) who stress factors like economies of scale and scope in their
explanations of the rating space. Privileging an abstract ‘economistic’
notion of reality or power – similar to rating agencies themselves –

they allude to a prediscursive economic materiality that only needs to
be unearthed with the correct – primarily quantitative – tools. Neither
of these approaches can adequately account for the relationship
between the constitution of a specific form of authoritative knowledge
and its reiteration, reproduction and sedimentation into a correspond-
ing politics of limits underpinning budgetary relations. Intersubjective
and discursive qualities are either neglected or rendered peripheral so
as to be virtually irrelevant.
Now whether all this hoopla about CRA performance is justified or
indicative of ‘moral panic’ and a subsequent witch hunt, as alluded to
by Tim Sinclair (2010: 93), is an interesting but, ultimately, distracting
consideration. Such accounts attribute CRAs with an unwarranted
amount of operational and explanatory power. Rating agencies are not
the primary (exogenous) ‘causal variable’ that explains the chronic
uncompetitiveness and budgetary profligacy which has plagued the
periphery of Europe or the bouts of hyperinflation which Brazil has
suffered.4 Recognizing the procyclical bias inherent in ratings is one
thing. But attempting to determine a ‘smoking gun’ and a purported
causality towards fiscal failure or verify its probabilistic propensity, we
are saddled with the painstaking burden of trying to calculate the exact
frequency of fluid and uncertain fiscal relations at any one point in
time. Unfortunately, armed with an arsenal of risk calculus and with
an affinity for what Bill Maurer (2002: 29) identifies as the ‘fetishiza-
tion of the normal distribution curve’, CRAs are prone to this exact
tendency as they betray their ‘desire to replicate the prescriptive and
predictive success of the hard sciences and a belief in the infallibility of
rationalist-empirical epistemology’ (Jarvis and Griffiths 2007: 17). If the
threat of sovereign debt default can, in fact, be calculated as a real tan-
gible phenomenon, then, according to conventional risk management,
measuring (fiscal) variance through utilitarian risk calculus could trans-
form the management of an indeterminate future into a regularly
quantifiable exercise. ‘Refurbished’ through sophisticated methods of
statistical actuarialism – dubbed ‘machineries of knowledge’ (Knorr
Cetina 1999: 5) – the margin of error surrounding fiscal relations, pur-
portedly, can be minimized to such a perceived extent that it is consid-
ered an objective account of reality. Reinforced by a rationalist
understanding of capital markets, the supposed control afforded by
such an approach helps explain why the discourse of risk is both seduc-
tive and hegemonic.
Excessive preoccupation with certainty equivalence, however, is mis-

leading because the simplification of complex and interdependent
social phenomena necessary for this endeavour distorts its conclusions
and, arguably, dilutes them of any real significance. To frame the
debate about the political economy of creditworthiness in these terms
or to critique Moody’s and S&P for their failure to appropriate and
deploy such predictive positivism successfully, simply drags us into
assessing the veracity of claims about the genesis of finance or global-
ization and a certainty equivalence that just does not exist; namely
how ‘capable’ and ‘willing’ politicians are to subject their constituents
to harsh budgetary measures in the hope of raising the resources neces-
sary to service their debt obligations (Moody’s Investors Service 2008a:
4). As fallacious and distortive as this quantitatively-skewed approach –
codified and commercialized as the ‘risk of default’ – is to the assess-
ment and articulation of fiscal relations, readily accepting this ‘exo-
genous’ understanding of creditworthiness, and thus the implied
notion of ‘correct’ or ‘normal’ fiscal conduct with its corresponding
credit score, is blind to the social construction of value implicit in sov-
ereign ratings (Sinclair 2010). Ratings are not objective brute facts, but
contingent and contestable judgments about the credit health of a
national political economy; especially its fiscal relations. Conflating
and misrepresenting this social facticity as a natural ontology is what
often precipitates, as well as exacerbates, crises.
Yet simply to discount such mainstream predictive positivism in
favor of an intersubjective understanding of finance, without account-
ing for how exactly this social facticity of creditworthiness is consti-
tuted, reiterated and embedded in the global political economy, is both
incomplete and inadequate. In the first instance, it tells us relatively
little about how the authoritative capacity of Moody’s or S&P to act on
global credit markets and governments is produced. Although the his-
torical institutionalization of a distinct set of norms and rules sur-
rounding creditworthiness, or what Sinclair (2005: 65–6) refers to as
the ‘embedded knowledge network’, contributes to the clout of ratings
agencies, in itself, it is insufficient in offering a comprehensive under-
standing of the specific discourses and practices through which this
happens. Neither does it elucidate how CRAs have managed to sustain
this authority in the face of a consistent stream of failures and lack-
luster performance. If credit ratings exert leverage because these judg-
ments are believed to be consequential (Sinclair 2010: 92) then how do
certain ideas and narratives gain traction while others fail to do so?
Epistemic authority (Blyth 2002; Cutler et al. 1999; Porter 2005;

Power 2007) may be a much more refined line of argumentation than
that offered by the few, poorly informed and narrow conventional eco-
nomic or legal accounts which monopolize this field. Nevertheless, we
are still left with rather vague concepts of ‘confidence’ or ‘collective
understanding’ from which to surmise how it is that the authoritative
knowledge informing the problem of sovereign debt is actually legit-
imized through its construction and commodification. As this book
demonstrates, the political economy of creditworthiness is more than
just an epistemic community where actors – rational or otherwise –
deliberately pick and choose to which judgment they adhere; essen-
tially free from the normalizing effects of diverse and overlapping
configurations of power.
Compounding these analytical deficits is not only the sense of
urgency that these financial and fiscal crises are increasing in intensity
and severity but, as noted above, the (distressing) paradox that their
materialization seems to be connected to consistent, yet tolerated, fail-
ures. Again, existing accounts fail to provide an adequate explanation
of how this oddity persists or what it means for national self-
determination in ever integrating global markets. Predominantly pre-
occupied with corporates, their cursory analysis often neglects the mul-
tiple dimensions of sovereign ratings, and their effects, in favor of
pregiven absolutes, model consistency and propositions often derived
from a structure versus agency thematic, that stress intentionality and
the need to explain causality grounded in some innate ontological
condition/origin.
In order to remedy these omissions in the literature and determine
how the act of (sovereign) rating helps to constitute and manage the
political economy of creditworthiness, a new analytical instrumentality
is necessary. For this purpose, the fields of the ‘social studies of finance’
(Callon 1998; Knorr Cetina and Preda 2005; Langley 2008a; MacKenzie
2006) and the Foucauldian-inspired ‘governmentality’ literature
(Aitken 2007; Barry et al. 1996; Dean 1999; O’Malley 2004) provide a
number of promising intellectual points of departure. By problematiz-
ing the role of credit ratings in the sovereign debt crisis, these frame-
works help ‘decentre’ finance to illuminate how formulations of social
facticity are derived from specific ‘techniques of truth production’
(Foucault 1980); whereby action and authority combine to ‘govern-
at-a-distance’ (Miller and Rose 1990).
Performativity helps reveal how these systems of surveillance, calcu-
lative techniques and proprietary models/methodologies featured in
the ratings process form spaces of calculability and apparatuses of

control; upon which this neoliberal politics of limits is predicated.
Representations demarcating the limits of debt financing, and thus
fiscal possibility, reflect ‘a circulating operation of power that consti-
tutes agents and their interests’ (de Goede 2005: 10). Sovereign debt
and its constitutive subjectivities are made into specific objects and
subjects of government through the dominant modalities of risk and
uncertainty. An analytics of government allows us to appreciate how
this happens by disentangling what is portrayed as supposedly totaliz-
ing and monolithic – by the literature and CRAs themselves – through
an empirically-based analysis of the various styles of constituting cred-
itworthiness and governing the ratings space.
Socio-technical devices of control
A central theme running through this book is how the ‘opinions’ of a

private agency can produce grave public repercussions, which threaten
to undermine the democratic legitimacy of elected governments, as
they become social facts. By framing the sovereign debt debate accord-
ing to a specific neoliberal market mentality prizing austerity and low
budget deficits, ratings help exert a considerable constraining force on
economic modes of governance discordant with its strict disinflation-
ary rationality. With the notable exceptions of the UK or perhaps even
the German-centered hub, the debt crisis has revealed how arduous
acceptance of this approach is for most political economies.
Alignment, however, is straining for most as severe costs of adjustment
provoke socio-political contestation and backlash; especially on the
periphery of Europe. How EU subjects strive to adhere to specific
ratings, designed in the name of budgetary rectitude, is shaped by the
very power relations in which they are embedded.
With risk, post-disciplinary logics of ‘control’ acknowledge that fiscal
failure is possible across multiple sites of this EU space (Deleuze 1995:
169–76). Member States are envisioned as ‘misfits’ who are in danger of
sabotaging their budgetary positions. Their profligate propensities must
be curbed at all sites of potential deviation. Whereas individualization
and normalization characterize discipline, whereby the subject is fun-
damentally reformed, regimes of control regulate deviance. Sovereign
ratings, therefore, have a ‘programmatic’ effect of modulating budgetary
conduct. Their salience derives from the capacity of ratings to devise
this neoliberal benchmark of budgetary rectitude to which democratic
governments are subjected. Progress is monitored in accordance with
the infrastructure of referentiality that ratings construct, which con-

nects notions of proper fiscal conduct (i.e., neoliberal orthodoxy) with
economic behavior (of markets and governments). Closest convergence
earns the coveted, but evermore elusive, ‘AAA’ grade.
Control as calculation/classification is revealed and institutionalized
through this technocratic process; whereby surveillance of the acciden-
tal claims to transform nation-states into measurable and administra-
ble objects of government. The successful normalization of this regime
of control is predicated on how convincingly CRAs manage to bifur-
cate ‘economics’ and ‘politics’. Separated into distinct and isolated
variables, these categories appear more amenable to a utilitarian calcu-
lus of risk. Defendable mathematical techniques are typically consid-
ered more legitimate and compelling than temperamental politicians
with a reputation for dithering and grandiose proclamations which
often disappoint. The exertion of such control, however, ‘depoliticizes’
the constitution of the political economy of creditworthiness by inval-
idating how competing notions of budgetary normality are assessed
and articulated. At once, therefore, risk calculus claims to identify the
specific problem(s) of fiscal management and offer corresponding
solutions.
Control may be one of the more visible configurations of financial
power through which this expert knowledge denoting what is consid-
ered permissible in budgetary affairs ‘[acts] upon the real’ to configure
the contours of the ratings space and its subjectivities, but it is not the
only one (Miller and Rose 1990: 7). Multiple forms of authority exist
simultaneously along the power/knowledge axis – delineated by
Foucault (1980) – which are relevant for the current discussion of how
sovereign creditworthiness is rendered visible and its corresponding
challenges manageable.
Unfortunately, mainstream accounts typically tend to frame this
debate primarily in terms of either a loss of ‘sovereignty’ or the ‘struc-
tural’ capacity of finance to restrict national competence over the bud-
getary process (i.e., sovereignty again) without any serious
consideration for the diverse and overlapping power relations that con-
dition the very discursive constitution of agency and interests. Little
heed is paid to the articulation and codification of authority which is
‘not possessed as a thing or transferred as a property’ (Foucault 1979:
176), nor operates based on exclusion or domination. Forms of ‘disci-
pline’ and ‘governmentality’, or the ‘conduct of conduct’, which works
on freedom in the construction of self-regulating subjectivities in the
performativity of the ratings space, are omitted in favor of an ‘econo-
mistic conception of power’ as a commodity (Campbell 1996: 18), an

ideational construct – often ‘austerity’ – or some underlying logic of
capital divorced from the techniques of truth production themselves.
But ‘it is the apparatus as a whole that produces “power” and distrib-
utes individuals in this permanent and continuous field’ (Foucault
1979: 177); as governmental mentalities and technologies are con-
nected together to give meaning and authority to particular modes of
calculating and managing this assemblage. The reduction of power
relations to one principal form or single locus, which is external to the
sites of its political economy, fails to account for its productive poten-
tial in devising a politics of limits.
This book seeks to redress this deficiency by drawing our attention to
how authority ‘is attached to social positions that are relationally
defined’ rather than exogenously given (Wight 2006: 152). Power flows
in localized sites to establish its own objects of government. Although
self-discipline is exercised in these fields, as ratings help induce the
internalization of self-regulation in actors across the domains of gov-
ernment and the investment community, arguably, it is through the
modulation of deviance (control), against a risk-constructed fiscal nor-
mality, whereby sovereign ratings exert significant leverage. Thus, by
problematizing the act of rating, we become more attentive to how
‘power is embedded within the discursive formations that naturalise [a
fiscal] normality’ and ‘motivate the reproduction of normal popula-
tions through associated practices’ (Lipschutz and Rowe 2005: 56).
Now whether anticipating ‘possible loci of dangerous irruptions
through the identification of sites statistically locatable in relation to
norms and means’ (Castel in Rose 1999: 235) is plausible for diverse
sovereigns is debatable. First, as noted above and developed in subse-
quent chapters, the complexities and interdependencies of the social
phenomena under study prevent their simplification through such
arbitrary division. National politics and economics are inexorably
intertwined with a plethora of social/cultural elements in variegated
configurations of mutually reinforcing and contradicting assemblages.
Not only does this analysis dispute the rigid juxtaposition between
economics/politics but we also move beyond the false international/
domestic, subject/object or private/public binary oppositions that are
frequently propagated by conventional accounts.
Next, technoscientific epistemology cannot be readily divorced from
the politico-economic contexts in which it is embedded. Of course,
rendering informal judgment explicit detracts from the thrust and
leverage of risk’s calculative control. Deliberately discounting the
degree of contingency implicit in sovereign ratings fortifies its bulwark.

Muted and disguised, risk’s veracity is largely immunized from political
contestation. Moody’s and S&P may reap a greater advantage from
such risk calculus because their ratings are produced for the market and
public consumption. Cognizant that the fixed income desks at PIMCO
or a hedge fund are more focused on devising internal assessments for
their own range of funds, which grants them the flexibility to be more
open about their discretionary conduct, the differences in their ana-
lytics usually are not substantial. Risk dominant technicals assist in
justifying active investment strategies to clients.
Just because it is dubious, however, does not necessarily mean that
this calculative practice is devoid of any capacity to act on govern-
ments and markets. After all, the authoritative expert knowledge
underpinning financial markets need not rest on some unequivocal
and objective truth. Social facts help construct these spaces of calcula-
bility and dictate their movements. Modulation is visible through the
performative effects of ratings; thereby endowing them with a tempo-
ral ‘stability’ and social facticity that they otherwise may not possess.
In other words, ratings are a socio-technical device of control, which
create the very conditions and subjectivities that help validate their
prescriptive (neoliberal) program. What is called ‘finance’ materializes
through the circulation and reiteration of these specific discursive prac-
tices (de Goede 2005: 7). Control and governmentality are visible in the
constitution of three main subjectivities implicated in the sovereign debt
crisis: CRAs, investors and governments. Although the effectiveness and
longevity of this performativity is vulnerable to disruption, and even
crisis, the purported ability to manipulate the constitution and valida-
tion of the problem of sovereign debt through risk strengthens the
capacity of sovereign ratings to control compliance.
The modulating effect of risk ratings, however, is not uniform.
Convergence through compliance – and the level of antagonism –
depends on the degree to which the organization and management of
the national economy is aligned with the disinflationary logics of
neoliberalism privileged in ratings. Political imperatives are often
thought to encourage unsound budgetary measures that compromise
economic fundamentals by threatening to increase inflationary pres-
sures through fiscal expansion (Issing 2004; Stiglitz and Greenwald
2003; Whitley 1986). The greater the supposition that policy discretion
interferes with the ‘efficient’ unfettered functioning of market dynam-
ics, the more that it is perceived as a liability to be mitigated (Hay
2007: 56). Bolstered by this (questionable) reading of the ‘economy’ as

an exogenous reality prior to or outside of its discursive constitution,
the authority of ratings is commensurate with the degree of receptivity
and applicability of this doctrine. Financial markets broadly speaking,
but bond markets more specifically, subscribe to this rationality.
Occasionally, pressures for fiscal consolidation may even allow shrewd
leaders to insulate themselves behind ratings (Posner and Blöndal
2012). Strong opposition across Europe – both ideological and practical
– to the imposition of this Anglo-American model, and the consequent
attacks on ‘continental’ forms of social democratic capitalism,
however, is helping fuel a politics of resilience and resistance that may
threaten to disturb the modulating force of risk’s performation.
Acknowledging that the antagonistic relationship which develops
between the ‘programmatic’ elements of financial expertise and the
‘operational’ aspects of budgetary politics – in the struggle to define the
politics of limits – is not restricted to a few fiscal misfits on the periph-
ery of Europe, the European sovereign debt crisis does provide an in-
formative context for how it plays out and what lessons may be drawn.
Not only is this, arguably, the most severe and protracted manifesta-
tion of this conflict between private credit markets and democratic sov-
ereign states in the construction of the politics of limits thus far, but its
ramifications are, indeed, international; with spillover effects for both
advanced and emerging economies. Although the recent 2006 US
Rating Agency Reform Act may have introduced criteria clarifying what
designations, such as the NRSRO, actually entail, it is the EU CRA
Framework – Regulation (EC) No 1060/2009 (CRA Regulation v1); its
amendments (EU) No 513/2011 (CRA Regulation v2); and (EU) No
462/2013 (CRA Regulation v3) – that is the most comprehensive and
ambitious attempt to manage the ratings space to date. By anchoring a
portion of the discussion in the EU regulatory response, we are better
positioned to decipher how the recent 2007–08 credit crisis, and subse-
quent sovereign debt woes, prompted a shift in the governance of
ratings from a largely haphazard approach riddled with ambiguities
and voluntary measures to a decidedly more proactive policy stance.
Exacting a greater adherence to protocol and information flows from
CRAs than ever before, proponents may claim that it is an extensive, if
not demanding, regulatory regime; which may serve as a role model for
other jurisdictions.5 No doubt, the CRA framework is in-depth and
comprehensive. Unfortunately, equating crisis management as synony-
mous with risk management, it is a reactionary approach which is
plagued by a misguided preoccupation with governing this threat as a

primarily exogenous shock; without any serious consideration of its
endogenous dimensions. Neglectful of how the social facticity of credit-
worthiness is constructed and legitimized, the EU may jeopardize its
own crisis response by (inadvertently) subjecting itself to unintended
consequences and supervisory conflicts. Rather than rectify the
growing asymmetry, recourse to the kind of fragmentation and
quantification implied in risk management may only exacerbate it.
Since the instability inside the eurozone has already spilled across its
borders to affect adversely, amongst other things, the ‘risk appetite’ of
financial markets for the emerging South, the fates of Europe and the
BRICs, to varying degrees, are intimately connected together. At this
point, however, I only identify the South’s tumultuous relationship
with the ratings agencies and offer some nuanced suggestions of how it
may develop in the future. Digesting what the current tensions in
Europe signal for the relationship between epistocracy and democracy
offers some insights into how this political economy of creditworthi-
ness may affect the BRICs.
What is clearer is that across much of the world, governments have
been facing austere pressures that undermine national fiscal sover-
eignty. Variegated notions of budgetary normality, which privilege
greater degrees of social democracy and solidarity through schemes
such as protected public pensions or greater collective bargaining (Hall
and Soskice 2001; Schmidt 2002), are not accommodated by the aggre-
gating techniques of sovereign ratings. Such analysis would preclude
the ‘narrow rating range’ for which Moody’s strives; even though the
company admits that ‘the unusual characteristics of a sovereign credit
may not be fully captured by this approach’ (Moody’s Investors Service
2008a: 1). As Member States succumb to harsh neoliberal programs of
deep expenditure cuts, privatization and deregulation necessary to
secure debt financing and function, ‘powerful neoliberalizing tenden-
cies…threaten the incremental dilution’ of continental forms of social
democracy (Hay 2007: 257). Traditional varieties of capitalism associ-
ated with more generous welfare provisions are often considered cor-
rosive to a good credit rating. Compliance (read austerity) through
control depoliticizes what has conventionally been within political
purview; as quantitative techniques pronounce qualitative judgments.
That is until fiscal sovereignty unleashes unsuspecting forces contin-
gent on the ‘singular nature of sovereignty’ and its vicissitudes
(Moody’s Investors Service 2008a: 6).
Government through risk and uncertainty
Grounded in the discourse of risk, this book argues that sovereign

ratings act as a socio-technical device of control and governmentality,
which subject fiscal politics to an artificial uniformity. Risk serves to
advance and validate this neoliberal politics of limits. Few would deny
the growth and prevalence of risk as an organizational and regulatory
narrative in our society today (Beck 1999; Beckert 2002; Clark et al.
2009; Power 2004). Its ubiquity enhances its prominence so as to give
the impression that it is a neutral, or even a propitious, approach to
most managerial problems. Attempts to shift away from human com-
petencies and critical judgment towards to the primacy of quantitative
techniques – no matter how dubious – are reflective of a rationality
that privileges the authority and imperatives of the market/shareholder
over those of the citizen.
Such a mentality is noticeable in the push to increase the surveil-
lance authority of risk through measures like credit-scoring systems
(Langley 2008b; Leyshon and Thrift 1999), reputational metrics (Power
2007) or insurance (Ericson and Doyle 2004; O’Malley 2004). Peter
Miller (2001) contends how, by treating organizations as an enterprise,
management accounting produces calculating subjects whose freedom
to self-regulate is greatly circumscribed by the networks in which they
operate. By arranging relationships according to inclusive-exclusive
and differentiated categories, risk and uncertainty act as ‘boundary
objects’ immanent in such strategies of control. Boundary objects
straddle multiple spaces and are ‘both plastic enough to adapt to local
needs and constraints, yet robust enough to maintain a common iden-
tity across sites’ (Bowker and Star 1999: 297). Differentiation is central
to the political economy of creditworthiness. Ratings judge and iden-
tify which debt profiles are considered ‘investment-grade’, and should
be granted access to capital markets as ‘deserving’ bond issuers. Those
deemed less creditworthy experience much more difficulty in obtain-
ing the necessary financing and – relegated to ‘junk’ (below ‘BBB–’) –
must often seek emergency bailouts or default. Accordingly, this book
shows how fundamental these modalities are to the promotion and
maintenance of the self-sustaining Anglo-American market logics.
In the ratings space, I submit that the ‘importation’ of tenets and
methodologies from the corporate sector into the sovereign domain
has served to enhance the prevalence and sustaining power of sover-
eign ratings through their alignment with a defendable, utilitarian
calculus of risk. More tractable to rational choice modeling, to a great

extent, risk’s appeal rests on the claim that its ergodicity and ‘machine-
like’ ability can fragment and minimize interfering variables, such as
human discretion, and thus reduce volatility from the equation (Best
2010: 36). Devoid of these idiosyncrasies, the calculation of an indeter-
minate (fiscal) future purportedly becomes more feasible and accurate;
thereby bringing us closer to some ‘objective’ truth about an exoge-
nous reality. Technical expertise, as Sinclair (1994: 454) reminds us,
gives the impression that CRAs ‘disavow any ideological content to
their rating judgments’. In sharp contrast, the politically charged EU
and BRICs are hotbeds of ideological temperaments. Risk is deployed to
mollify these in order to preclude their ‘adverse’ consequences.
Subjective estimations are prone to ‘serious inconsistencies’ that
produce ‘bias ratings’ (Johnson et al. 1990: 95). Such optics are exactly
what CRAs attempt to avoid since they damage their credibility and
diminish the leverage of ratings. By deploying and commodifying par-
ticular calculative risk techniques, however, rating agencies can help
mediate this representational process in their favor to mask such con-
tingent liabilities. Consequently, the supposed enhancement of trans-
parency through the elevation of quantitative practices, which strive to
control performance, have depoliticizing effects as risk ratings serve to
invalidate alternative – often democratically-based – ways of ascertain-
ing and articulating budgetary rectitude. Politics of representation and
discursive practices are virtually ignored in favor of normalizing risk
models. Ostensibly, this works to shield technical knowledge from con-
testation by ‘immunizing decision-making against failure’ (Luhmann
1993: 13). Their commercialization only reinforces the authoritative
capacity of ratings as the market is perceived as a legitimizing vehicle.
Through a diagnosis of the performativity behind the political
economy of creditworthiness, however, we are better able to disturb
the unequivocal hegemony of this principal but, arguably, problem-
atic, governmental category and discourse.
Irrespective of its numerous applications and benefits, a closer
examination reveals a darker underbelly to risk management; especially
when applied to fiscal relations. Recent frictions, in Europe – and
around the world – are challenging this orthodoxy’s dominance as a
mode of governance. Seldom problematized, uncertainty and risk are
often treated as self-evident or monolithic. Perceived as tangible phe-
nomena, the task involves searching for some exogenous ontological
reality to unearth. Unfortunately, the consequence of this recursive
search for certainty equivalence binds us to determining the actual dis-
placement of one thing called ‘uncertainty’ by the other labeled ‘risk’.

Such an economistic conception of risk, however, neglects its per-
manent state of virtuality (van Loon 2002: 2). Once it happens, and a
static figure is available, it is now a full-blown crisis and no longer a
probability. Attempts to capture risk as a thing to be manipulated and
assigned a numerical quadrant may give the impression of heightened
control over fiscal indeterminacy. But it is a misleading mirage that dis-
torts risk’s temporal flux without offering any satisfactory explanation
of how the quantitative (risk) and qualitative (uncertainty) parameters
are accommodated and synthesized to render any sort of displacement
possible or fixed figure tenable.
Distortions such as this are propagated by mainstream IPE. As an
inescapable by-product of modernity, uncertainty is either conceptual-
ized as an ‘incalculable risk’ to be feared, as espoused by the ‘risk
society’ thesis (Beck 1999; Beck et al. 1994), or celebrated (Bernstein
1998). Technological advancements like statistical actuarialism and
enhanced information systems supposedly enable experts, such as
auditors or rating agencies, to patrol the margins of indeterminacy
between risk and uncertainty. With the right ‘tools’, they claim to
translate more contingent events into statistical probabilities; which
makes them tractable to rational choice modeling of a predictive
Pareto-efficient equilibrium (Guseva and Rona-Tas 2001; Reddy 1996).
No longer at the whims of the gods, we are told that uncertainty can
be transformed into a risk once it becomes organized through our
management systems (Power 2007: 6). Either we are faced with
inescapable conditions, where discursivity and performativity are virtu-
ally neglected, or we must accept that systems for representing risk
‘emerge as generic and totalizing instruments of risk governance’
(Power 2007: 4). Neither one is satisfactory.
It is the discursivity and diversity of these socio-technical devices of
control/governmentality which help elucidate how ratings produce an
authoritative capacity to act on market participants by promoting a
false dichotomy between risk and uncertainty. As the discussion turns
to searching for tangible phenomena and calculating their ontological
coordinates, a rigid binary opposition develops; whereby risk is defined
as a calculable ‘measure of variance around an expected value’ – repre-
sented as ‘AAA’ – while uncertainty escapes being captured as such a
statistical probability (Cantor and Packer 1995; Chorafas 2007: 24;
Hardy 1923; Short 1992). Since their construction enables the social
facticity of ratings, adherence to such a predictive, and thereby pre-
scriptive, positivism sets up an unnecessary conundrum where this
fictitious dichotomy between (quantitative) risk and (qualitative)

uncertainty is promoted and institutionalized. Unfortunately, the
veracity of this dualism is rarely problematized as attention shifts to
competing claims about what constitutes as the correct risk model or
better methodology. Mechanics, and their potentially lucrative mone-
tary incentives, monopolize the debate to such an extent that few
bother to question whether an analytics sanctioning the simple bifur-
cation of risk and uncertainty, or between politics and economics for
that matter, is actually apposite.
Informal judgment diminishes in utility and value with the reitera-
tion of this juxtaposition. It is the regenerative hegemony of this dis-
course which underpins the CRA conviction that any ‘qualitative
elements are integrated within a structured and disciplined framework
so that subjectivity is constrained’ through the ‘continuous effort to
make the analysis more quantitative’ (Moody’s Investors Service 2008a:
6). In other words, there is a concerted effort to transform (singular)
fiscal uncertainties into (aggregate) pools of risk; which amounts to
their misrepresentation.
A reading that treats risk and uncertainty as unproblematic brute
facts, however, and thus burdens us with the onerous search for onto-
logical equivalence in fluid fiscal relations where none exists, is blind
to their dialectical relationship. Neither risk nor uncertainty is inher-
ently more or less abundant during a sovereign debt crisis. Rather than
one of mutual exclusion or innate abundance/scarcity, their relation-
ship, as Pat O’Malley (2000) contends, is contestable and hetero-
morphic. They change depending on how they are deployed. Suspending
the search of their ‘real’ ontological coordinates provides an enhanced
understanding of how CRAs mobilize the constructs of uncertainty and
risk as modalities in the discursive constitution and legitimation of
sovereign debt as a problem of government.
As modes of governance, risk and uncertainty are considered ‘ways
in which the real is imagined to be by specific regimes of government,
in order that it may be governed’ (O’Malley 2004: 15). Through the
construct of risk, sovereign debt is rendered intelligible as a primarily
quantifiable, probabilistic frequency towards fiscal failure (Sy 2004).
Management through uncertainty, however, cannot be systematically
orchestrated because it fails to reproduce itself at regular intervals.
Informal judgment and seasoned guesswork play a greater role in devis-
ing a credit score (de Goede 2005). Sovereign rating ranges, ultimately,
rest on a judgment about the extent to which politicians will subject
their constituents to ‘tolerable’ costs of austerity/adjustment (Sinclair
2005: 138); which is a synthesis of quantitative and qualitative calcula-

tions. Unfortunately, the utilitarian calculus of risk cannot readily
capture this degree of exigency involved in the fiscal politics being
monitored as a statistical probability. This book reveals how the costs –
to populations and markets – grow in enormity as a form of dysfunc-
tional information exchange becomes institutionalized and fiscal
sovereignty diminishes.
Cognizant of selling largely qualitative opinions – especially in
regards to sovereigns – Sinclair (2005: 34) contends how ‘quick’ rating
agencies are ‘to use the objectifying cloak of economic and financial
analysis and, as it were, hide behind the numbers when it is easier than
justifying what may, in fact, be a difficult judgment’. Based on a ficti-
tious quantitative/qualitative binary opposition, aggregating methods
that attempt to transform singular fiscal uncertainties into pools of risk
seem to help in the comparison and adjustment of the diachronic
through the synchronic (Sinclair 2005: 58–9). As the problem of sover-
eign debt becomes more manageable, a prescriptive (artificially
uniform) fiscal normality is validated. Nevertheless, as illustrated by
recent crises, the distortion of contingent liabilities and misrepresenta-
tion of fiscal relations produces explosive effects.
What is revealing is how this predication on the hegemonic dis-
course of risk actually fails to secure organizational integrity; instead
precipitating volatility and financial/fiscal crisis. Conflating (immea-
surable) uncertainty with (probabilistic) risk, and lacking the correct
conditions of felicity – grounded in their respective (unique) national
contexts – the success of these socio-technical devices of control/
governmentality is called into question as risk-based performativity
becomes vulnerable to ‘misfire’ or breakdown (Callon 2010). As these
isomorphic pressures exerted by ratings clash with the heterogeneity of
national political economies – wherever they are located – they precip-
itate backlash as fiscal sovereignty reasserts itself in the face of the
unbearable costs of adjustment. Populations can only tolerate so much
austerity before the cuts prove too deep.
Performative political economy of creditworthiness
In large part, as this book argues, what is problematic about the

authoritative capacity of sovereign ratings is that it is based on a mis-
representation of immeasurable (qualitative) uncertainties as prob-
abilistic (quantitative) risks. Commercialization of this false dichotomy
only bolsters its salience. Now if the effects of such inconsistencies
were negligible, and ratings were only ‘informed opinions’ devoid of

any performativity, then it would be easier to disregard them. After all,
given that often movements in structural macroeconomic or financial
market conditions are already priced into the market (e.g., bond yields,
credit default swaps), the utility of ratings may be considered marginal.
Novelty, however, is not their hallmark.
The performativity of ratings ‘is not to represent what was previously
unrepresented, but try and reorganize the circulation and control of rep-
resentations’ (Mitchell 2007: 267). Their authoritative leverage, arguably,
is derived of how well they manipulate the constitution of sovereign
debt as a particular problem of government – represented through a
simple yet hierarchical infrastructure of referentiality – which could
otherwise assume a different complexion; if not for the depoliticizing
effects of ratings. Sovereign ratings do not actually eliminate the volatil-
ity and contingency implicit in fiscal politics. Rather represented in a dif-
ferent – more quantitative – form, they only give the impression of it
being mitigated. Nevertheless, through this specific assemblage, which is
simultaneously mechanic and enunciatory (Deleuze and Guattari 1987:
504), sovereign ratings are endowed with a social facticity that allows
them to function as socio-technical devices of control/governmentality
in the constitution of a neoliberal politics of limits.
In order to understand how the operationalization of these modes of
governance serves to redefine the budgetary realities facing govern-
ments around the world, and thus strengthen an epistocratic grip over
democratic forms of rule, its performativity is problematized. The con-
tention developed in the following chapters is that the authoritative
capacity of ratings is constituted/reinforced through their performative
effects; which create the conditions and subjectivities that serve to vali-
date this epistemic/discursive framework, and in the process enhance
their utility and leverage. By focusing our attention on the specific sub-
jects implicated in a debt crisis (i.e., CRAs, investors and governments)
and the empirical domains where this puzzle is rendered real, performa-
tivity combines the relationship between action and authority to yield
an enhanced understanding of the construction, regeneration and sedi-
mentation of this disinflationary political economy of creditworthiness;
without succumbing to the limits of the ‘structure versus agency’ debate
and its need to explain either agential intentionality or causality.
In his widely acclaimed contribution to the performativity literature,
The Laws of Markets, Michel Callon (1998: 23) argues that economic
theories and formulas ‘do not merely record a reality independent of
themselves; they contribute powerfully to shaping, simply by measur-
ing it, the reality that they measure’. Referring to Deleuze and
Guattari’s (1987) notion of agencement, Callon (2007: 320–1) argues
that economic formulas perform the worlds they suppose into exist-
ence. Agencement captures both the assemblage and agential dimen-
sions of performativity without reducing it to either one. A hybrid of
human and non-human entities (i.e., material, technical, textual
devices), ‘agencements denote socio-technical arrangements when they
are considered from the point [of] view of their capacity to act and to
give meaning to action’ (Callon and Caliskan 2005: 24–5). Analyzing
how the calculative act of sovereign rating enables and exemplifies a
‘socio-technical agencement’ of creditworthiness reveals both its mecha-
nistic non-human (risk) and discretionary human (uncertainty) ele-
ments. This provides an enhanced understanding of how action and
authority combine to devise a political economy of creditworthiness
according to which fiscal profligacy is assessed and corrective measures
proposed (e.g., default). At the same time, the commonalities which
exist between various agencements of creditworthiness – especially
between corporates and sovereigns – are rendered visible. Similarities,
however, do not guarantee their performative success in different
spaces. Conditions of felicity are necessary for their programmatic
actualization. Otherwise, lacking these favorable circumstances, the
result is misfire.
Two dimensions to this performativity are discernible. First, given
their procedural dimension, as a discursive practice, sovereign ratings
have ‘illocutionary’ performative effects (Austin 1962; Callon 2010).
Through their description of budgetary positions, such as ‘junk’, these
utterances communicate a range of judgments about proper fiscal
conduct, which inform the constitution of a politics of limits.
Formulated through a readily identifiable scale, ratings are how this
(neoliberal) normative statement about creditworthiness gets translated
into practice. Against this mentality, a government’s creditworthiness
is assessed and its capability to perform the fundamental functions of
‘government’ (i.e., finance programs for citizens) is hindered with each
subsequent downgrade.
Yet credit ratings are not simply a linguistic process. ‘Perlocutionary’
performative effects of this austere political economy of creditworthi-
ness are visible on the broader governmental assemblage, which
depend on the reality produced by said ratings in order to dictate suc-
cessfully how fiscal sovereignty should be exercised. The effective
control of ratings to provoke the prescribed disinflationary manage-
ment of government finances is intimately linked to the naturalization
of the neoliberal logics implied in and promoted by said ratings.

Performativity in action, or what Callon (2007: 330) refers to as ‘perfor-
mation’, ‘encompasses [the] expression, self-fulfilling prophesies, pre-
scription, and performance’ of varying degrees of budgetary prudence
or profligacy, which endow the problem of government debt with
social facticity and create the conditions where it is enacted and repro-
duced. A politics of limits is constituted through sovereign ratings
which privileges and naturalizes the separation between economics
and politics so as to elevate the position of expertise relative to that of
democratic governments. However persuasive this looks on paper,
there is a fundamental disjuncture between the artificial normality of
this purported fiscal reality and the diverse political economies around
the globe.
As contestation abounds, Callon (2010: 164) is correct to assert that
the success of illocutionary performativity is only temporary because its
capacity ‘to make inactive and invisible [its] overflowing and misfires’
for an extended period of time is dubious. There is a critical breaking
point; after which the performativity of ratings fails to engender suc-
cessfully a disinflationary program as governments begin to take
measured steps to repoliticize the discourse and enact policies to protect
their citizens. In the European context, ratings may eventually precip-
itate the ‘converse’ of what they describe to alter political economy ‘in
such a way that [their] empirical accuracy...is undermined’, or what
MacKenzie (2006: 19) labels as ‘counterperformativity’.
Budgetary politics is replete with numerous exigencies which, when
excessively aggravated, can randomly sabotage the programmatic
ambitions of its surveillance to refute ratings. The practical adoption of
sovereign ratings, and thus an adherence to their neoliberal program
can, in fact, serve to hinder convergence towards their prescribed fiscal
normality. In this instance, however, it is not only the empirical valid-
ity of the model itself (read sovereign ratings) that is the focus. Of
significance is also how sovereign ratings can jeopardize their own pro-
grammatic ambitions by creating the very conditions which refute
their disinflationary rationalities and further impair their calculative
capability. In the attempt to satisfy its austere masters (i.e., IMF, ECB
and Germany), a country like Greece or Portugal may impose intoler-
able costs on its citizens, which can trigger a violent backlash and
prolonged civil unrest; whereby the politics of resilience/resistance
attempt to reclaim lost fiscal sovereignty. At this critical juncture,
increasingly governments shift from appeasing financial markets to
protecting their own citizens.
How much this growing austerity fatigue will be tolerated before

boiling over and forcing governments to take measured steps to
repoliticize the discourse is quite uncertain. Transposing risk tech-
niques from the corporate sector may seem to borrow some semblance
of control over an otherwise volatile and uncertain fiscal landscape.
But without the appropriate felicitous conditions rooted in the dynam-
ics of national budgetary sovereignty to sustain this performativity,
this approach is vulnerable to failure (Callon 2007). Here the uncer-
tainty of fiscal relations challenges the performativity of sovereign
ratings to secure a politics of limits through risk. Tensions flare and
crisis looms as this (nominal) artificial fiscal normality imposes (real)
severe, socio-political costs on the populations of heterogeneous
economies. As it ruptures, it further engenders an antagonistic relation-
ship between the programmatic (neoliberal expertise/risk) and opera-
tional (social democratic politics/uncertainty) dimensions of fiscal
governance whose severity cannot be forecast with any certainty. What
constitutes as the ‘political’ in the economy becomes revealed and
renegotiated. Technical practices become susceptible to repoliticization
– albeit temporarily. Slowly, the grip of Anglo-American capitalism
becomes resented; and even disturbed.
Overview
The overarching focus of this book is the way sovereign ratings help
constitute and validate a (neoliberal) politics of limits underpinning
fiscal relations and the ensuing conflictual relationship between the
imperatives of private markets/expertise and democratic governments
in establishing how political discretion is exercised in the economy. At
the heart of this power struggle is the construction and
commodification of authoritative knowledge underpinning the social
facticity of sovereign creditworthiness. My contention is that the rela-
tive obscurity and neglect of the exact production, regeneration and
sedimentation of this austere fiscal normality needs to be redressed in
order to help illuminate some of the serious inconsistencies which
permit this asymmetry to continue with its intensifying effects. Unless
these ‘black boxes’ are unpacked to reveal how the problem of sover-
eign debt is formulated and legitimized through a specific configura-
tion of the practices of risk and uncertainty, we are compelled to rely
on incomplete and inadequate explanations of how the statements of a
private agency can adversely affect the capacity and prospects for
national self-determination. Integral to the socio-technical agencement
of control, ratings are the internal forms of governmentality instru-

mental in the depoliticization of this narrative.
Not only does this analysis refocus the debate on the act of (sover-
eign) rating, rather than simply being bogged down by the enigma of
its institutional agency (CRAs), it also disturbs the hegemony of risk in
the construction and administration of this space and subsequent
asymmetry. Greater clarity and an enhanced understanding of the
authoritative capacity of sovereign ratings are essential for the design
of effective regulatory frameworks capable of intervening to mitigate
industry excesses and managing crises when they do erupt. Without
comprehensive governance, reversing this tide and reclaiming some of
the lost fiscal sovereignty vital for democratic self-determination will
remain quite challenging.
The main themes identified above are further elaborated in the
course of five chapters. By identifying the numerous major financial
scandals and fiscal crises in which CRAs have been implicated, Chapter
1 documents how the severity and frequency of CRA involvement in
these crises is increasing. Although each crisis has its own contingen-
cies, I argue how the ascendance and significance of ratings and risk
discourse is proving particularly problematic for democratic govern-
ments across the globe like never before. The embedded popularity of
credit ratings in general is derived from their symbiotic relationship
with the hegemony of risk management. EMU has only amplified and
reinforced this movement; as the mitigation of currency risk via fixed
exchange rates has shifted attention to credit risk and bond yield
spreads.
Given the growing prevalence of sovereign ratings all across the
world, it is quite odd that so few IPE accounts exist which document
how their construction contributes to their authoritative ascendance
and sustainability. Available analyses, however, lack the necessary ana-
lytical instrumentality to penetrate the seemingly hermetic enclosure
of the ratings space. Applying dated categories and methods, their
ability to open up technical expertise and its ‘scientific’ performance of
finance to critical scrutiny is greatly circumscribed. For this purpose,
Chapter 1 introduces the main ‘deconstructive’ and ‘reconstructive’
ethos of this book; through which significant conceptual themes are
revealed that inform the remainder of our analysis: authoritative
knowledge, performativity and the politics of resistance/resilience.
Each one is developed as I excavate the territory of sovereign credit-
worthiness to show how it is constituted through its assessment and
articulation.
Not only does this critical analysis expose the contingencies, incon-
sistencies and ruptures in what is often presented as a rational and self-
evident technocratic process, but the problematization of sovereign
ratings serves to disturb and diminish their depoliticizing effects;
thereby allowing us to ‘test the limitations and the exploration of
excluded possibilities’ (Ashley and Walker 1990: 263). Attentive to
what Callon (1998: 36–7) labels as ‘framing’ and ‘disentangling’, alter-
native knowledges of creditworthiness excluded or disqualified by a
risk-dominant approach may now be revisited and may gain an audi-
ence in the continual renegotiation and reconfiguration of credit
markets. At once, this ‘insurrection of subjugated knowledges’
(Foucault 1980: 81–2) reveals the counter-hegemonic discourses avail-
able across Europe and it sheds light on how intrusive ratings are in the
rapidly expanding emerging markets (BRICs). Higher GDP growth and
savings rates may have allowed these economies to absorb their gov-
ernments’ considerable deficits for the interim. Nevertheless, their rela-
tive fiscal fragility and inflationary tendencies threaten to erode the
value of accumulated savings, increase capital costs and dampen
investment; which could jeopardize these credit strengths. Substantial
industrialization and societal pressures, such as growing inequality and
environmental degradation, compound the challenges of modernizing
their economies at a higher cost. Together these forces are increasingly
straining the resiliency of their indigenous communities and traditions
to remain relatively autonomous of Anglo-American budgetary
conventions.
Identifying the alleged offences and conceptual apparatus sets the
stage for a more in-depth analysis of how this supposed immunity of
ratings is acquired. Chapter 2 provides insights into the actual mechan-
ics of sovereign ratings, their corresponding discourses and governmen-
tal programs. How CRAs manage to command market authority, while
remaining relatively immune from serious governmental interference in
their business, is linked to the way that they appropriate and deploy risk
and uncertainty as modes of governance. Here the analytics and opera-
tions of sovereign ratings are analyzed to reveal how their construction
enables their social facticity. By dissecting the rating methodologies
employed by Moody’s (2008a, 2012a) and S&P (2011b), we come to
terms with how attempts to calculate a sovereign’s propensity towards
fiscal failure by using risk techniques similar to corporates or structured
finance are riddled with inconsistencies and misrepresentations of uncer-
tainties as risks. Although measuring fiscal variance through risk calculus
fails to account for the uncertainty in framing budgetary relations, it
does provide an appearance of objectivity which helps reinforce the

credibility and utility of ratings. This chapter begins to reveal how
ratings depoliticize the political economy of creditworthiness.
The question of how rating agencies are still able to exercise author-
ity over the political economy of creditworthiness given their poor
track record is related to the performative effects of ratings. In order to
come to terms with this authoritative capacity, Chapter 3 expands on
the government through risk and uncertainty introduced in the previ-
ous chapter. Here I build on, but go beyond, Sinclair’s (2005) seminal
account to problematize specifically how the subjectivities and author-
ities implicated in the sovereign debt crisis are created and maintained.
The analytical category of ‘performativity’ helps us grasp how ratings,
as an internal form of governmentality, help produce the fiscal realities
which they seek to describe by creating the conditions that serve to
legitimize their epistemic framework and credentials. This relationship
between action and authority is aligned with a self-systemic, and
thereby self-regulating, logic of Anglo-American versions of capitalism.
Studying meaning and materiality together, we come to a better under-
standing of how ratings act as a socio-technical device through which
sovereign debt is made into a problem of government.
Mapping how these calculative practices enable a particular socio-
technical agencement is accomplished through the analytical tools of
‘deconstruction’ and ‘reconstruction’. Through a diagnostic approach,
I trace how these performative practices have self-validating/self-
generative effects on CRAs, constitutive effects on investors and pro-
hibitive (unintended) consequences for beleaguered national
governments. Together this matrix normalizes a volatile politics of
limits, which privileges the discourse of risk over the government
through uncertainty. Deconstruction exposes their ‘illocutionary’ and
‘perlocutionary’ effects; as ratings communicate notions of fiscal nor-
mality which inform the constitution of a political economy of credit-
worthiness. Reconstruction demonstrates how based on this (dubious)
knowledge, the performation of the politics of limits surrounding
sovereign debt is tenuous and vulnerable to breakdown.
Ultimately, this is a discussion about the politics of limits and who
has the authority to decide and say what those parameters are. As
experts deploy quantitative calculative techniques, such as ratings,
they make qualitative judgments about democratic governments,
which undermine their sovereignty. Chapter 4 focuses on how this
fuels an antagonistic relationship between epistocracy and democracy.
Whereas the (neoliberal) discourse of risk has become a hegemonic
force, which has penetrated virtually every socio-economic space, this

chapter contextualizes this asymmetry by locating it in hot spots
around the world where the redefinition of the politics of limits is most
pronounced. Beginning with the most pressing of these episodes,
namely Europe, I take stock of how this antagonism may develop and
how regulators may inadvertently aggravate it. Given their faster
growth rates but lower standards of welfare, the conflicts are not as dis-
ruptive in the emerging economies – for the moment. Increasingly
more assertive, however, through bodies like the G20, the BRICs are on
a collision course with the CRAs; it is merely a matter of time and
severity. The economic turbulence and slowing growth, which started
to rattle emerging markets by the second quarter of 2013, may only
amplify these frictions.
Once crisis erupts, as fiscal sovereignty is excessively threatened, the
terms of the political within the economy are revisited. Technical and
depoliticized enclosures open up to test the limitations of excluded
possibilities. By no means does this eliminate the significant role of
expertise in political economy. But it does problematize epistocracy’s
grip over democratic forms of rule and how authority is conceptualized
and practiced. This allows us to consider if and how the repoliticiza-
tion of market relations may constitute alternatives to the Anglo-
American model of creditworthiness. Questions about its coherence
and depoliticization of fiscal relations set the stage for an investigation
of what is being done to manage the ratings space.
In conclusion, Chapter 5 revisits the main themes addressed in the
book while reflecting on potential future problems that may be
looming on the horizon; namely the BRICs and America. Sanctioning
informal judgment is not an easy task but regulators must be reminded
that the simultaneous accommodation of both free financial markets
and (social) democratic constituencies under the current system is
often untenable. Moreover, given the global scope of credit markets,
for a regulatory program to be effective, it will require international
commitment rather than lackluster regional schemes. Irrespective of
these factors, one thing that can be said with certainty is that the
severity and frequency of these crises is growing and there is no sign of
the rating agencies losing this battle.
1
Crisis and Control
Whose judgment do we trust and why are questions that have always
preoccupied collective action problems and strategic decision-making.
For this purpose, game theoretics (see Hollis 1998; Nash 1950; Putnam
1988; von Neumann and Morgenstern 1944) have been widely applied
in numerous forms, and across multiple disciplines, to explain various
scenarios where interactions depend on some degree of confidence in
another actor. Overstretching rationality and an innate calculative
capacity of humans to maximize utility through abstract hypothetical
tests has proven attractive because, as Duncan Snidal (1985: 25; ori-
ginal italics) contends, ‘the ultimate payoff of game theory is the use of
game models to understand different aspects of international politics in
terms of a unified theory’. Increasingly sophisticated and precisely for-
mulated models give the impression of game theory as a ‘unifying
force in the social sciences...capable of being applied to the under-
standing of all interactions between conscious beings’ (Howard 1971:
202). So pervasive has formal modeling become – especially in the
Anglo-American world – that it has penetrated, to varying degrees,
most socio-economic spaces (Power 2004). Stephen Walt (1999: 5)
observes how:
Elite academic departments are now expected to include game theo-

rists and other formal modelers in order to be regarded as ‘up to
date,’ graduate students increasingly view the use of formal rational
choice models as a prerequisite for professional advancement, and
research employing rational choice methods is becoming more
widespread throughout the discipline.
30
Crisis and Control 31
Irrespective of their accuracy, it is the consistency, comparability and

remote calculative capacity – which enable their systematic application
– that has elevated quantitative modeling both in terms of reputation
and utility.
Accordingly, it should come as little surprise that its alignment with
this purportedly ‘scientific’ narrative of risk has proven advantageous
to the popularity and practice of credit rating. Similar to game theoret-
ics, sovereign ratings claim to synchronically connect and compare
heterogeneous entities (i.e., national economies) through an infrastruc-
ture of referentiality that is considered universally applicable. Ratings
also reflect the belief that complex and multifarious social phenomena
can be distilled into a few basic variables and processed using a battery
of quantitative techniques. The more complicated the calculation, typ-
ically, the more credence that is vested in the ability of mathematical
formulas to capture, divide and solve the problem; and ipso facto the
experts equipped to deploy them. Whether this actually yields a
‘better’ outcome is highly debatable; as the dismal performance of
Moody’s or S&P attests. Of course, CRAs are not the only ones to sub-
scribe to an orthodoxy that privileges the notion of exogenous eco-
nomic realities unmediated by the discursive relations in which they
are implicated.
Vincent Antonin Lépinay (2011) explores how the expertise of a
group of highly educated mathematicians and physicists – commonly
referred to as ‘quants’ – is regularly imported into finance in order to
help engineer an array of highly complex financial products, such as
equity derivatives. What is striking about this is the distinct mentality
through which finance is now conceptualized and structured. As
Lépinay (2007: 91) comments, these quants ‘come with backgrounds
that can make them describe a price as either an equation to be solved
or a Brownian motion to be followed’. Adopted from physics – where
Brownian motion entails the random movement of minute particles
caused by collisions with surrounding molecules – it explores stochas-
tic processes in continuous time. Donald MacKenzie (2006: 60–3)
shows how geometric Brownian motion determines fair option prices
in the Black-Scholes-Merton model. Together with accounting and
actuarial sciences, ‘disembedded and disembodied accounts of finance’
(Langley 2008a: 6) are being advanced as formal modeling – conven-
tionally located in the natural and physical sciences – is routinely
being applied to social phenomena.
Now the intention is not to equate credit ratings with game theory
or Brownian motion but to provide an indication of how ratings are
part of a broader movement within modern finance which subscribes

to what Nigel Thrift (1996: 13) refers to as the scientific ‘discourse of
transcendental rationality’. Here the economic is portrayed as a sup-
posedly coherent and self-perpetuating metaphysical reality, which
precedes its cultural, historical and discursive expressions; in other
words, its intersubjective performativity. Not only do such exogenous
accounts – with their a priori categories and ontological status – habitu-
ally privilege a (positivistic) bifurcation between ‘politics’ and ‘eco-
nomics’, they also treat risk as a self-evident and monolithic
phenomenon, and thus the de facto managerial approach best
equipped to deal with these domains (Best 2008; de Goede 2004). Their
appetite for quantitatively unearthing a pregiven totality may explain
the desire to ‘refurbish’ social inquiry through the prescriptive pos-
itivism of the natural sciences and align it with the infallibility of a
rationalist-empirical epistemology. Nevertheless, these ‘myths of ante-
riority and referentiality’ (Maurer 2002: 18) blind them to the severe
limitations which they impose on our understanding of social relations
when methodological rigor and consistency trump everything else.
Increasingly, this neglect of the historical and discursive constitution
of the fields of finance has been effectively critiqued by a burgeoning
critical literature (Aitken 2007; Best 2005; Callon 1998; Dean 1999;
de Goede 2005; Knorr Cetina and Preda 2005; Langley 2008a; Mitchell
2002; Porter 2005; Watson 2007). My objective is not to reiterate
simply what is becoming an ever more established and persuasive refu-
tation of the ‘economism’ (de Goede 2003), and its corresponding uni-
versalistic, positivist biases, found in conventional IPE. Nor is my
intention to propose a better alternative for assessing sovereign credit-
worthiness which is untarnished by such inconsistencies and distor-
tions. This is not a policy proposal. Rather the ambition of this book is
to demonstrate how, until recently, one significant financial practice
has managed to escape the serious scrutiny of both analytical IPE
scholarship and, again until recently, most legislative drafters to
remain, relatively, under the radar – namely credit ratings – and what
consequences this presents. Compared to other financial practices and
institutions, such as the banks or the IMF, the cursory political
economy analysis that CRAs have received is quite surprising. Yet
nowhere, arguably, is this dubious separation, and the ‘referentialist
metaphysics’ (Maurer 2002: 18) which it promotes, more visible than
in the ratings space. Here the economic is often treated as an unprob-
lematic and incontestable reality. The politics of representation and
discursive practices are virtually ignored in favor of normalizing risk
models, which help constitute and reinforce this (fallacious) binary

opposition as a natural fact of life. ‘Social facticity’ is distorted as an
objective material condition through a ‘discourse that is considered to
be scientific’ (Foucault 1980: 84).
Rather than attribute this oddity, and corresponding deficit in the
literature, to the ‘unique’ or impervious nature of credit ratings them-
selves, this book argues that it is, in fact, their alignment with and
predication on the hegemonic discourse of risk that has made sover-
eign ratings, simultaneously, a stealth yet salient technology of fiscal
government. Ratings are a fixture in a broader periodization of finance
based on defendable risk calculus. Intimately linked to the regenerative
dominance of the discourse of (quantitative) risk, and its false
dichotomy with (qualitative) uncertainty, ratings are the internal
forms of governmentality involved in embedding the normalization of
this neoliberal narrative in such ways as to insulate it from political
interference. Accordingly, this book is not just concerned with prob-
lematizing a dubious financial practice but also revealing how its egre-
gious inconsistencies undermine democratic politics by contributing to
the imposition of often unbearable socio-political costs on diverse pop-
ulations around the globe. Through ‘forms of ceaseless control in open
sites’ across fiscal and financial landscapes, sovereign ratings serve as
the ‘universal language’ that is instrumental in enabling and validating
the naturalization of this bifurcation, which not only entrenches but
deepens this asymmetric politics of limits (Deleuze 1995: 175).
Utterances, it should not be forgotten, are mostly deliberate – though
their consequences may be unintended. Ratings, therefore, lack any
innate self-destructive properties which predetermine their effects.
Repeatedly disassembled into a catalogue of analytical categories and
subject to individual assessment gives the impression that politics and
economics are, indeed, autonomous domains. In other words, the
ubiquity of ratings helps them perform and instill an understanding of
the economic and political as essentially two distinct spheres by
modeling and calculating them as such. Compartmentalization has a
depoliticizing effect on the constitution of the political economy of
creditworthiness; thereby reiterating the salience of a bifurcation that
positions the economy above, and beyond, politics.
Risk also mediates the representational ‘reassembly’ of these com-
ponents as it makes the connection and comparison of dispersed and
diverse national ‘units’ purportedly feasible. Through risk’s aggregating
character, the economy appears ‘singular and monolithic by virtue of
the convergence of certain kinds of processes and practices that
produce the “effect” of the knowable and unified economy’ (Butler

2010: 147). Its commercialization cements this neoliberal market ratio-
nality. But whether predictive positivism of this sort, however, helps us
acquire an ‘objective’ account of fiscal behavior is a misplaced enquiry.
It is the intersubjective character of finance which continuously trans-
lates these calculative knowledges and expert representations into
material conditions, such as prices and capital, through discursive prac-
tices like ratings (de Goede 2006: 11). Never is there one ‘true’ state of
sovereign creditworthiness to capture and calculate.
In order to understand how ratings exercise a certain degree of
control over the constitution of creditworthiness, without succumbing
to economic reductionism or false dualisms, we require the proper ana-
lytical apparatus that can elucidate how they serve to create the condi-
tions and subjectivities which help to validate the specific (neoliberal)
politics of limits underpinning fiscal relations. This chapter introduces
the conceptual themes and analytical ‘tools’ with which the territory
of creditworthiness is excavated in the subsequent chapters. First,
however, a brief historical context of CRA ascendance informs us of
their implication in some of the most severe fiscal and financial crises
in recent memory. Building on, and going beyond, Tim Sinclair’s
(2005) influential analysis of their evolution, these comments mainly
focus on the new developments in the epistocratic/democratic conflict
and the act of sovereign rating. Although the allegations of major
offences against Moody’s or S&P date back to the 1990s, arguably, it is
the 2007–08 ‘Great Recession’, and subsequent European sovereign
debt crisis, which have again illuminated the most egregious elements
of ratings to evoke a vociferous backlash and regulatory response.
Once familiar with the temporal dimensions of this problematic, the
principal conceptual themes informing the rest of the analysis are dis-
cussed: authoritative knowledge; performativity of calculative spaces
and subjectivities; and the politics of resistance and resilience. Drawing
on Foucauldian-inspired scholarship into the power/knowledge nexus,
we begin to consider how, as socio-technical devices of control, ratings
help constitute spaces of calculability through the deployment of
authoritative knowledge. Action and authority combine to form a
network grid which inculcates neoliberal rationalities and techniques
in the constitution of calculative subjectivities as, in the words of Pat
O’Malley (2000: 466), ‘the enterprising-prudent self’. Governments are
envisioned as a collective of entrepreneurial subjects entrusted with the
responsibility of prudently managing their fiscal books. Such modula-
tion of ‘deviant’ fiscal conduct ‘at-a-distance’ is intended to induce the
internalization of self-regulation as ratings serve to facilitate the ‘trans-

lation’ of diverse national problematizations into mutually correspond-
ing, and potentially reinforcing, global ones (Latour 1987). Adherence
to the programmatic inherent in ratings ‘enables and opens up new
possibilities for its subjects’, while simultaneously ‘[restraining] these
subjects as they are made subjects of a certain calculative and discip-
linary regime’ (Haahr 2004: 209).
Dispersed fiscal spaces/relations become connected as the performa-
tivity of sovereign ratings facilitates the ‘apparent transformation of
the randomness of distant events into the near-to-hand statistical,
intensive, “accelerated transport” of information’ (Pryke and Allen
2000: 281; quoting Virilio 1991: 101). Now whereas Michael Pryke and
John Allen fail to unpack the black box of technical expertise enabling
the derivatives’ production of a new monetary imaginary, this book
dissects the very analytics of ratings – the constituent components and
processes involved in the construction of a credit score – to show how
the specific appropriation and deployment of risk and uncertainty
gives the synchronic effect of compressing and standardizing national
political economies. Unfortunately, the neat consistency and system-
aticity of such quantitative modeling faces fierce opposition when
applied to the messy budgetary relations of heterogeneous political
economies. Insofar as these stabilizations are produced, however, the
fragility of their performation leaves them vulnerable to disruption and
‘breakdown’ (MacKenzie 2006). Excessive austerity and a crippling
adherence to a neoliberal programmatic can go too far and impose that
intolerable economic burden on the people (Moody’s Investors Service
2008a: 6). Here the politics of resistance/resilience trigger violent oppo-
sition – visible across the periphery of Europe – and national efforts to
reclaim fiscal sovereignty. Diagnosing the act of rating along these
‘lines of fragility’ (Foucault 1983/1998: 202) enables the potential
repoliticization of this discourse and, possibly, new initiatives for cor-
recting the growing asymmetry between epistocracy and democracy.
Emerging sovereign bond markets
Without doubt, Moody’s and S&P’s entrenched historical position is a

significant factor contributing to their stature and central role in
defining the political economy of creditworthiness. Although the rise
and proliferation of risk management has had a pronounced catalytic
effect of enhancing the ubiquity and authoritative capacity of ratings,
their evolution dates back to the rise of market surveillance mechanisms
in the mid-nineteenth century. In his analysis, Sinclair (2005: 23) docu-

ments how various crises in the United States, such as failed railroads
and property misadventures, became a catalyst for the demand and dis-
semination of enhanced information on the health of American busi-
ness and infrastructure. Henry V. Poor was one of the first to
systematically cater to this growing hunger for more precise accounts
with the 1860 publication entitled History of the Railroads and Canals of
the United States of America (Standard & Poor’s 2011a). Shortly after that,
in 1868, his Manual of the Railroads of the United States was released,
which showed ‘their mileage, stocks, bonds, costs, earnings, expenses,
and organizations; with a sketch of their rise, progress and influence’
(Poor 1868).
John Moody soon entered the fray with his 1900 Manual of Industrial
and Miscellaneous Securities (Moody’s Investors Service 2002). His indus-
trial statistics included information about the stocks and bonds of
financial institutions and government agencies, in addition to data on
manufacturing, mining and utilities. After only two months, the publi-
cation had sold out (ibid.). Unfortunately, lacking adequate capital to
sustain his business during the stock market crash, in 1907, Moody was
forced to sell his company. Nevertheless, in 1909, Moody’s Analyses of
Railroad Investments would mark his return and the evolution of his
business to include an analysis of the value of securities.
With a host of European (e.g., Germany, Greece, Hungary, UK) and
developing Latin American (e.g., Brazil, Columbia, Mexico) economies
beginning to default during the Great Depression of the 1930s, bond
markets became American dominated and preoccupied with US muni-
cipalities and leading industrial firms (Sinclair 2010: 97). Foreign sover-
eign bonds were regarded with suspicion and their American issuance
was greatly curtailed, if not virtually ceased, until around 1990.
Widespread rescheduling made sanctioning individual offenders all the
more difficult (Eichengreen and Portes 1989: 19). Following the Great
Depression, the rating space consolidated as new issues required a
rating in order to be sold.
Post World-War II repressive shocks and regulation, such as capped
interest rates and higher bank reserve requirements, signaled a move-
ment towards capital controls; and fewer sovereign ratings. Balance-of-
payments deficits ballooned as reconstruction costs soared, prompting
states to stymie the flow of capital abroad. The Bretton Woods mon-
etary system sought to restrict capital mobility in the effort to stabilize
the pegged, but adjustable, exchange rate regime. But its lack of success
was not just predicated on the exodus of capital that governments
feared. Randall Germain (1997: 151) notes how reserve requirements

were deployed to address speculative capital inflows as well. Among
the major sovereigns, (West) Germany imposed a 50 per cent fee on
the mark-dominated accounts of foreigners in 1969 and Japan pursued
a similar capital control strategy until 1980. In short, pressures were
exerted to discourage international capital flows.
That said, similar to Germain, Barry Eichengreen (1996: 93) is correct
to question both the scope and effectiveness of these programs as
‘foreign investment occurred despite, not because of, the implication
of Bretton Woods for international capital mobility’. Drawing on inter-
est rate data on domestic and external debt issues, Carmen Reinhart
and Kenneth Rogoff (2008: 7) confirm that their relative parity during
the period was indicative of the persistent effect of markets on the
price of debt; irrespective of government interventions. Since domestic
liabilities comprise the majority of outstanding public debt for devel-
oped economies, defaults allowed states to channel desperately needed
resources to domestic demands and investments. Consequently, the
pronounced retrenchment in the volume of portfolio lending had a
tremendous impact on capital markets. Together these contingencies
contributed to what Sinclair (2005: 26) identifies as an ‘era of rating
conservatism’ where ‘sovereign rating coverage was reduced to a
handful of the most creditworthy countries’.
One of the consequences was a visible movement from bond to bank
financing. In this environment, rescheduling of debt was an easier and
preferable option to outright default. Thus, Eichengreen (2003: 81)
observes that by the 1970s:
Most sovereign debt was held in the form of medium- to long-term

syndicated bank loans. Bank syndicates had limited numbers of par-
ticipants, facilitating communication, collective action, and the
application of moral suasion by governments, while covenants
attached to these loans, such as sharing clauses that required an
investor initiating legal action to share the proceeds with other
creditors, discouraged disruptive litigation.
Where necessary, the US government exerted pressure on the banks for

a timely resolution.1 However, as the balance-of-payments schedules of
the ‘less developed countries’ (LDC) deteriorated with the 1973 spike
in oil prices by the Organization of the Petroleum Exporting Countries
(OPEC) cartel, and those petrodollars were aggressively recycled
through the major commercial banks as loans to help finance those
ballooning deficits, emerging economies became increasingly depen-

dent on the liquid capital markets of the West.
Inflationary domestic policies only heightened this reliance on
foreign injections of finance as they delivered a ‘brutal blow’ to devel-
oping debt markets (Reinhart and Rogoff 2008: 5). In cases where the
debt was partially indexed to inflation, such as Brazil, overzealous
inflationary policies were necessary to reduce the debt burden. Plagued
by bouts of hyperinflation, which averaged 417 per cent over the next
three decades but spiked to as much as 6832 per cent (April 1990),
Brazil witnessed international involvement in domestic debt markets
dissipate to only about 2 per cent (Hardie 2011: 149). Under the 1990
‘Collor Plan’, Brazil defaulted again on US$62 billion, and imposed an
18 month deposit freeze to combat hyperinflation; which translated in
a steep haircut of up to 65 per cent for depositors (Moody’s Investors
Service 2008b: 22). Unfortunately, a second oil shock and the US
Federal Reserve’s shift to tight monetary policy in 1979 precipitated a
global recession the following year and falling commodities prices;
which severely constrained the ability of the South to service their
obligations (Gilpin 2001: 313).
Mexico’s surprise announcement on 12 August 1982 that it would
suspend financing about US$80 billion of debt is commonly consid-
ered as the beginning of the 1980s debt crisis know as the ‘lost decade’
in Latin American development. Over the previous decade, the ex-
ternal debt of the South grew sixfold to stand around US$239 billion
by October 1983. Since the major US banks held a substantial portion
of these liabilities in their portfolios – with outstanding loans amount-
ing to as high as 194 per cent of their capital and reserves (Cohn 2009:
342) – multiple abrupt defaults would be crippling to the banking
system.2 Repeated rounds of rescheduling and restructuring attempted
to preserve the integrity and stability of the financial system in the
hope of averting a 1930s meltdown.
After several failed attempts, it finally became clear that additional
liquidity was not the answer to the debt crisis. To rejuvenate the bond
market of the ailing South, ‘Brady Bonds’ were issued which converted
about 60 per cent of outstanding private loans into individually-
tailored, securitized instruments; thereby creating a liquid market for
the debt of LDCs which they could access (Eichengreen 2003: 81). A
key feature for our purposes was the success of the Brady Plan in diversify-
ing sovereign risk across the broader investment community and off
the books of commercial banks. The scale of the enterprise – over
US$160 billion of bonds were issued – enhanced their exchange and
circulation; which prompted more ratings. Subsequently, a preference

for short-term debt formed as investors shunned the region or were
apprehensive about holding onto the paper for very long. As the credit-
worthiness of the South began to rehabilitate, rating agencies assumed
a greater role in assessing all of these emerging securities and their
shorter maturities. One Moody’s director even described this as their
‘revival’.3 Rather than simple exclusion, the CRAs now had to design
methods of differentiating quality. The proliferation of risk manage-
ment during this period proved quite auspicious.
It is this history of economic mismanagement that – compounded
by its opacity – has helped contribute to a risk aversion in regards to
the South which persists to this day. Accordingly, virtually every port-
folio manager interviewed confessed that, in regards to the BRICs, they
are much more prone to adopt external ratings; even if the scores are
generated by proprietary models that are just as opaque.4 Career risks
are simply too great to hazard deciphering the creditworthiness of
these ‘foreign’ systems.
Asian Flu hits ratings

Unfortunately, by treating ratings as an inexpensive form of
outsourced due diligence – whereby CRAs assume the liability risk –
(passive) portfolio managers and bond traders fail to perform the ade-
quate research necessary to familiarize themselves properly with the
sovereign at play. Outsourced due diligence may represent value of
simplicity but accuracy suffers. This mentality was only reinforced in
the aftermath of the 1980s debt crisis. Bouncing from that bottom, the
1990s rebound proved euphoric; though riddled by boom-and-bust
cycles. Fueled by a voracious appetite for ever more sophisticated secu-
rities, and the high fees and commissions that accompanied these
financial instruments, the major commercial banks once again began
to funnel massive capital flows into developing markets; in this case
East Asia. As the ‘Asian Tigers’ roared, an expanding arsenal of risk cal-
culus and quantitative models was applied to devise newly rated forms
of structured finance, which ‘initiated a lending boom of bubble pro-
portions’ (Watson 2007: 142). Intoxicated by the upswing, Jacqueline
Best (2010: 41) contends that:
The process of securitisation continually exceeded institutional

efforts to calculate the risks involved, in large measure because the
factors that could affect the ultimate value of a security or the
dangers involved in holding it were so vast, complex and dependent
on intersubjective perception. Efforts to make such indeterminacies

calculable depended on financial firms’ ability to abstract invest-
ment decisions from complex human relationships, to fragment dif-
ferent aspects of indeterminacy and to model risk based on a static
and unrealistic picture of likely events.
Coaxed into a false sense of complacency by relatively sound public

finances, and compounded by a focus on exogenous shocks, the rating
agencies were blind to how these financial flows were contributing to
the rapid growth of private-sector indebtedness; which would eventu-
ally translate into a crisis for sovereign creditworthiness. In other
words, the CRAs admitted that their models could not account for the
endogenous dimensions of the crisis (Truglia 1998). Many comprehen-
sive accounts already exist detailing the development of the Asian
financial crisis (cf. Higgott 1998; Noble and Ravenhill 2000; Watson
2007: 117–42) so my emphasis is on CRA complicity rather than the
numerous other contingencies which contributed to its climax.
With the growing taste for short-term assets helping accelerate their
design and exchange, portfolio managers and fixed-income traders
interested in emerging market plays ‘often relied exclusively on credit
ratings for information on the credit risk involved because it was too
expensive for them to carry out a more sophisticated analysis’ (Kerwer
2001: 14). Time was of the essence and outsourced due diligence
seemed convenient and cost-effective; as it does to this day. Of course,
such an overreliance on external assessments could prove disastrous if
the market sentiment suddenly turned – and it did. As East Asian cur-
rencies began to be dumped on foreign exchange markets, and secur-
ities followed suit, the vulnerability of these domestic financial
industries to external shocks became alarmingly apparent (Strange
1998). One would imagine that those charged with monitoring these
emerging developments would have expressed deep concerns about
the impending adverse effects that ‘over-extended lending to the prop-
erty sector, the build up of large off-balance sheet positions, excessive
exposure to highly leveraged borrowers, policy directed loans and
excessive reliance on short-term borrowing in foreign currency’ posed
for the economic health of these nations (Group of 7 1998); and thus
their credit scores. Unfortunately, seduced by the upswing euphoria,
the rating agencies were once again caught by surprise and failed to
provide the early warnings that the G7 and others thought were neces-
sary to help mitigate these hazards; which would eventually culminate
in a full-blown crisis.
Apart from Moody’s 8 April 1997 decision to downgrade Thailand

(from ‘A2’ to ‘A3’), the premonitions of an imminent financial cata-
strophe failed to trigger a single prescient rating action until the melt-
down was well underway. Irrespective of the fact that misaligned
exchange rates were already erupting into a series of currency crises in
Thailand and Malaysia in July 1997 and contagion engendered a spike
in premiums across the region as (Japanese) commercial banks reduced
their risk exposure (Cailloux and Griffith-Jones 2000), thereby
inflicting additional damage to balance-sheets, it was only towards the
end of the year (e.g., Malaysia and Indonesia in December 1997) that
most sovereign scores were adjusted to reflect the correction in market
conditions.
Astonishingly, real exchange rates were still dismissed as an impor-
tant determinant of sovereign creditworthiness even a year after the
crisis. Now while several studies (see Goldstein et al. 2000; Reinhart
2002) confirm the correlation between currency crises and the inci-
dence of sovereign debt default – especially in relation to developing
economies – it remains contested whether this did, in fact, apply to the
Asian case (Sy 2004). Nevertheless, a broader consensus does exist that,
as an early-warning system, ratings are atrocious in forecasting
looming currency emergencies. This inability proved problematic with
the Asian Crisis as regional currencies, such as the Thai baht, collapsed,
yet ratings failed to predict either the ensuing debt effect or immedi-
ately adjust.5
Criticized for being excessively late, the rating agencies suddenly
embarked on a campaign of aggressive and rapid slashing of sovereign
creditworthiness (IMF 1999). Whereas at first they lagged the markets,
now it was CRA haste that proved excessive by cutting beyond what
economic fundamentals justified. In one day, S&P downgraded South
Korea by three notches; who, along with Indonesia, suffered a six
notch downgrade (from ‘A+’ to ‘BB+’ and ‘BBB+’ to ‘CCC+’ respec-
tively). Only Malaysia escaped having its debt devalued to ‘junk’.6
Lower than deserved credit scores contributed to a procyclical effect
that amplified and prolonged the adverse effects of the crisis (Ferri
et al. 1999).
What aggravated the ensuing volatility was a conspicuous con-
formity among the main rating agencies to issue joint downgrades.
‘Collusion’ may not be the most appropriate term to describe this
behaviour, which often witnesses Moody’s, Fitch and S&P issue similar
rating assessments in a relatively condensed period of time.
‘Organizational isomorphism’, or what Fabian Dittrich (2007: 106)
refers to as ‘conformity bias’, ‘is a constraining process that forces one

unit in a population to resemble other units that face the same set of
environmental conditions’ (DiMaggio and Powell 1983: 143). Although
Moody’s, S&P and Fitch each have their own proprietary models, cor-
porate cultures and institutional identities, a fair degree of homo-
genization is visible in their rating analytics and subsequent rating
decisions; which, as we shall see in the next chapters, translates into
the imposition of an artificial uniformity on fiscal politics. Over time,
rating agencies become increasingly alike through both the deploy-
ment of similar risk-dominant, quantitative techniques involved in the
assessment of budgetary relations and, not surprisingly, the qualitative
judgments which are rendered from this practice. Intensifying the
gravity of this isomorphization are the self-generating performative
effects of ratings themselves.
The logic behind this conformity bias is quite simple and even ra-
tional. From a reputational perspective, the relative gain Moody’s or
S&P acquires from being the first to correctly revise their credit scores is
much smaller than the reputational damage they may suffer by being
overzealous and making an erroneous, drastic revision (Dittrich 2007:
106). Prudential regulation and investment by-laws accentuate the rel-
ative impact of downgrades as they mandate that portfolio/asset man-
agers hold investment-grade securities. Upward revisions, however,
lack this automaticity and are often already priced into market ex-
pectations (Reisen 2003: 23). Consequently, although some variations
do exist, these are typically minor as Moody’s, S&P and Fitch seldom
stray far from their rivals’ ratings; or not for very long.
Isomorphic conduct of this sort is most visible during crises like the
Asian crash (Kuhner 2001: 20). Parallel and large rating downgrades
swiftly pushed all but Malaysia into ‘junk’ territory, which accelerated
herding behaviour and forced massive sell-offs (Hardie 2012: 79).
Liabilities stemming from short-term foreign currency debt, which
were a glaring omission from CRA sovereign credit risk calculations
prior to the crisis, only compounded the mounting liquidity problems
(Sinclair 2005: 162). Given that close to two-thirds of the outstanding
US$250 billion in loans had a maturity date of less than a year, it was
only with the assistance of the IMF and other multilateral/bilateral
commitments that this debt was managed (Watson 2007: 129). Even
Moody’s reluctantly admitted that short-term liabilities were inade-
quately incorporated into their models (Truglia 1998). All together, the
Asian financial crisis impressed the need for more transparency and
enhanced rating quality.
The quest for fiscal transparency
In the aftermath of the Asian financial meltdown, and towards the end
of a decade shocked by a series of major crises – including the 1994
Mexican (‘Tequila’) peso crisis and the 1998 collapse of the Russian
ruble, which precipitated the largest local currency debt default
(US$39 billion) since Brazil reneged on US$62 billion in 1990 – calls for
reform and a ‘new financial architecture’ occupied the global agenda of
policy-makers (Best 2003; Eichengreen 1999; Langley 2004; Porter 2003:
520). Although various postmortems correctly identified a range of factors
(e.g., excessive leverage, market euphoria/property bubble, overvalued
currencies, poor prudential regulation, etc…) that contributed to Asia’s
woes (Strange 1998: 81), at the heart of this discourse was an over-
whelming consensus that a lack of transparency and poor disclosure had
severely compounded the financial crash (Best 2010: 30).
Not surprisingly, the exact same sentiment was echoed by the major
CRAs, who portrayed themselves as the victims of opaque and shady
governments (Sinclair 2005: 165). Of course, very few, if any, were
naïve enough to discount CRA complicity in the entire debacle. As the
demands for enhanced transparency grew, the rating agencies found
themselves increasingly under pressure to open the ‘black box’ of sov-
ereign ratings. Joining the chorus were the large investment banks
which were advising national governments and underwriting their
debt.7 To appease these demands and rehabilitate a tarnished reputa-
tion, the rating industry aligned itself further with the burgeoning
global popularity of risk management, and thus became much more
quantitative in orientation and execution.8 In other words, govern-
mental pressures for greater rating transparency share some of the
responsibility for the CRA fetish with risk.
With an adherence to predictive, and thereby prescriptive, positivism
and methodological rigor, the rating agencies were able to exploit the
‘enormous emphasis on the importance of information and great faith
in the ability of markets to use that information effectively to discip-
line states’ (Best 2010: 33). On the one hand, codified and defendable
(risk) practices appeared to address the deficiencies in fiscal opacity/
disclosure stemming from ‘a combination of gaps and inconsistencies
in fiscal transparency standards, delays and discrepancies in countries’
adherence to those standards, and a lack of effective multilateral monitor-
ing of compliance with those standards’ (IMF 2012: 3; added italics).
Rules addressed the fiscal ambivalence of democratic officials by ‘tying
their hands to the proverbial mast to save them and their nations from
their own hyperresponsive tendencies’ (Posner and Blöndal 2012: 22).

Better quantitative surveillance was deemed essential to maintaining a
‘rule-bound Hayekian order’ (Rosamond 2002: 160), which would
enhance the ‘clarity, reliability, frequency, timeliness, and relevance of
public fiscal reporting and the openness to the public of the govern-
ment’s fiscal policy-making process’ (IMF 2012: 4); namely improving
‘fiscal transparency’.
For this purpose, the IMF (1998) published a ‘Code of Good Practices
on Fiscal Transparency’, and accompanying ‘Manual on Fiscal
Transparency’, as a means for standardizing proper fiscal conduct and
monitoring its compliance. Since 1999, this diagnostic has assessed the
compliance of 94 countries by issuing a ‘Report on Observance of
Standards and Codes’ (ROSC). In recent years, however, the number of
ROSCs has dwindled from a high of 21 in 2002 to only one in 2011 as,
amongst other shortcomings, the value-added of additional updates
proved minimal without the implementation of major fiscal reforms
(IMF 2012: 36). Yet, all too frequently, as Layna Mosley (2010: 729)
argues, compliance with such codes and standards is quite dismal.
Similar to another endeavour designed to capture fiscal transparency,
the multi-donor Public Expenditure and Financial Accountability
(PEFA) assessments, the primary targets were emerging economies.
Given that their relatively nascent budgetary protocols and oversight
structures serve to portray them as more crisis-prone than their mature
counterparts, one of the IMF’s key recommendation was to subject
domestic fiscal affairs to external scrutiny (IMF 2007: 4). Although this
competence typically rests with a national audit body or its equivalent,
the IMF (2007: 7) suggestion that ‘independent experts should be
invited to assess fiscal forecasts, the macroeconomic forecasts on which
they are based, and their underlying assumptions’ seemed to sanction
(implicitly) the role of rating agencies in fiscal governance. If corrupt
or incompetent governments could not be trusted then an external
institution would be required.
CRAs seized on this ambiguity and aligned themselves with a men-
tality advocating epistocratic oversight over democratic budgets as
necessary to stabilize cross-border financial interactions and render
crises less likely.9 Resistance to such surveillance was relatively muted
because, as the next sections explain, being open to and even favoring
external scrutiny has itself become a litmus test of good economic
conduct. Furthermore, embedding financial liberalism from the top-
down, as Best (2003: 376) contends, was actively championed by the
IMF, who ‘having recognised that the rich variation of national eco-
nomic, social and political practices poses an obstacle for the smooth
expansion of global liberalisation…decided to attempt to homogenise
the world’s economies [and] universalise Western political economic
norms’. Parallel conclusions prioritizing transparency and (neoliberal)
financial liberalization may be drawn from Marieke de Goede’s (2005:
44–5) gendered read of the Asian crisis, where she discusses the need to
tame the region’s ‘(financially) virgin territories and Lady Credit’s
promises of wealth and quick profit’ through ‘the economic penetra-
tion [of] Western technology and industry’.
At the same time, technical intervention was deployed to calculate
deviance in fiscal relations and restore what was generally conceived of
as a temporary malfunction of financial markets (Engelen et al. 2012).
Irrespective of the usual rhetoric denouncing capitalism and globaliza-
tion, rather than a general overhaul of the financial system, a restora-
tive fix was considered more appropriate. Better risk models, and
greater transparency, were at the core of this technocratic approach
(Best 2010). Deemed more reliable in ensuring and promoting eco-
nomic stability than discretionary conduct, quantitative techniques
governed the threat of crisis as a primarily exogenous shock.
Unfortunately, Colin Hay (2004: 504) posits that ‘from the 1990s
onwards...the normalization and institutionalization of neoliberalism
and its depiction as a largely technical set of devices for managing an
open economy has served to depoliticize and de-democratize economic
policy-making’. With this ascendance of quantitative (risk) practices,
the rating agencies benefited from the boom in the internationaliza-
tion of financial innovation, which introduced a wide array of new
securities, such as derivatives and structured finance, for them to rate
(Sinclair 2010: 98). In fact, even before the ‘Asian Flu’, methods and
models applied to rate corporate debt were already migrating to the
sovereign side of the business.
By the early 1990s, banks were witnessing their competitive advan-
tage diminish as firms began to tap into expanding global credit net-
works; especially the more liquid and cheaper US capital markets
(Germain 1997: 151). As diminishing access costs spurred an expand-
ing availability of information necessary to calculate creditworthiness,
this disintermediation engendered ‘the emergence of a more direct
relationship between credit risk and pricing’ to ‘produce uneven
financial outcomes at a range of geographical scales’ and ‘[deepen] geo-
graphies of financial inclusion and exclusion’ (French and Leyshon
2004: 270). Increasingly, rating agencies replaced the banks as the
‘gatekeepers’ (Partnoy 2006) whose judgments granted access – at
different costs – to these lucrative sources of finance capital. Absent

internationally recognized standards for creditworthiness, a
disinflationary orthodoxy was privileged. While disintermediation
fueled the issuance of domestic corporate bonds in Asia and Latin
America after 1997 (Sinclair 2005: 56), integrating financial markets,
however, were not embraced as widely on the European continent as
in either London or New York – German opposition to unsolicited
ratings remains quite visible. Nevertheless, as a new information tech-
nology of transparency, the utility and significance of ratings would be
reinforced by the movement to Economic and Monetary Union (EMU).
Fixed exchange rates reduced currency risk, which focused attention
on credit risk and the spreads between bond yields.
New century but even more of the old
With contestable, if not often dubious, political imperatives being the

driving force behind so many momentous events during the last
decade of the twentieth century, and against the backdrop of the
extreme volatility triggered by the collapse of, amongst others, Barings,
Matellgesellschaft and Long-Term Capital Management (LTCM), to
help mediate the perception of ‘being at risk’, market participants –
including national governments – increasingly sought the legitimiza-
tion afforded by ‘objective’ technical expertise. Purportedly ‘displacing
valuable – but vulnerable – professional judgement in favour of a
defendable process’, rating agencies offered to mitigate such discre-
tionary hazards by ‘substituting risk management for political argu-
ment’ (Power 2004: 11). The ubiquity of risk as a category in finance
was only reinforced by the contestation surrounding the valuation of
the high-tech and Internet stocks which comprised what was labeled as
the ‘new economy’ (de Goede 2005: xx). Commonly referred to as the
‘dot-com’ market, the vast majority of these securities were listed in the
US on the National Association of Securities Dealers Automated
Quotations (NASDAQ) Index.
Although the speculative asset price bubble would burst in the spring
of 2000, the discursive materiality of the new economy refocused how
information acts on reality. Rendering economic/fiscal spaces intelli-
gible and governable increasingly required information that is ‘stable,
mobile, combinable and comparable’ (Miller and Rose 1990: 7).
Through a dissection of budgetary affairs and the subsequent compart-
mentalization of its various risks to sovereign creditworthiness, CRAs
offer the provision of comparable but remote calculations, whose legit-
imacy is buttressed by the allure of methodological rigor, continuity

and systematicity. Irrespective of their actual accuracy, or distorted ana-
lytics, the embeddedness of credit ratings in the hegemonic discourse of
risk has allowed them to ‘cling most tightly to the promised certainties
of atemporal structuralisms and positivist methods’ (Walker 1993: 105).
Here the optics of transparency are enhanced by the synchronizing
effects of risk, as these calculations enable the supposed congruence
between diverse information about dispersed sovereigns; thereby
making messy fiscal relations tractable to the kind of rational choice
modeling that eliminates the perception of imperfect information.
A calculative space forms that serves to facilitate the differentiation,
and thus the performative valuation, of qualitative contingencies as
quantitative measures of risk (Langley 2010). To a large degree, ostens-
ibly, the methodological merits of sovereign credit assessments have
trumped their substantive content enough to compensate for the
serious inconsistencies in the latter. But this could only happen if, as
the forthcoming chapters document, this quest for validity through
scientific precision in the search for certainty equivalence has helped
to re-encode fiscal relations as amenable to being captured in this
manner, and thus subsequently subject to speculation and predatory
financial practices. Arguably, the socio-technical agencement makes this
permissible and meaningful, as the subjectivities implicated in the
problem of sovereign debt become susceptible to the performative
effects of ratings and their programmatic ambitions. Otherwise, in a
world where rational behavior is dominant, a situation which con-
stantly privileges methodological merit at the expense of substantive
accuracy would quickly be rejected rather than repeated.
An ‘uncomfortable complacency’ with risk-based ratings continued
until some of this ‘inertia’ was shocked out of the system with the
2007–08 financial crisis.10 Obviously, the most severe economic correc-
tion since the Great Depression of the 1930s has produced a plethora
of scholarly analyses scrutinizing its various dimensions – including,
amongst others, the housing market crash and the crisis of liquidity in
subprime asset markets (Langley 2008a, 2010; Schwartz and Seabrooke
2009); its anchors in the neoliberal regulatory response to the collapse
of Keynesianism (Broome et al. 2012; Gamble 2009; Helleiner 2010);
escalating economic contagion (Thompson 2010); and greedy/preda-
tory banking practices (Rethel and Sinclair 2012). Yet one of the most
egregious areas of finance, which the recent turmoil has brought into
sharp focus, is the ratings space (BlackRock 2012; Eijffinger 2012; Kruck
2011; Paudyn 2013).
In order to appreciate the gravity of the impending catastrophe that

was to unfold, its enormous scale must be considered. Adrian Blundell-
Wignall (2011: 6) reminds us that ‘the notional value (the correct
measure of exposure in the event of extreme unexpected events) of
global derivatives grew from 21/2 times world GDP in 2008 to a stagger-
ing 12 times world GDP on the eve of the crisis’. Given the massive
implosion of highly rated but toxic subprime backed securities, the
rating agencies have been blamed as one of the chief culprits behind
the entire meltdown. The evidence alleging CRA incompetence is stag-
gering. Out of all the US private-label ‘residential mortgage backed
securities’ (RMBS) which S&P rated ‘AAA’ between 2005–07, over
75 per cent were slashed below investment-grade (‘BBB–’) (IMF 2010: 88).
Conventionally rated ‘B’ and ‘C’, the securitization of these ‘subprime’
asset backed securities (ABS) into complex instruments like ‘collateral-
ized debt obligations’ (CDO) by the major investment banks distorted
the differentiation of their multiple tranches of risk valuations; which
in themselves were grossly inadequate in calculating the future uncer-
tainties of subprime mortgagor delinquency and default (Langley 2010:
81–4). Without their own CDO model to properly assess these risk
packages, the rating agencies foolishly adopted the (dubious)
approaches supplied by Wall Street issuers (i.e., Goldman Sachs,
J.P. Morgan Chase, etc…), which facilitated ‘the laundering of triple-
B-rated bonds into triple-A-rated bonds’ (Lewis 2010: 74).11 Bill Gross,
co-chief investment officer of PIMCO, mocked Moody’s and S&P for
being ‘wooed…by the makeup, those six-inch hooker heels and a
“tramp stamp”’. Charged with first applying flawed risk models in their
assessment and then being excessively late by waiting until the spring
of 2007 to begin downgrading these assets, the rating agencies con-
tributed to a liquidity and ‘valuation crisis’ (Sinclair 2010: 101) which
caused enough panic over the health of financial institutions and their
balance sheets to seize global financial flows.
Initial estimates pegged the depreciation in market value of those
securities backed by US subprime mortgages, commercial mortgages
and corporate debt at around US$720 billion (Bank of England 2008:
18). Of course, further disclosure allowed the IMF (2010: 13) to calcu-
late that US$2.2 trillion in bank writedowns occurred between 2007
and 2010 – much of which can be attributed to securities losses.
Through corporate welfare programs, such as the initially authorized
US$700 billion Troubled Asset Relief Program (TARP),12 taxpayers
assumed many of these liabilities when governments transferred this
toxic debt onto their books; which – together with stimulus packages –
witnessed the credit crisis morph and consolidate into the sovereign
debt crisis (Blyth 2013).
In order to finance all of these bailouts and expenditures, govern-
ments were forced to turn to the bond markets and watch their debt
grow. For the entire Organization for Economic Co-operation and
Development (OECD) area, (central) sovereign debt issues jumped by
almost 50 per cent from US$23 trillion in 2007 to US$34 trillion in
2011, and were expected to surpass US$38.4 trillion by 2013; 30 per
cent of which was scheduled to be refinanced by 2014 (Blommestein
et al. 2011: 4–6). This would push general government debt to a pro-
jected 111.4 per cent of GDP in 2013. Absent from government
balance sheets until called, another huge continent liability now
saddled on governments is their guarantee of the bonds issued
by private and public financial firms, which has ballooned from
US$120 billion in 2008 to US$1.4 trillion by 2012 (IMF 2012: 22).
Excessive risk-taking, poor internal controls and an overall failure of
governance in many of these rating agencies – hallmarks of a self-
regulating financial order gone astray – have been identified as con-
tributing factors to the crisis (European Commission 2009). Enhanced
transparency is also advocated by governmental bodies like the
European Securities Markets Experts Group (ESME). While:
The CRAs have greatly increased the volume of communication on

their websites on rating methods and assumptions to a lesser extent,
this information is presented in a manner that typically does not
facilitate easy access and understanding on the part of the investors,
in the absence of direct dialogue with the CRAs. It is probably fair to
say that transparency was patchy and inconsistent in the past; trans-
parency on critical issues and associated information was not neces-
sarily a priority, e.g. there was limited communication on the
‘refinancing risk’ in the subprime market (ESME 2008: 12).
However, the ESME (ibid.) reiterates that caution needs to be exercised:
To avoid giving the impression that total transparency is the perfect

scenario. Such a level of transparency (e.g. giving the precise
weights attached to all the risk factors used in the model) may be
counterproductive and misleading because...it implies a level of
science in rating that is neither appropriate or realistic and it under-
states the qualitative/subjective input to the rating (more important
going forward).
Yet the current EU regulatory response appears to dismiss this warning

by privileging a risk-dominant approach which champions rating
transparency at the expense quality.
Although the legacy of alleged CRA abuses persists, their effects are
asymmetrical. By November 30, 2013, the American Office of Financial
Stability (OFS 2012) had already collected 102.3 per cent of the
US$417.6 billion in outstanding funds issued under TARP.13 However,
plagued by an enormous national debt (US$18.2 trillion and
growing)14 and a polarized political system that proves just as dysfunc-
tional as the Europeans in forging an agreement on key fiscal reforms,
such as the deficit ceiling, America is not immune from future contro-
versies similar to the deadlock in the fall of 2013. Unfortunately, the
European situation is much bleaker and, at the time of writing, spilling
over to affect a slowdown in the BRICs. While postulating a direct
causal relationship between the alleged recklessness of CRAs and an
exact figure in damages is virtually impossible given the valuation
crisis that crippled financial markets, the ensuing meltdown exacted a
massive toll on both the private and public sectors.
In a major landmark ruling, Justice Jayne Jagot, of the Australian
Federal Court, handed down a scathing verdict which concluded that
S&P (and ABN Amro) had ‘misled’ and ‘deceived’ investors (12 local
councils) when it assigned an ‘AAA’ grade to a complex assortment of
‘constant proportion debt obligations’ (CPDOs) (Financial Times,
5 November 2012). If upheld on appeal, this ruling could pave the way
for future liability suits and negate the legal relevance of CRA dis-
claimers which, up to now, have absolved them of accountability for
their ‘opinions’. In February 2013, the US Department of Justice
launched its own (civil) legal battle against S&P; accusing the CRA of
delaying changes to or manipulating its models in order to generate
high ratings on mortgage-backed securities. Nevertheless, irrespective
of CRA implication in all of these crises, it may be wise to heed the
warning of Sinclair (2010) and avoid assigning excessive explanatory
capital to a single ‘exogenous’ variable (i.e., CRAs). There is no single
‘smoking gun’ and this conviction is blind to the endogenous dimen-
sions of crises. With that in mind, this book seeks to re-embed ratings
in the discursive materiality of the political economy of creditworthi-
ness by focusing on the intersubjective performativity of this space and
related subjectivities.
As much as Moody’s, S&P and Fitch were lambasted for the ‘rating
crisis’ in the US structured finance market, it is the scorn of the
Europeans that reflects the immense antagonisms underlying the sov-
ereign debt crisis. José Manuel Barroso, EU Commission president,

lashed out, accusing ratings of being ‘too cyclical, too reliant on the
market mood rather than fundamentals’ (Financial Times, 5 May 2010).
Echoing the sentiment, Michel Barnier, Internal Market Commissioner
(DG MARKT), expressed outraged at the fact that these very firms are
‘making money on the back of the unhappiness of the people’ (The
Economist, 22 July 2010). Now that financial markets have been resusci-
tated courtesy of the taxpayer, they have demonstrated their apprecia-
tion by subjecting Member States – and the periphery countries in
particular – to, in the words of George Papandreou, former Greek
prime minister, ‘psychological terror’ (Newsweek, 16 April 2010). Of
course, unless strong and effective regulatory policy follows such con-
viction, governments will most likely remain, in the words of the
Austrian newspaper Die Presse, ‘trembling with fear of the rating agen-
cies’ (quoted in Tichy, 2011: 233). At present, however, the
Commission has placed itself in the perilous position. Neither has it
entirely repudiated the doctrine of unfettered liberal markets to seri-
ously curtail CRAs conduct nor has it presented an alternative measure
of sovereign creditworthiness through which to correct the imbalances
that underpin the egregious elements of ratings.
One would suspect that their ridiculous debacle in the
subprime/structured finance crisis would strip CRAs of what remaining
credibility and authority they may exercise. However, an ‘overreliance’
persists on what Jürgen Stark (Reuters, 11 June 2010), European Central
Bank (ECB) Executive Board member, has labeled as the ‘irresponsible’
behavior of the rating agencies, ‘which may lead to volatile markets
and instability in the financial system’ (European Commission 2010a).
Even more bewildering is that the governments who saved the
financial institutions and system from collapse – by assuming these
huge liabilities through the injection of massive amounts of liquidity –
must now earn the very confidence of, arguably, the least credible enti-
ties in global finance who played such a precarious role in precipitating
the entire catastrophe; namely the credit rating agencies. How this
paradox persists is what this book answers.
Contagion risk of ratings

In order to finance these new obligations and reschedule previous com-
mitments, OECD governments’ issuance of new debt has jumped by
almost 50 per cent since 2007. For the Member States at the epicenter
of the sovereign debt crisis that task became exacerbated when sover-
eign (long-term) bond yields spiked following the 5 November 2009
revision of the Greek deficit to 12.7 per cent of GDP (Eijffinger 2012:
918).15 Although spreads react to aggregate risk (e.g., monetary policy,
global uncertainty, risk aversion) and changes in country-specific
factors, Roberto De Santis (2012: 7) argues how credit ratings have
amplified ‘contagion risk’ across the EU. Rather than basing assess-
ments primarily on the fundamentals of each sovereign, CRAs must
also interpret how negative spillover effects jeopardize creditworthi-
ness. Not only does this infuse more uncertainty about the transmis-
sion of such shocks across borders, and thus demand more qualitative
judgments, it also leaves the ratings process more vulnerable to
politicization.
In addition to a robust relationship – often denoting bivariate causal-
ity – between a rating announcement and the spreads on that sover-
eign’s yields, and credit default swap (CDS) (Afonso et al. 2011; Reisen
and von Maltzan 1999), studies have demonstrated that downgrades –
especially into speculative territory – also pose systemic adverse conse-
quences for other countries and financial markets as a result of contagion
(Arezki et al. 2011). Just as the flight to the safety of German Bunds
has positively benefited the spreads of Austria, Finland and the
Netherlands, so too have Greek downgrades negatively impacted the
spreads of Portugal, Italy, Spain, Belgium and France. Neither is this
unique to Europe, as Amar Gande and David Parsley (2005) report
similar conclusions in their observations of a pool of 34 developed and
developing economies from 1991 to 2000. Contestation abounds as to
the intensity of these asymmetric shocks, however, as they elude
precise forecasting. Ratings, thus serve to trigger the very contagion
risk that they then must judge; which is only compounded by their
procyclical economic effects. Identical charges were levelled against the
CRAs during the Asian crisis (Ferri et al. 1999). It is of little wonder,
therefore, that EU leaders have grown quite incredulous of their pur-
ported market neutrality. A common perception is that ‘the credit
rating agencies are playing politics not economics’ (Financial Times,
6 July 2011). This is most acute in regards to the timing of downgrades;
which have often coincided with high-profile EU summits.16
Contagion risks triggered by downgrades give the impression that
CRAs are no longer simply credit assessors but market ‘movers’. Already
inculcating a neoliberal programmatic which privileges disinflationary
fiscal policy, this threatens to transform ratings into explicit political
instruments. It is these kinds of self-validating feedback loops that
forthcoming chapters discuss. Admittedly, since the 2007–08 financial
crisis, an increasing segment of passive management has begun to
practice more market-based due diligence by scrutinizing, amongst

others, the composition of bond auctions, the price of domestic and
international debt relative to peers and the shape of sovereign yield
curves.17 One contingency which defies the increased scope for system-
atic modeling, however, is the risk of contagion amplified by rating
downgrades. Even if transitions in creditworthiness have already been
priced into market expectations, it is difficult to calculate the extent of
the actual rating event and how its transmission will play out across
countries because of ‘banking regulation, ECB collateral rules, CDS
contracts or investment mandates’ (Arezki et al. 2011: 3).
Equally perplexing is how political contagion is judged to affect cred-
itworthiness. When European leaders dithered and denied the immi-
nent second Greek bailout during the summer of 2011, Spanish and
Italian ten-year bond yields reacted by striking new euro-area records –
6.46 per cent and 6.26 per cent respectively (Bloomberg, 4 August 2011).
As the ensuing political anxiety rippled through the eurozone, Greece
watched the yield on its two-year notes hit a euro-area record of
35.98 per cent, while the Irish and Portuguese equivalents surged to
23.31 per cent and 20.34 per cent respectively. The fundamentals of
these economies did not justify such movements (De Santis 2012).
There was, according to a fixed-income strategist at UniCredit SpA, ‘no
genuine reason to price Italy and Spain down. It’s general contagion.
It’s an alarming signal to European leaders to come up with a solution
that doesn’t create more contagion’ (Bloomberg, 18 July 2011). Both
rating-triggered and political contagion risks escape being readily cap-
tured through any systematic measure.
Moreover, no matter if asset managers are determined to shift away
from the dependence on external assessments and purse more ‘active’
investment strategies, the costs of researching country-specific uncer-
tainties in opaque pockets such as India or China, and then standardiz-
ing such modeling in order to make it repeatable and comparative,
diminish the appetite for the internalization of self-regulation or man-
aging fiscal relations through uncertainty. After all, the risk-based tech-
nicals (e.g., back-testing, transitional matrices) deployed to assess
sovereign creditworthiness do not fundamentally change. The only
significant difference is the individuals applying them and their subjec-
tive estimations.
Rating legacy lingers on

As the Cypriot, Greek, Irish and Portuguese bailouts testify, strained
public finances are often unsustainable in the eyes of speculative
financial markets. Tremendous structural reforms are still necessary to

help European economies regain their stability/growth and, in some
cases, access to capital markets. As the socio-political costs associated
with the imposition of austerity mount, the European Commission
(2012a: 46) calculates that current account rebalancing will translate
into a reduction in expenditure of over 5 per cent of GDP from
2011–15 in, amongst others, Spain, Portugal and Poland.
Unfortunately, given the negative feedback loop between budgetary
policy and economic growth, this fiscal adjustment is damaging
growth prospects and forcing states to incur even more debt as they fall
back into recession. Euro area debt-to-GDP is forecast to climb to
between 86 per cent and 96 per cent for 2012–17 (European
Commission 2012a: 7). Weak banks could also demand more recapital-
ization. Subsequent procyclicality, however, has only fuelled the crisis
in confidence and the widening of bond yield spreads between the bat-
tered periphery and German core, where negative yields are a stark
contrast to their southern neighbors. Even more troubling is the fear
that excessive austerity is contributing to disinflation and potentially a
spell of falling prices. The annual consumer-price inflation rate fell
to 0.7 per cent in October 2013 (0.5 per cent by March 2014) from
2.5 per cent the previous year (The Economist, 9 November 2013).
The majority of this fiscal consolidation has assumed the form of one-
off reductions in expenditures and investments. Its translation into
serious structural labor and service market reforms is precarious given the
unequivocal signs of austerity fatigue across the continent. By 2014,
Greece will have been in recession for seven consecutive years.
Unfortunately, rather than improving, its economic condition is deterio-
rating as unemployment keeps hitting new highs – 27.6 per cent in May
2013 (28 per cent by November 2013) compared with 9.1 per cent in the
same period in 2009 (Eurostat 2013). This parallels the misfortunes of
Spain who also shared the dubious distinction of possessing the EU’s
highest employment rate (26 per cent in Q4 2013). Unemployment and
underemployment among European youth (below 25 years old) – as high
as 60 per cent in Spain – promise only to aggravate future tensions.
Even meeting or exceeding the austerity program criteria has proven
disappointing. Upon exiting its bailout, Ireland’s government gross
debt continued to climb to 122.2 per cent of GDP in 2013 (from 106.4
per cent in 2011). All the while, it has suffered persistently high levels
of unemployment which have hovered around 14.5 per cent for several
years up to 2013; though the rate fell to just under 12 per cent by Q1
2014 (European Commission 2013a). As expenditures get slashed and
economies stagnate/contract across the continent, there is a growing

sentiment that the appeasement of financial markets is becoming self-
defeating. Together with the US Federal Reserve tapering off quantita-
tive easing, Europe’s woes have also produced a noticeable slowdown
in the BRICs, which rely on healthy EU markets for their exports.
Although the questionable conduct of rating agencies can be traced
back for decades, the ramifications of their fallibility have become
especially stark and disruptive with the 2007–08 credit crisis, and sub-
sequent sovereign debt woes.
Examining the litany of alleged abuses noted above, it is astounding
how credit ratings can still exercise any authoritative capacity to
inform the constitution of the political economy of creditworthiness.
That is unless one carefully considers how ratings are embedded in and
aligned with the broader, hegemonic discourse of risk; which serves to
validate the construction of an austere politics of limits by creating the
conditions and subjectivities necessary for its existence and regenera-
tion. In other words, this discussion about the definition of the
problem of sovereign debt, and its corresponding effects, is not
grounded in abstract constructs but repeatedly performed through
socio-technical devices of control and governmentality whose quanti-
tative character facilitates the translation of their orthodoxy into
reality as qualitative judgments. As the subsequent analysis demon-
strates, it is not even the institutional agencies themselves that really
matter; as their consistent ridicule and dismal performance keep
degrading their reputational capital. Rather it is the act of risk rating
which forecloses possibilities about budgetary sovereignty. More
specifically, the threat to the integrity of fiscal sovereignty, and thus
social democracy, on the periphery is amplified and perpetuated, in
large part, by a series of false dichotomies – especially between (quanti-
tative) risk and (qualitative) uncertainty – that help to marginalize
and censure political discretion in fiscal governance as normalizing
mathematical/risk models depoliticize the decision-making process.
The severity of this imposition varies depending on how closely
affiliated the government’s fiscal approach is with this disinflationary
doctrine. If excessively pressured, however, a crisis may unleash unsus-
pecting forces contingent on the ‘singular nature of sovereignty’. At
that point, the neoliberal fiscal programmatic will be disrupted as gov-
ernments seek to regain their lost fiscal sovereignty and protect their
citizens. If and when that will transpire is shrouded in ambiguity and
uncertainty. What are more obvious are the inadequacies that plague
the current regulatory responses. Unless governments recognize how
the constitution of authoritative knowledge underpinning creditwor-

thiness is distorted through an adherence to risk discourse, they will
not be able to correct the egregious analytics of ratings which help
subject them to an artificial fiscal uniformity that threatens their
national self-determination. In consideration of all these developments
above, three conceptual themes are introduced below which inform
the remainder of the analysis and contribute to our understanding of
the problematic.
Conceptual territory of sovereign creditworthiness
By problematizing how sovereign ratings help contribute to the consti-

tution of a neoliberal political economy of creditworthiness, this book
helps render ‘visible a singularity at places where there is a temptation
to invoke a historical constant...or an obviousness which imposes itself
uniformly on all’ (Foucault 1991: 76; original italics). Risk-centered for-
mulas of credit analysis aggregate unique and heterogeneous fiscal con-
tingencies, which allows the quest for certainty equivalence in
budgetary relations to be taken for granted given that risk management
is presented as a defendable, scientific process. Its ubiquity in the corpo-
rate sphere, and subsequent commercialization, simply work to rein-
force this tendency. Accordingly, as Paul Langley (2010: 75) contends,
‘modern financial performativity does not simply hinge on empirical
validity and the “accuracy” of a model or formula, but also on
scientific validity and the search for “precision”’. As much as the com-
partmentalization and quantification of fiscal relations may attempt to
align itself with the prescriptive positivism of the natural sciences, this
unproblematic mediation can only offer an ‘illusion of transparency’
because the socio-political elements of this problematic do not readily
lend themselves to being captured and manipulated in this fashion
(Hansen and Porter 2012: 415).
This preoccupation with unearthing an exogenous reality through
risk calculus distorts the social facticity of creditworthiness. Insofar as
it may give the impression of yielding more objective and quantifiable
knowledge about the willingness and ability of governments to service
their debt obligations to warrant the re-encoding of fluid fiscal rela-
tions through risk management, to a great degree, this is a conse-
quence of serious inconsistencies and misrepresentations; which allow
CRAs to conflate uncertainties as risks and obscure their own contin-
gent liabilities. Such re-encoding serves to modulate budgetary
deviance ‘at-a-distance’ by facilitating the translation of heterogeneous
fiscal sovereignties into mutually corresponding and globally universal

problematizations. Unfortunately, as this book argues, this tendency to
accept the authority of numerical figures in demarcating the boundary
between truth and fiction frequently fails to problematize their contex-
tuality, validity and legitimacy. In a similar vein to what Anthony
Giddens (quoted in Collier and Ong 2005: 9; original italics) labels as the
‘displacement and reappropriation of expertise’, this managerial predisposi-
tion immunizes experts from shouldering some the burden of respons-
ibility for their decisions since risk technologies provide a buffered form
of rule necessary for rating renewal (de Goede 2004). Given the ‘inherent
controversy and undecidability of truth claims’, calculative technologies
have ‘come to replace the trust that formulae of government once
accorded to professional credentials’ (Rose 1996: 55).
Yet, as Bridget Hutter and Michael Power (2005: 11) remind us,
‘encountering risk is above all an event of problematization which
places in question existing attention to risk and its modes of
identification, recognition and definition’. Merely accepting its pur-
ported precision, order/ranking, combinability and stability, without
appreciating how these contribute to discursively constituting the
materiality of credit markets, we are blind to how power circulates
through these calculative devices to perform different valuations of
creditworthiness that render these economies a reality. Control as cal-
culation/classification is revealed and institutionalized through these
processes of risk identification and prioritization.
Consequently, what Gilles Deleuze and Felix Guattari (1987:
474–500) refer to as a ‘strained space’ develops. Here the logics of
control target capacities and potentialities as rating agencies monitor
the capability of governments to self-regulate themselves. As objects of
control, they are subjected to ‘the calculated modulation of conduct
according to principles of optimisation of benign impulses and minim-
ization of malign impulses…across time and space (Rose 1999: 234).
This exerts ‘isomorphic pressure’ to conform to the disinflationary
fiscal normality that becomes naturalized within these discourses of
mobilized expertise. An analytics of government, therefore, grants us
insight into the ‘invention and assemblage of particular apparatuses
and devices for exercising power and intervening upon particular prob-
lems’ (Rose 1999: 19). As the contextuality and contingency of credit-
worthiness are rendered intelligible, the coherence and authoritative
capacity of quantitative (risk) modeling becomes disturbed; thereby
opening up novel spaces for the articulation of fiscal normality and
rectitude.
To help us come to terms with the performative capacity of sover-

eign ratings to engender a neoliberal politics of limits, two analytical
tools are deployed. It is through these diagnostic methods that the
principal conceptual themes underpinning the subsequent analysis
become revealed. First, before policies may be enacted, some intelli-
gible comprehension of what is within the realm of possibility, and
what is considered incredulous, must exist; otherwise known as the
production of ‘truth’. ‘Deconstruction’ helps us ascertain how truth
claims are constituted by dissecting the very discourses, institutions
and technologies employed in their actualization. Discourse is a ‘tech-
nology of thought’ that enables an economy to be ‘political’ as com-
peting claims produce the accepted ‘truths’ on which it is founded
(Miller and Rose 1990: 5). Such an analytical diagnostic exercise sheds
light on the construction of knowledge through risk and uncertainty
and how it is appropriated to serve defined governmental ambitions.
Normality, being discursively mediated, represents a particular condi-
tion denoting legitimate budgetary conduct; relative to which alterna-
tive understandings are degraded or even excluded. Alterity becomes
visible through this deconstructive ethos of governmentality.
Foucault (1980: 102) contends that the very parameters which
delimit our understanding of surrounding empirical phenomena are
intricately connected to the circulation of ‘apparatuses of knowledge,
which are not ideological constructs’ but embedded within the ma-
teriality of discourse. As preconditions for any kind of action, these
formulations of facticity are derived from techniques of truth produc-
tion, which include ‘methods of observation, techniques of registra-
tion, procedures of investigation and research, apparatuses of control’
(ibid.). Through the deployment of discursive practices, such as
benchmarks or ratings, a calculative space forms, which is neither
static nor a uniform totality but amenable to the changing articula-
tions of managing uncertain fiscal futures. An analytics of govern-
ment allows us to arrive at a better understanding of how this plays
out in the political economy of creditworthiness. The deconstructive
thematic:
Seeks to identify these different styles of thought, their conditions

of formation, the principles and knowledges that they borrow from
and generate, the practices that they consist of, how they are carried
out, their contestations and alliances with other arts of governing
(Rose et al. 2006: 5.2).
Thus, it exposes how, framed as binary opposites, the dialectical rela-

tionship between risk and uncertainty is distorted; thereby embedding
risk as the dominant modality informing this performativity.
In this study, I am interested in deciphering the lineages that
demonstrate how the modalities of risk and uncertainty are appropri-
ated and deployed through sovereign ratings to construct both an ana-
lytical and socio-economic (calculative) space, which conditions the
way policy-makers think about and govern fiscal conduct. For this
purpose, an analysis of primary documents, interviews and the rating
methodologies employed by Moody’s (Steps) and S&P (Rating Analysis
Methodology Profile or RAMP) reveals a (fictitious) bifurcation between
the economy and politics; which enables the formation of an infra-
structure of referentiality promoting self-systemic, and thereby self-
regulating, logics of neoliberal capitalism. In the process, the
self-validating/self-generative effects on CRAs, constitutive effects on
investors and prohibitive (unintended) consequences for national gov-
ernments become visible. Without redressing the flawed analytics of
ratings the regulatory responses are in danger of exacerbating their per-
formative effects to the detriment of social democratic political
economies. At the same time, financial markets may be more prone to
the ‘cliff effects’ of herding behavior. The performative effect of ratings
– promoted as an exogenous and tangible risk – is to impede the inter-
nalization of self-regulation as market participants adopt these external
scores without performing their own sufficient due diligence; namely
governing through their own uncertainty. But to fully grasp the
significance of this skewed politics of limits requires that we move
beyond this initial performance and become attentive to its ensuing
ruptures and crisis or its ‘counterperformativity’. For this purpose,
another analytical tool is necessary.
Second, ‘reconstruction’ shows how, based on this (dubious) know-
ledge, the performation of the politics of limits surrounding sovereign
debt is fraught with perils and vulnerable to crisis. Of interest, from the
perspective of the debt crisis, is how fragile these stabilizations are as
risk-based ratings threaten to jeopardize their own programmatic ambitions
by creating the very conditions which refute their disinflationary ratio-
nalities and impair their calculative capability. Three elements define
this performativity breakdown. First, in compliance with the prescrip-
tive normativity of ratings, governments implement the harsh auster-
ity measures thought to improve their credit scores. Second, without
the felicitous conditions anchored in the realities of national budgetary
sovereignty, the predication on the hegemonic discourse of risk fails to
prevent crises as its prescribed universal austerity conflicts with indi-

genous forms of capitalism to unleash forces of instability. Instead of
improving the crisis, adherence to this disinflationary fiscal rectitude
may only intensify the downturn. Lastly, given this intensifying
tension, there is now even more political upheaval for rating agencies
to assess and factor into their calculation of credit scores.
An analytics of government compels us to rethink the artificial uni-
formity granted to fiscal subjects who – through ratings – are posi-
tioned in relation to exogenous social contexts and shocks. Rather
than in terms of some innate properties of fiscal rectitude, we come to
understand the ratings space as ‘the heterogeneous engineering of
assemblages (“markets”) that enlist specific social capacities’ to address
the problem of sovereign debt (Barry and Slater 2005: 9). Unless
sufficient congruence develops between the governmental program
and the capacities of its objects/subjects of rule then the result is crisis.
Through the governmentality diagnostic, this book reconsiders the
foundations underpinning this asymmetric politics of limits, the total-
izing discourse of risk and the naturalization of Anglo-American forms
of capitalism as fiscal normality. Nevertheless, we should be wary of
attributing excessive, theoretical density to this approach. The inten-
tion is not to replace economic theory with a sociology of knowledge
or governance, which privileges the notion of a social totality operat-
ing in accordance with some natural laws. A:
Critical ontology of ourselves has to be considered not, certainly, as

a theory, a doctrine, nor even as a permanent body of knowledge
that is accumulating; it has to be conceived as an attitude, an ethos,
a philosophical life in which the critique of what we are is one and
the same time the historical analysis of the limits that are imposed
on us and an experiment with the possibility of going beyond them
(Foucault 1984b: 50).
In this spirit, the forthcoming chapters allow us to test the very limits
of the imaginative capacity of sovereign ratings to define the problem
of sovereign debt and translate it into the authoritative governance of
fiscal relations. Here the conceptual themes of authoritative know-
ledge, the performativity of calculable subjectivities and spaces, and
the politics of resistance/resilience are introduced.
Problematizing a ‘fact/value ambiguity that has always been present in
the idea of the normal’, we come to recognize how the ratings space
becomes a terrain where competing visions of (fiscal) normality and recti-
tude are assessed and articulated (Hacking 1990: 168). As a result, through
this deconstructive and reconstructive ethos, we are better positioned to
understand how action and authority combine to govern-at-a-distance;
which helps to dispel the false dichotomies, inconsideration of performa-
tive power relations and inattention to the spatial-temporal dimensions
of fiscal governance exhibited by mainstream accounts. This empirically-
based analysis allows us to arrive at a more in-depth understanding of the
problematic and how a significant financial practice like sovereign credit
ratings can be riddled with such serious deficiencies, yet retain a funda-
mental role in the configuration of global valuation systems.
Authoritative knowledge
Through the deployment of the deconstructive analytic, we appreciate

how expertise mediates the contested constitution of authoritative
knowledge underpinning the politics of limits to render sovereign debt
as a specific problem of government. All the volume of information, for-
mulas, statements and scores of data that are regularly produced docu-
menting the multiple dimensions of budgetary affairs are not neutral
recordings but contribute to an economy of knowledge; whereby sover-
eign debt is made intelligible as a particular form of reason, aligned
with perceptions of contingency, and interwoven into the political
imagination and discourse of the political economy of creditworthiness.
Sovereign credit ratings embody and project a defined notion of this
understanding. Rather than simply referential representations of either
abstract constructs or pre-existing categories, these ‘canons of compre-
hension’ serve to ‘format social processes’ through their capacity to
affect fiscal and financial conduct (Bryan et al. 2012: 306). Drawing on
the Foucauldian-inspired scholarship on the knowledge/power nexus
provides insight into how these truth claims about creditworthiness are
implicated in the performativity of the material reality of global finance
(Aitken 2005; Langley 2008a). With the realization that this social fac-
ticity is in a continuous state of negotiation, regeneration and sedimen-
tation, we become cognizant of how discontinuous and ephemeral the
economy is itself. Accordingly, this book helps us move beyond the uni-
versalistic, positivist economic reductionism popularized by neoclassical
economics and conventional IR/IPE accounts to show the fragility and
contestability implicit in the constitution of credit markets. This allows
us to reconnect technoscientific epistemology with the politico-
economic contexts in which it is embedded, thus opening the ratings
space to potential repoliticization.
Each authoritative regime exhibits its own unique political mental-

ities and complexions, which may be deciphered and distinguished:
In terms of the relatively systematic discursive matrices within

which the activity of government is articulated, the particular lan-
guages within which its objects and objectives are construed, the
grammar of analyses and prescriptions, the vocabularies of pro-
grammes, the terms in which the legitimacy of government is estab-
lished (Miller and Rose 1990: 6).
Mentalities translate material reality into thought. They equip us with

the necessary intellectual apparatus to organize our conceptions of
creditworthiness in correspondence to the problem of sovereign debt.
Of course, not everything is included or valued equally. By dissecting
sovereign credit ratings for these components, their dominant rational-
ity becomes revealed. Without the potential to ‘exclude things’, or dif-
ferentiate, and ‘leave certain costs or claims out of the calculations,
and deny responsibility for certain consequences’, markets would not
work (Mitchell 2007: 244). Uncertainty is itself a method of framing
that discriminates amongst various factor inputs in the production of
knowledge, and thus credit markets. Together with risk, it acts as a
‘boundary object’ and functions to unite dispersed national fiscal
sites across the spatial-temporal terrain of the political economy of
creditworthiness.
If, as Miller and Rose (1990: 8; original italics) remind us, ‘political
rationalities render reality into the domain of thought’ then ‘“technolo-
gies of government” seek to translate thought into the domain of reality’
in order to act upon objects/subjects. Together they comprise a ‘mode
of governance’, which may be conceptualized as a managerial
approach with a programmatic character that aligns a political ratio-
nality with the interventionary practices that allow it to modulate
conduct. Modalities of rule, therefore, have both a discursive and tech-
nological dimension to them. Calculative practices articulate govern-
mental programs to shape the economic and social relations which
comprise the ratings space. A mutual constitution between the discur-
sive and material prevents either one from being folded into the other.
Given the rich heterogeneity of these vast national political economies
and investment communities, for a particular economy of knowledge
to exert authoritative leverage successfully, it relies on how well it
‘[governs] which statements are considered futile and irrelevant to the
financial domain, which evidence is inadmissible, which utterances are
invalid’ (de Goede 2005: 9). Again, here is where risk and uncertainty
function as boundary objects immanent in such strategies of control.
Control as calculation/classification may be one of the most pro-
nounced forms of power visible in this construction; as ratings monitor
and modulate budgetary deviance at diffused sites (Deleuze 1995).
Acknowledging that fiscal failure is possible across multiple spaces, the
modulation of conduct programmed into credit ratings reveals various
insights into how authoritative knowledge is devised and deployed in
order to constitute effectively its subjects and objects of government.
However, its capacity to condition our conception of truth is con-
testable and must be carefully considered in relation to other forms of
power. Of particular interest are ‘sovereignty’, which is linked to
national competence over the budgetary process, and ‘governmental-
ity’, or the ‘conduct of conduct’, which works on freedom in the con-
struction of self-regulating subjectivities (Dean 1999; Foucault 1980).
Freed from strict institutional confines and macrostructures which
dominate Foucault’s (1979) Discipline and Punish – plus reinforced by
the lack of a superior judicial and institutional authority above the
nation-state – ‘discipline’ is not as significant to this problematic.
Furthermore, its loose appropriation to denote the disciplinary hege-
mony of capital, or what Stephen Gill (1998) labels as ‘new constitu-
tionalism’, reduces its analytical purchase on the problematic by
subjecting it to some nebulous (exogenous) market forces. Understood
in relational terms, however, these systems of power often overlap;
thereby precluding a strict binary opposition in their delineation.
How authoritative knowledge, as a susceptibility to vulnerable fiscal
conduct and as a register of responsibility, is constituted and legit-
imated in the production of fiscal subjects is a central theme which is
explored throughout the forthcoming chapters. To elucidate how
power acts as a constitutive force connected to the process of
objectification/subjectification, we must understand what logics serve
to facilitate its formation of identities and interests. Similar to Maurer’s
(2002: 29) study of derivatives, the mathematical ‘black box’ of sover-
eign credit ratings grants them an ‘indexical power’, or ‘the power to
point towards and refer to the truth-value of some other phenomena’.
Underpinning this contention is the notion of risk as a predetermined
and self-perpetuating phenomenon, which functions as a ubiquitous,
constant fixture of economic existence. To the contrary, however, risk
is not independent of its multiple and overlapping sites of articula-
tion/actualization. By problematizing these discursive instantiations
where they happen, we denaturalize risk and trace its ‘fragility’ in the
constitution ‘a history of the present’ of budgetary creditworthiness

(Foucault 1988). It is here that we better understand the discursive
definition of fiscal boundaries, or the production of truth; the tech-
nologies of power in which subjects are implicated and the methods of
their objectification/subjectification; and the mentalities of rule which
underpin these regimes of authority.
Sympathetic to Langley’s (2008a: 34) concern that governmentality
studies are often guilty of portraying the performance of calculative
spaces and their financial subjects as a smooth and almost mechanistic
process, I apply this diagnostic cognizant that the recovery of how
these modalities are deployed to render indeterminate fiscal relations
imaginable as a particular problem of (neoliberal) government is
infused with tremendous contestation regarding the engineering of
economic subject positions; as well as fraught with contradictions and
perils which plague the configuration of this entire politics of limits
and its embeddedness in global finance assemblages. To understand
these processes as merely denoting the exchange of one class of vari-
ables for another is to fail to grasp how risk and uncertainty are
configured together in ‘lines of continuous variation that can never be
homogenized into a linear process of change or transformation’ (Dean
1996: 56). Their dialectical relationship and temporal fluidity prevent
their precise binary capture at any moment in time. All that is really
available to us are the traces that they impart in the construction of
the calculative ratings space. As an artifact of government, this space
can be mapped through the collection of these effects. Together they
help inform our comprehension of what is a fluctuating and contin-
gent dynamic underpinning the political economy of creditworthiness.
An interrogation of what constitutes these dominant rationalities of
creditworthiness not only reveals their epistemological character but
their moral dimension as well. The latter speaks to the ‘nature and
scope of legitimate authority, the distribution of authorities across dif-
ferent zones and spheres…the ideals or principles that should guide
the exercise of authority’ (Rose 1999: 26). The stronger the moral
justification, arguably, the more effective is the translation of the men-
tality into practice. Grounded in the metaphysics of anteriority and
referentiality, risk discourse supposedly endows credit ratings with a
legitimacy and authority which they may otherwise lack. In turn, this
enhances the success of ratings in translating this (neoliberal) norma-
tive statement about sovereign creditworthiness into reality. This social
facticity is enabled through its calculative mechanics.
Exhibiting an ontological bias or ‘fetish’ commonly located in both

mainstream economics and IR/IPE, it is not surprising that many
accounts of this problematic tend to advocate some form of transcen-
dental facticity (cf. Cantor and Packer 1995; Hu et al. 2002; Reisen and
von Maltzan 1999). Juxtaposed against each other as brute facts,
however, the dialectical relationship between risk and uncertainty is
not merely skewed but it distracts us from the more interesting govern-
mental puzzle of how they represent different modalities of classifying
and acting on social phenomena; which inspire specific problematiza-
tions at demarcated sites of fiscal contestation. This only adds one
more dubious dichotomy to the analysis. Already, the application of
quantitative methods imported from the mathematical and physical
sciences has served to entrench a dualism between the object/subject
and discursive/material. In the vein of explaining sovereign creditwor-
thiness, these join the ranks of the international/domestic and
public/private binary oppositions promoted by credit ratings. It is these
simple but erroneous assertions which this book contests.
Of course, not all dualisms are reinforced by ratings themselves. Franck
Cochoy’s (2002, 2008) concept of ‘qualculation’ speaks to the sedimen-
tation of risk practices as the distinction between the qualitative and
quantitative collapses. Qualculation denotes the ‘activity arising out of
the construction of new generative microworlds which allow many mil-
lions of calculations continually to be made in the background of any
encounter’ (Thrift 2004: 584). Being especially ubiquitous, these vast cal-
culations are often present in highly specialized domains like finance,
and particularly in the constitution of the ratings space. Their reach vir-
tually transforms the (quantitative) rating process into qualitative judg-
ments (Azimont and Araujo 2010: 97). The authoritative knowledge
informing how we come to understand the problem of sovereign debt is
constituted through the reiterational and citational effects of these socio-
technical devices of control and governmentality. Yet by detaching ‘the
substantive authority of expertise from the apparatuses of political rule’,
as qualculation accomplishes, risk reinscribes government-at-a-distance
to immunize the disinflationary logics embedded in sovereign ratings
(Rose 1996: 41). As a consequence, however, normative decisions once
considered within the purview of political discretion increasingly
become rendered through quantitative means; with marginal political or
societal input apart from the few experts who grant them coherence
through their own qualitative judgments. Consequently, the asymmetry
between epistocracy and democracy widens.
The constitution of authoritative knowledge is reinforced by its com-

mercialization. In addition to issuing credit statements, once ratings
are incorporated into regulation, it encourages CRAs to sell the ‘valu-
able property rights associated with compliance with that regulation’
(Partnoy 1999: 684). Compliance signals an alignment with risk man-
agement, and thus the validation which certification through this dis-
course bestows upon the issuer. Simultaneously, the ‘logic of
appropriateness’ anchored in risk discourse confronts and overlaps a
‘logic of consequences’; which together produce the leverage of ‘repu-
tational capital’ (MacLeod 2007: 246). As a social construction, Michael
Power (2007: 129) posits that ‘reputation’ connects questions of legit-
imacy and authority with organizational identity. Here risk discourse
helps in ‘creating an account of an organization, embedding that
account in a symbolic universe, and thereby endowing the account
with social facticity’ (Rao 1994: 31).
Cynically touted as ‘gatekeepers’ (Partnoy 2006), Moody’s and S&P
judge who is recognized as worthy of investment at what cost. Issuers
of debt covet that high investment grade and the privileges which it
affords; whereas a sullied reputation of what Otmar Issing (2008) refers
to as a ‘fiscal sinner’ is eschewed. Extremely lucrative, Partnoy (1999:
623–4) argues that this business:
Has had dramatic effect, not only causing a decline in the informa-
tional value of credit ratings but also creating incentives for the
agencies to provide inaccurate ratings and for market participants to
pay for regulatory entitlements stemming from the agencies’
ratings, instead of paying for the informational content of the
ratings. The result is a bewildering array of dysfunctional financial
behavior as well as substantial financial market distortion and
inefficiency.
Of course, as recent events demonstrate, who is in fact deserving of

such recognition is highly controversial. Framed through uncertainty,
sovereign ratings possess a rather ambiguous threshold for verification.
Risk, therefore, is extensively deployed to mediate such optics and
instill a sense of greater certitude about the judgments rendered by the
ratings process.
Beyond just ideational constructs

Insinuating a sense of ownership over the construction of knowledge
through a top-down, elite-driven process, social constructivists adopt
an epistocratic view which excludes a multiplicity of subjectivities and

interests implicated in the debt crisis; especially at the grassroots.
Neither do they clarify what construction nor socialization really entails;
aside from some underspecified suggestions of social learning. To
neglect, however, how the mutual constitution between the ideational
and the material manifests itself in the crisis is to be blind to the way
that the governmental apparatus and deteriorating economic condi-
tions are shaping the popular identities and backlash against this
neoliberal program of austerity. More recent ‘agent-centered construc-
tivists’ (Adler 2005; Widmaier et al. 2007) may seek to redress this
agential deficit by focusing on ‘norm entrepreneurs’ (Finnemore and
Sikkink 1998). Nevertheless, these discussions still frequently refer to
nebulous concepts like ‘interpretive struggles’ or ‘rhetorical debates’
without a clear exposition of the techniques through which these
ideational constructs are translated into material reality.
Limited to the primacy of ideas, this ambiguity is heightened by the
implicit extra-discursive restrictions on the production of meaning
about creditworthiness. External force(s) influence the formation of
knowledge. For Sinclair (2005: 15–17), this appears to be grounded in
the structural power of capital markets. Divorced from the site of arti-
culation, however, this constraint on what is permissible hinders con-
structivist contributions to the problem of creditworthiness since the
difference between perception and actualization is suspended.
Intersubjective modes of representation may help generate notions
about creditworthiness but their constitution is fraught with exo-
genous conditions that interrupt and interpret their actualization.
Moreover, erecting parameters external to the contingent practice of
representing the problem of sovereign debt may hamper the formation
of differentiated versions of creditworthiness; which can deny poten-
tially counter-hegemonic narratives from forming.
However, as this book argues, one of the most striking developments
related to this crisis is how it is ‘[opening] up technical and depoliticised
economic practice to political scrutiny’ (de Goede 2006: 7). Rather than
assigning an independent role to nebulous forces and taking these for
granted, a better account of the politics of limits probes their discursive
instantiations in order to interrogate the veracity of claims made about
sovereign creditworthiness. Questioning defined boundaries leads to a
more comprehensive understanding of the politicization of limits and
how they are articulated. How truth claims arise and are legitimated
allows us to ‘stress the contextuality and historicity of all claims to
knowledge’ and ‘reject any universalistic, positivist account of reality,
deny the facticity of the subject-object duality, allow for the coconstitu-
tion of subjects and objects, and eschew economic reductionism’
(Jessop and Sum 2006: 159). But we need to keep in mind that author-
itative knowledge is productive in the materialization of finance rather
than its neutral representation. Ratings act as the internal forms of gov-
ernmentality involved in re-encoding fiscal relations by embedding the
normalization of a neoliberal fiscal mentality as a purportedly scientific
narrative. This rationalizes their power to shape the political economy
of creditworthiness at-a-distance in ways that insulate the ratings
process from any serious political intrusion. For a closer examination of
how this occurs, we now turn to an introduction of the second major
conceptual theme underpinning this study: performativity.
Performativity
The problematization of the discursive and technical elements of sov-

ereign ratings begins to provide insight into how their authoritative
capacity is constituted. However, to fully appreciate this process, their
performative effects must be analyzed to show how ratings create the
conditions and subjectivities that serve to validate this epistemic/dis-
cursive framework of creditworthiness. Here is where the concept of
‘performativity’ plays an informative role in combing the relationship
between action and authority. As performative technologies, ratings
help project a particular vision of what is considered appropriate bud-
getary behavior in order to enforce a convergent set of fiscal and
investment practices across different contexts. The internationaliza-
tion, and subsequent recitation, of this neoliberal rationality by market
participants located in dispersed but overlapping spaces is neither auto-
matic nor uniform. Similar to Judith Butler, the proposition is not that
these are stable identities, but rather contestable and dependent on ‘a
compulsory repetition of prior and subjectivating norms, ones that
cannot be thrown off at will, but which work, animate, and constrain
the...subject’ (Butler 1993: 22).
Agents are no longer predetermined to be rational or fixed as utility-
maximizers. In fact, the notion of agency is itself reconsidered so as to
avoid getting bogged down by attempts to explain some innate biases
or behavioral predispositions of human nature, and thus intentionality
and its derived causality.18 Furthermore, there is the danger of falling
into either the ‘agency versus structure’ or ‘ideational versus material’
debate as is common of many mainstream IPE approaches, such as the
capitalocentricsm of post-Marxists/neo-Gramscians (Harmes 1998;
Harvey 1982). Whether it is primarily located in the constitutive force

of transcendental structures and capital or in an ideological domain of
false ideas, which define tangible class interests, power is determined
by material conditions (Cox 1987). Capitalist social forces may help
mediate the construction of these material structures. As Bastiaan van
Apeldoorn (2002: 18; original italics) notes, ‘agency in global politics is
embedded in the structure of capitalist social relations, and the identity
and interests (rather than exogenously given) of any particular actor
are thus partly shaped or structured by those relations’. Ultimately, it is
the capitalist relations that underpin the structuration of world politics
and it is the hegemony of production that explains power and resist-
ance in a particular epoch.
Devoid of a prior political identity or hierarchical structures,
however, the analysis focuses on how multiple power relations condi-
tion the very discursive constitution of subjects/objects and interests.
This removes the burden of having to read minds and explain why
agents choose to behave in a certain manner and, subsequently, how
those reasons cause particular outcomes. Action, conversely, does not
necessarily require intentions; or at least intentions that lead directly
to an action (e.g., unintended consequences). An analysis of how dis-
cursive practices, such as ratings, enable certain actions – on the part of
governments and investors – offers a better understanding of how the
knowledge informing their underlying rationality gets translated into
the expectations, motivations and interests which constitute identity.
Performation is how this translation occurs.
Communicated through ratings, this knowledge ‘[acts] upon the real’
to configure the contours of its materialization by, at once, targeting
entities as ‘objects’ of its government and ‘subjects’ for its continued
utterance (Miller and Rose 1990: 7). Objects of government are how
socio-economic phenomenon is represented as a thinkable and calcula-
ble reality susceptible to technical expertise and governmental inter-
vention. Governmental rationalities serve to legitimize particular
power systems that circulate to produce objects of rule according to
defined criteria. Embedded in these power relations, to varying degrees,
subjects of government internalize these programs and act on them.
Problematizations enable the subject to study and define itself within
strategic fields of power relations. This critical ontology illuminates
‘what counts for knowledge at any given moment, and [what] accords
salience to particular categories, divisions, classifications, relations and
identities’ (Poovey 1995: 3). Neither completely derived effects of these
power relations nor wholly autonomous units independent of their
embeddedness in broader discursive fields of financial calculability,

Marieke de Goede (2005: 10) reminds us that ‘financial participants
articulate and execute financial decisions or strategies but are not sov-
ereign originators of their actions’. Unlike the positivist or utilitarian
reading of this process, performativity accommodates the possibility of
multiple, even inconsistent and contradictory, configurations.
For asset managers, their willing adoption of the logics of risk –
together with its explanatory emphasis – implied in ratings enables
their own emergence as speculators and the further distribution of the
calculative activities of risk. A field of governmentality aligns freedom
with creative entrepreneurialism to render a network of calculating enti-
ties (Amoore 2004; Leyshon and Thrift 1997). Regarded as neither ‘an
ideological fiction of modern societies nor an existential feature of exist-
ence within them’, freedom is an essential ‘formula of rule’ implicit in
credit ratings (Barry et al. 1996: 8). Vectors of risk and normality, which
drive market expectations, inform how the parameters of creditworthi-
ness are devised in the effort to foster investor adoption. To achieve this
effect, ratings exercise a calculative control which encapsulates creative
entrepreneurialism within new forms of regulated freedom across time
and space. Drawing on Nikolas Rose (1999: 72; original italics), ratings
govern ‘through freedom, to the extent that they [seek] to invent the
conditions in which subjects themselves would enact the responsibil-
ities that [compose] their liberties’. Since minimizing risk is equated
with increasing returns, investing formulas consider it advantageous to
position oneself so as to be capable of making such calculations. In both
passive and active investment strategies, the management of risk
informs how fiscal normality and rectitude are established; in accor-
dance with which voluntary investment decisions are undertaken.
Contrary to the mainstream economics literature’s fragmentation
into functionalism, where ratings are simply remote and neutral instru-
ments applied randomly by individual investors, the submission in
these chapters is that through their activation and performance, these
socio-technical devices help constitute entrepreneurial subjects and
objects through the circulation of expert knowledges denoting what is
considered meritorious and permissible in budgetary affairs. Deploying
the governmentality diagnostic, this book deconstructs the discursive
constitution of these subjectivities to reveal the self-validating/
self-generative effects on CRAs, constitutive effects on investors, and
prohibitive (unintended) consequences for national governments.
Subsequently, reconstruction shows how fragile this performation is and
its susceptibility to crisis and eventual breakdown.
First, self-generative effects are visible for rating agencies. Ratings

function as self-validating feedback loops (Callon 2007; Hacking 1999).
They ‘“perform” the market by helping to create and sustain the enti-
ties [they] postulate’ (Guala 2007: 135). For instance, higher political
risk scores are assigned to, relatively, more stable and prudent – often
technocratic – governments. Governments conform since excessive
political discretion is thought to provoke volatility, which threatens
effective and efficient budgetary governance. The fact that a score of ‘6’
or worse precludes a sovereign from obtaining a higher rating than
‘BB+’ – irrespective of its net asset position – is indicative of how much
value CRAs assign to the political measures of creditworthiness
(Standard and Poor’s 2011b: 9). Moreover, downgrades and ‘negative
outlooks’ only create the deteriorating procyclical conditions for
further ratings cuts. Governments are denied their traditional counter-
cyclical role which, according to CRAs, compromises their debt-bearing
capacity, and thus their credit score. As the following section demon-
strates, Moody’s and S&P are also empowered by the feedback loops
visible with market participants. Despite their ridicule and repudiation
by large swaths of the investment community, an uncomfortable com-
placency with ratings by these very subjects keeps ratings relevant. This
is especially acute in regards to emerging markets (BRICs) where reli-
able and accurate research is still relatively scant.19
Second, performativity enhances our analysis of the constitutive
effects of risk-centered ratings for investors. Arguably, a primary appeal
of ratings is as an inexpensive form of outsourced due diligence. Given
the uncertainty in calculating the risk of sovereign default, ‘passive’
management tends to shy away from assuming the liability involved in
making the ‘wrong’ assessment.20 Neither is there sufficient time to do
the necessary research nor is there any inclination to jeopardize poten-
tial bonuses/careers when all that is really required is mirroring an
index; for which mutual and exchange-traded funds (ETF) are adequate
enough. Even in the event of an erroneous judgment by CRAs, hugely
diversified portfolios, such as those managed by State Street Global
Advisors (SSgA), help to minimize incurred losses – most of the time.
High frequency trading and a long-term horizon further decrease any
real appetite passive managers may have to internalize the assessment
of sovereign debt.21 Regulations and corporate by-laws contribute to
these tendencies by stipulating that portfolios hold investment grade
securities. Fulfilling this ‘certification’ role, external ratings diminish
the sense of urgency for investors to replicate such tests and manage
through their own uncertainty.
Since they complement their business ambitions, investors are mod-

ulated to accept the authority of ratings. As we shall see, effects are
especially pronounced with a transition to ‘speculative’ grade issues;
which often trigger automatic sell-offs (Cantor and Packer 1995: 37). In
the absence of a readily available alternative to grading sovereigns and
with no real motivation to make their own assessments, passive man-
agement adopts, incorporates and acts on these external credit scores.
En masse and over time, an increasing deference to ratings has created
the conditions which have helped to validate their implicit assump-
tions about budgetary rectitude. Compounding this movement is the
fact that the odds of outperforming the broad market are low when
numerous players are involved. Although the vast amount – close to
80 per cent (Morningstar 2013) – of asset allocation remains in active
instruments, a momentum towards index tracking (i.e., ETFs) threatens
to accelerate the simultaneous adherence to dubious rating transitions,
which often precipitates cliff effects. How much of this inertia has been
shocked out of the financial system in the aftermath of the 2007–08
credit crisis remains to be seen.
Now the performative effects of ratings are not simply limited to a
(massive) sector of complacent investors who lack either any serious
incentive or capability to gauge their real value – their speculative
utility trumps their accuracy. ‘Active’ managers (e.g., hedge funds)
reject the ‘efficient market hypothesis’ adopted by their passive coun-
terparts, and search for potential arbitrage opportunities to exploit by
practicing market-based due diligence. Instead of accepting the ex-
ternal judgments rendered by Moody’s or S&P, they seek to outperform
the market by designing their own internal rating analytics and being
more aggressive in the positions that they take. Although most active
managers are openly dismissive – even hostile – of Moody’s or S&P,
they still adhere to a highly quantitative risk analysis in their own eval-
uations of sovereign creditworthiness.22 Yes, they are more forthright
about the degree of ‘discretionary adjustment’ used in their models;
after all, clients pay them a premium for their critical judgment.
Nevertheless, quantitative measures, such as the shape of the yield
curve or the auction of bonds, dominate the process. Just because they
renounce Moody’s or S&P does not mean that these firms employ
fundamentally different methodologies or models. It merely speaks to
their assertion that they can produce a better quality assessment.
Upon closer examination, ratings, per se, are not problematic. From a
novelty or informative perspective, their marginal utility is debatable.
If not excessively swift in passing judgment, CRAs are accused of being
reactive and procyclical (Reinhart 2002). Sophisticated market parti-

cipants (e.g., PIMCO, Paulson & Co.) dismiss Moody’s or S&P as they
prefer to perform their own comprehensive analyses (Partnoy 2002;
Schwarcz 2002). It is this failure to conduct proper internal risk assess-
ments, while applying external techniques, which subjects asset man-
agers to the performative effects of ratings. By relinquishing their
critical faculties in this regard, they help to facilitate their own
objectification/subjectification. It is through the reiteration of ratings
as an exogenous and tangible risk that the endogenous responsibility
of market participants to manage through their own uncertainty
becomes suppressed, and even invalidated. Outsourced due diligence
may represent value of simplicity but external ratings inhibit the inter-
nalization of self-regulation or regulation based on one’s own circum-
stances. The objectification of speculators is entangled with and
bolstered by their subjectification.23 Although the scores adopted are
generated by opaque proprietary models, the conundrum is that per-
forming internal due diligence may not actually generate richer profits;
as the (poor) track record of active management demonstrates. A post-
crisis growing dissatisfaction with high fees, but poor value for money,
is accelerating the reallocation of assets from active to passive invest-
ment funds (Financial Times, 23 June 2013).
Third, the marginalization of discretionary conduct has prohibitive
(unintended) consequences for national governments. As mentioned
above, the capacity for national self-determination is severely con-
strained as the costs of accessing capital markets grow. Already in an
asymmetric position relative to Moody’s or S&P, the last thing that any
government – especially as beleaguered as those on the periphery of
Europe or inflationary hot-spots like Argentina or Brazil – needs to do
is help amplify the very risk discourse that undermines its fiscal sover-
eignty. Unfortunately, by adopting a risk-centered approach to the
verification and governance of sovereign ratings, governments around
the world fall prey to conducting business on CRA terms – that is if
they even have a regulatory regime in place. Most countries, as the
forthcoming chapters document, lack any notable framework targeting
CRAs or the sophisticated verification techniques necessary to diagnose
the ratings process. Even where a systematic approach is underway,
however, doubts persist about whether the new EU CRA regulatory
framework can bolster EU attempts to manage the ratings space effec-
tively. Among other things, these surveillance measures fail to redress
one of the most egregious elements of sovereign bond ratings; namely
the misrepresentation and commodification of uncertainties as risks.
Of course, there is no easy method to regulate what are essentially

judgments about creditworthiness (Sinclair 2005). Alarming as it is for
advanced economies, recent events lead one to question how severe
the conflicts will be with the looming crises of the BRICs.
Despite their lackluster performance and a history of antagonism,
the performation of ratings still manages to exert tremendous pressure
on market participants to converge around this single notion of fiscal
normality embodied in the grade of ‘AAA’. Although, as the debt crisis
illustrates, fissures are becoming increasingly evident, the organization
and mobilization of a democratic countermovement may only be
slowly galvanizing. Nevertheless, the repoliticization of the politics of
limits is far from guaranteed or successful. The next section will enter-
tain how recent events are helping to redefine the relationship between
epistocracy and democracy by introducing the final conceptual the-
matic underpinning this study: the politics of resistance/resilience.
Cognizance of ‘democracy’ as contestable and riddled with competing
claims only stresses the necessity to problematize its constitutive power
relations at their sites of enunciation. It is here that performativity
helps illuminate the relationship between action and authority in the
construction of objects/subjects of government; as well as the calcula-
tive spaces in which they are embedded. What becomes revealed is
that, to a substantial degree, the inertia of ratings in financial markets
and polities is predicated on the successful modulation of the three
primary subjectivities implicated in the sovereign debt crisis. Control,
and governmentality, is visible in their constitution as compliance is
fundamental to the programmatic dimension of ratings.
Politics of resistance and resilience
The asymmetrical configuration of power relations produces a cascade

of effects which may be interpreted as unequal, harmful, unjust or
even destructive. Dissent and resistance, therefore, have been themat-
ically central to the scholarly agendas of those working in the
Foucauldian tradition (see Amoore 2005; de Goede 2005; Langley
2008a; Vaughan-Williams 2009). In light of all the alleged CRA abuses
alluded to above, and the ensuing antagonistic relationship between
the between the programmatic/expertise and operational/politics
dimensions of fiscal governance, modes of resistance are also quite
visible in the struggle to preserve the integrity of national, social demo-
cratic programs in the face of the constraints imposed by global
financial markets. However, we must be extremely vigilant in order to
avoid subscribing to a simple rhetorical opposition; where a ‘sinister’

cabal of ‘insidious’, free-market capitalists is pitted against the ‘poor’
and ‘innocent’ citizens of democracies. Acknowledging the tremendous
depreciation in welfare levels around the periphery of Europe in recent
years, and the growing income inequality in emerging economies
resulting, in part, from social expenditure cuts that disproportionately
target the lower strata of society, it is very tempting to identify
Moody’s or S&P as ‘attractive culprits for blame’ (Sinclair 2010: 101).
As unemployment rates in the eurozone continue to rise past 12 per
cent24 – establishing new highs not seen since official records began in
1995 (Eurostat 2013) – and governments wage legal battles against the
rating agencies, such as those in Australia and America, this vilification
and binary rhetoric is bound to get more heated.
In addition to the factual inconsistencies and crude overgeneraliza-
tions implicit in structuring such simplistic juxtapositions, one of the
main dangers is succumbing to a false dichotomy between power and
resistance. As Langley (2008a: 37) suggests, this approach often con-
ceptualizes power as a homogenous, constraining force wielded by the
unscrupulous forces of finance capital over vulnerable elements of
society, which must resist its domination. However, ‘resistance is never
in a position of exteriority in relation to power’ but localized through-
out the network of power relations (Foucault 1990: 95). A more
promising analysis advanced in this book regards power not as some-
thing ‘appropriated as a commodity’ but centrifugally circulating
through a ‘net-like organization’ in the constitution of new, con-
testable geographies of calculation and (fiscal) responsibility (Foucault
1980: 98). Reconceptualized within what Ernesto Laclau and Chantal
Mouffe (1985: 112)25 refer to as ‘discursive relations’, power and resist-
ance are inexorably intertwined because ‘any discourse is constituted as
an attempt to dominate the field discursively, to arrest the flow of dif-
ferences, to construct a centre’. In the absence of an a priori ‘sovereign
centre’, fierce contestations ensue over the strategic codification of
these power relations; which, as Bonnie Honig (1996: 258) contends,
‘affirm the inescapability of conflict and the ineradicability of resist-
ance’. With this symbiotic relationship between power and resistance
in mind, two observations follow from problematizing the political
economy of creditworthiness.
Absence of a singular and totalizing neoliberal capitalism

First, by refuting this equivocal binary separation, the notion of a sin-
gular and totalizing neoliberal centre to capitalism is disturbed. Rather
than portrayed as a monolithic and ideological ‘boogeyman’, which

grants neoliberal or ‘advanced liberal’ formulas of rule more coherence
than they possess, its problematization reveals neoliberalism ‘as a
complex and hybrid political imaginary’ that materializes in ‘compos-
ite, plural and multiform’ assemblages (Larner 2006: 205, 213).
Concurrently, these ‘are also the resources from which resistance, sub-
version, displacement are to be forged’ (Butler 1993: 22). Thus, there is
no single, fundamental (ontological) condition of economics, nor
creditworthiness, that must be discovered – to which financial markets
can be reduced or must be restored. Nevertheless, this ambition to
correct market failure or remove distortions that prevent ‘efficient’ and
‘optimal’ functioning markets is a staple of neoliberal discourse.
Yet endeavors to unearth a realm of authenticity from which all
social phenomena are derived, Jacques Derrida (1994: 47) contends,
actually fail to resolve the question of ‘how to distinguish between the
analysis that denounces magic and the counter-magic that it still risks
being’. In a similar vein to orthodox liberals, many historical material-
ists often fall prey to trumpeting a principal logic (of capital hege-
mony); whereby ‘market forces have come to constitute the dominant
principle of social organisation to which all other principles and media
of social organisation have become subordinate’ (van Apeldoorn et al.
2003: 18). This transcendental capitalocentricsm underpins the
finance-led regime of accumulation in which political economies
develop (Bieling 2006; Gill 1998). Mediated by the disciplinary power
of capital, or ‘new constitutionalism’, an Anglo-American dominated
form of global finance exerts a hegemonic, synchronizing force which
‘firmly subordinates macroeconomic policy to short-term global
financial markets in such a way that the expansion of liquidity
becomes conditioned on the disciplinary judgements those markets
make’ (Cafruny and Ryner 2007: 9). What is witnessed is the ‘separa-
tion of economic policies from broad political accountability in order
to make governments more responsive to market forces’ and less ‘to
popular-democratic forces and processes’ (Gill 1998: 5).
On the surface, this may be a compelling observation; as well as a
welcomed refinement of the base-superstructure theoretics of ‘vulgar’
Marxism. Nevertheless, a ‘residual economism’ and dubious ‘state-
centrism’ persist (Jessop and Sum 2001). Excessive explanatory weight
is assigned to the structural hegemony of capital, and the reabsorption
of the political within some purportedly ‘objective’ material forces
that, nonetheless, remain divorced from their techniques of truth pro-
duction. Unfortunately, efforts to transcend dogmatic structuralism
often fail to depart from a macroscopic, possessive and class-based con-

ceptualization of power manifested in the state. Critiquing this incon-
sistency, Laclau and Mouffe (1985: 69; original italics) posit that:
Even though the diverse social elements have a merely relational

identity – achieved through the articulatory practices – there must
always be a single unifying principle in every hegemonic formula-
tion, and this can only be a fundamental class.
As the culmination of the logic of production relations and as an

instrument of class rule, this deterministic explanation of the state pre-
sents it as a logical necessity and the legitimizing centre of power.
Power is the material condensation of an order derived from a binary
class struggle for inclusion/exclusion.26 Resistance is located in the class
fight against repression; an overarching emancipatory project which
advocates the overthrow of one dominant (bourgeois) class by another
‘victimized’ class (proletariat). Ultimately, we are limited to one funda-
mental and transcendental macro-hegemonic form of space where
resistance occurs; namely the capitalist market. But by endowing
neoliberalism with both a singular/totalizing power centre and an
opposing, unified force that challenges it, Gibson-Graham (1996: 1)
echo Derrida in that this ‘project of understanding the beast has itself
produced a beast’.
By speaking of a single coherent space of capitalism, without ade-
quately problematizing the heterogeneous techniques and discourses
involved in its strategic constitution, historical materialists tend to
reify it; while constraining themselves to socio-economic notions of
agency. However, this makes a set of assertions about its inherent and
pregiven properties which are highly questionable. An interrogation of
neoliberalism reveals not an innate logic to refute but that ‘the rational
principle for regulating and limiting governmental activity must be
determined by reference to “artificially” arranged or contrived forms of
the free, entrepreneurial and competitive conduct of economic-rational
individuals’ (Burchell 1996: 23). Agents of the market are fabricated
through historically contingent ‘modalities and apparatuses of power’,
which need to be analyzed for their own ‘conditions of possibility and
regularities’ (Rose and Miller 2008: 3). Merely assuming a constant and
coherent assemblage of economically functional structures neglects
how neoliberal markets are constituted through the deployment of an
array of ‘technical and political interventions, each possessing their
own history and material density’, or what Deleuze and Guattari (1987:
316–17) refer to as ‘territorialization’. Uncertainty and risk moderate

these politics of representation, which embody a performative element
delimiting the discursive constitution of financial objects/subjects of
government. Instead of ascribing a universal logic to a nominalistic
power, a diagnostic analytic helps us recover how a particular meaning
of creditworthiness – with identifiable parameters, power systems and
mentalities of rule – becomes hegemonic. Credit ratings are the very
terrain where identity, interests and authority are constituted.
Absence of singular centre to democratic resistance/resilience

Second, just as there is no uniform totality to neoliberal capitalism,
which ratings simply transpose, neither is there a singular centre of
resistance; democratic or otherwise. A multiplicity of dissent exists
since democracies are not an unproblematic and incontestable ‘other’
opposite to neoliberal capitalism. As such, efforts to aggregate and
mobilize one universal counter-hegemonic movement are futile
because, as Foucault (1990: 95–6) argues, ‘there is no single locus of
great Refusal, no soul of revolt, source of all rebellion’ but rather:
A plurality of resistances, each of them a special case: resistances

that are possible, necessary, improbable; others that are spon-
taneous, savage, solitary, concerted, rampant or violent; still others
that are quick to compromise, interested, or sacrificial; by definition,
they can only exist in the strategic field of power relations.
Positing a homogenous ‘democratic’ opposition to the disinflationary

programmatic embodied in sovereign ratings would ignore the varie-
gated effects of said ratings when projected onto heterogeneous
national political economies. Struggles of resistance, however, are not
uniform or aligned along a common trajectory because each is a
unique configuration reflecting a specific reaction to multiple power-
effects. Because of this contextual and historical specificity, it is
extremely difficult to forecast with a high degree of probability if a
notable resistance forms, how galvanized it becomes, its duration and
what impact, if any, it will have on the status quo.
To acknowledge the plurality of knowledges that compete in the
resistance to the formation of calculative credit spaces and subject-
ivities entails recognition of how they are produced, regenerated and
sustained in relation to one another. Which resistance discourses gain
enough traction to become counter-hegemonic, and which ones are
subjugated to the margins, not only depends on their struggles for vis-
ibility against the techniques of neoliberal creditworthiness (i.e., credit

ratings) but also on the challenges they erect for each other. Although
they may share certain affinities, relative to the imposition of an
artificial fiscal uniformity, resistance discourses each have their own
unique characters and idiosyncrasies, which are reflective of the diverse
socio-economic circumstances and (national/transnational) contexts
where these struggles are waged. All of these cannot be accommodated
simultaneously under one rubric; nor necessarily should they be.
Many become what Foucault (1980: 81) refers to as ‘subjugated
knowledges’, which ‘have been disqualified as inadequate to their task
or insufficiently elaborated: naïve knowledges, located low down on
the hierarchy, beneath the required level of cognition or scientificity’.
Risk’s repetitive constitution of what counts as authoritative know-
ledge underpinning the political economy of creditworthiness is central
to invalidating many of these competing resistance narratives. Their
battle against risk management is only impaired by the fact that they
are usually aligned with the government through uncertainty; which
serves to emphasize their lack of formal scientific validation. As a
result, many resistance discourses never inform any serious emancipa-
tory movement because they suffer a ‘precarious subterranean exist-
ence that renders them unnoticed by most people and impossible to
detect by those whose perspective has already internalized certain epis-
temic exclusions’ (Medina 2011: 9).
Of course, the contention made here is that the thrust of risk’s
critique of others is itself quite tenuous, since risk-oriented sovereign
ratings are based on gross distortions, which become apparent when we
excavate the terrain of creditworthiness. Through this problematization,
the ‘insurrection of subjugated knowledges’ becomes possible; whereby
the ‘[inscription] of knowledge in the hierarchical order of power associ-
ated with science’ is disturbed (Foucault 1980: 85). Opening the black
box of sovereign ratings is an ‘attempt to emancipate historical know-
ledges from that subjugation, to render them, that is, capable of opposi-
tion and of struggle against the coercion of a theoretical, unitary,
formal, and scientific discourse’ (ibid.). By unpacking what is presented
as an overtly technical and depoliticized domain of global finance, its
inconsistencies and contradictions become more visible. Subjecting it to
such scrutiny makes it ordinary, and thus more accessible and suscept-
ible to repoliticization (Langley 2008a: 37). Attentive to the fragility and
temporality of any stabilization of creditworthiness and fiscal normality
that do occur, more latitude is now available to contest these judgments
which were previously monopolized and depoliticized by technical risk
discourse. The new calculative spaces that materialize may not guaran-
tee the success of any particular form of resistance but they do provide
an opportunity where alternative assessments and articulations of sov-
ereign creditworthiness can be debated.
Disaggregated, the multiple modes of dissent that exist across the
fields of finance become more visible. We begin to appreciate how lines
of power/resistance seldom follow strict binary boundaries between the
public/private, international/domestic and subject/object, to name but
a few, but traverse disciplines and spaces in their actualization.
Accordingly, the struggle in the redefinition of the politics of limits is
not merely in the exclusive domain of national treasuries or credit
rating agencies or bourses and investment firms. Rather it transpires on
any plane where calculative rationalities design methods for the differ-
entiation of quality and for the purposes of relative valuation; for it is
at these sites that authority is questioned and dissent germinates. Yet
this plurality of resistance should not be interpreted as the fracturing
and erosion of an alternative power base, or ‘politics’, necessary for an
effective and sustainable counter-hegemony to neoliberal forms of cap-
italism. Such a depiction merely cements the notion of capitalism as ‘a
large, durable and self-sustaining formation, [that] is relatively impervi-
ous to ordinary political and cultural interventions’ (Gibson-Graham
1996: 256). But to frame this as substituting one ‘malign’ regime of rule
with a more ‘benign’ or ‘righteous’ form is to miss the point that there
is no ideal ‘single locus of great Refusal’ for which to strive.
Repoliticization is possible along the entire power/resistance axis. Its
form, however, is always variable, asymmetric and uncertain.
As significant as discourses of resistance are to the discussion of the
sovereign debt crisis, the effects of ratings, and the austere politics of
limits which they perform, are not equally internalized. Tremendous
economic, political and cultural heterogeneity exist between – as well
as within – the various countries, which precludes a standardized mode
of dissent. Furthermore, as noted above, since subjects operate in con-
strained, and often overlapping, fields of regulated discretion, they are
increasingly programmed by a ‘liberal mentality of rule that valorizes
self-reliance and responsibility’ to acquire risk-taking ‘skills’ that seem
‘scientifically tested and mutable cognitive manoeuvres appropriate to
the governance of the self in conditions of uncertainty’ (O’Malley
2010: 489–505). This fortitude enables these enterprising subjects to
adjust to rapidly changing conditions in such a way as ‘to live freely
and with confidence in a world of potential risks’ (Lentzos and Rose
2009: 243). Here resilience is more visible.
Beyond being simply prepared:
Resilience implies a systematic, widespread, organizational, struc-

tural and personal strengthening of subjective and material arrange-
ments so as to be better able to anticipate and tolerate disturbances
in complex worlds without collapse, to withstand shocks, and to
rebuild as necessary (Lentzos and Rose 2009: 243).
Given the immense pressure that global credit markets can exert on
democratic governments to conform to the disinflationary logics
enshrined in ratings, it is often the case that resistance is ephemeral
and undermined because, outside the complete repudiation of
financial markets, governments feel that they have little real choice but
to capitulate. Of course, how such compliance materializes, and its lin-
gering consequences, are uncertain. Confronted with such vast contin-
gencies, the politics of resilience proves more attractive and durable in
these situations. Yet, rather than to the exclusion of one another, both
resistance and resilience operate simultaneously in attempts to
retain/regain fiscal sovereignty and repoliticize the political economy
of creditworthiness. While their genealogy is outside the scope of this
book, this relationship between the discourses of resistance and
resilience informs our analysis in the forthcoming chapters.
Conclusion
With the advent of an economic crisis, conventional IPE accounts

often subscribe to a ‘discourse of transcendental rationality’ (Thrift
1996: 13) and appeal to an exogenous ‘referentialist metaphysics’
(Maurer 2002: 18). Similar strategies are pursued on the ground. In the
attempt to mitigate the severity of the correction and prevent future
episodes, experts deploy an arsenal of quantitative techniques – often
homologous to the dysfunctional technical practices blamed for the
crisis – in an effort to unearth an objective material reality, as well as
its economic laws, in accordance with which necessary actions can be
taken. A few revisions to outdated models or the reregulation of acute
‘crisis-prone’ sectors are thought to correct market failure and restore
equilibrium. Regarded as a self-evident and monolithic phenomenon,
risk is often at the heart of this neoliberal orthodoxy, which privileges
exogenous categories and logics of explanation; but at the expense of
the endogenous dimensions of the crisis. While its defendable calculus
and scientific precision have facilitated the transformation of risk into
the de facto managerial approach/dispositif across multiple domains, its

prescriptive positivism has proven disastrous in capturing and govern-
ing social and fiscal relations. The (positivistic) bifurcation between
‘politics’ and ‘economics’ that risk discourse enables, distorts the social
facticity of creditworthiness and is a principal reason for the failure of
sovereign credit ratings. It is through this operationalization and com-
mercialization of risk and uncertainty that ratings are endowed with
their performative effects, and help to constitute the socio-technical
agencements that give an austere political economy of creditworthiness
its meaning and authority.
Rather than searching for an a priori economic reality or some sort of
certainty equivalence in fluid fiscal relations, a more revealing analysis
traces the ‘lines of fragility’ in the construction of the calculable spaces
and subjectivities; whereby dispersed and diverse budgetary landscapes
are synchronically connected and aggregated. In the process, we come
to a better understanding of how this translation of heterogeneous
national problematizations into mutually corresponding, and even
reinforcing, global ones is accomplished through the specific discursive
practices of risk and uncertainty. By drawing our attention to the main
conceptual themes of authoritative knowledge, performativity and the
politics of resistance/resilience that underpin this problematic, an ana-
lytics of government not only reveals the serious inconsistencies upon
which sovereign ratings, and thus the politics of limits, rest, but it also
opens this space to contestation and potential repoliticization. We are
reminded of the dynamic and discontinuous character of any stabiliza-
tion that may materialize and of how its constitution is mediated by
expertise. By re-embedding technoscientific epistemology in its messy
politico-economic context, the abstract modeling and monolithic con-
ceptualizations of capitalism and subjectivity are discredited. As the
binary oppositions and false dichotomies which promote the asym-
metry between epistocratic and democratic imperatives become
refuted, the authoritative capacity of ratings to marginalize and
censure political discretion in fiscal governance is disturbed.
2
The Rise of Risk and Uncertainty
Rarely does a day go by without some kind of a declaration confirming

the ‘heightened uncertainty’ that comes with living in an ‘(new) era of
uncertainty’. Bordering on the apocalyptic, such prophesies are often
disseminated by a sensationalist media with a vested interest in
increasing the circulation of its news. But just as we are plagued by all
these unknowns lurking in the shadows of the future, so are we
instructed to take back control over our destinies and manage all the
risks confronting our finances, health, security, relationships, in fact,
virtually every area of our lives; or what Michael Power (2004) labels as
the ‘risk management of everything’. For this purpose, expertise
promises to assist with governing the future to make it safe, secure and
prosperous. Experts who master the appropriate methods to plot risk’s
propensity to inflict harm are rewarded with some measure of credibil-
ity and authority.
Ian Hacking (1990) reminds us that knowledge as statistics translates
economic relations into a manipulable field for management. Passive
capitulation to the forces of fate is actively resisted as control over
Machiavelli’s (1965: 407–8) Fortuna is enhanced by the purported
assessment and commodification of various uncertainties as risks.
The more convinced we become of the epistocratic capacity to calcu-
late/manipulate an indeterminate future and (quantitatively) capture
fluid socio-political phenomena, such as fiscal relations, by displacing
uncertainty with risk, the more value is ascribed to such calculus and
the experts who deploy it. A ‘referentialist metaphysics’ forms, which
claims to transcend time and space, to grant practices of risk an index-
ical power to refer to an objective truth (Maurer 2002). It is such
dubious assertions, and the fallacious dichotomies that they promote,
which this book refutes.
83
Rather than universal and unproblematic, drawing on Machiavelli,

R. B. J. Walker (1993: 40) emphasizes that such discursive constructions
are, indeed, time bound and context specific, prompting one to
‘abandon the possibility of transcending the contingencies of time
through an appeal to Being or eternity’. An excavation of the very sites
of their articulation/actualization reveals not a uniform and a priori
entity labeled ‘risk’ or ‘uncertainty’ but the historical emergence of
specific discursive practices aimed at curbing, amongst other things,
fiscal profligacy. Temporality and spatiality are fundamental in this
exercise because they remind us that uncertainty is itself about contin-
gency and acting according to the circumstances.
Perhaps uncertainty does call for the amelioration of Fortuna’s tem-
peraments according to dictates of normality. But normality is still a
historical innovation that must be interrogated in the context of the
political. Fiscal relations are that context. Through the processes of
inscription and signification, the meanings that are attributed to
various budgetary categories and subjectivities of creditworthiness are
produced; as registers of normality and indissolubly intertwined with
notions of responsibility (Gordon 1991). Contestable in nature, these
methods regulate which articulation of subjectivity is validated.
Unfortunately, rather than transforming or eradicating the status of
uncertainty as an ontological threat, the primary thing censured
and/or marginalized is (political) discretion. In this quest for control
through certainty and transparency, human discretion becomes a
liability to be mitigated. Nowhere, arguably, is this depoliticization
more visible than in the ratings space.
In order to come to terms with the performative capacity of ratings
to constitute a neoliberal political economy of creditworthiness, it is
vital to problematize how CRAs appropriate and deploy risk and uncer-
tainty. For that purpose, their operational definition is necessary. An
exposition of uncertainty and risk’s intellectual lineage helps us to
recover the diverse and contested meanings indicating how indeter-
minate future relations are imagined for the purpose of governance.
Keeping in mind that it would be misleading to claim that there is a
uniform consensus about how these concepts are understood, irrespec-
tive of this contestability, it is still possible to distinguish between the
main conventional approaches and the more critical ethos with which
this book shares affinities. All too often, however, the growth and
ubiquity of risk discourse has allowed these classifications to be taken
for granted in the mainstream literature, corporate enterprise and
society at large. Not only has this fostered a questionable binary oppo-
The Rise of Risk and Uncertainty 85
sition between risk and uncertainty, whereby the displacement or con-

version of the latter by the former is deemed possible, but it has helped
to spur a range of false dualisms which unnecessarily complicate, as
well as distort, matters: subject/object; quantitative/qualitative; and
economics/politics. Together their mutually reinforcing dissemination
contributes to the authoritative capacity of the act of rating and helps
cement its epistocratic grip in the articulation and organization of
socio-economic relations. Without the reinforcement afforded by these
dichotomies, the control exercised by risk ratings would diminish.
One of the most troubling misconceptions, which stems from the
lack of any serious analysis of their epistemological foundations,
regards risk as being calculable, while uncertainty is not (Beck 1999;
Carruthers 2013; Knight 1921/1964). Typically grounded in a rational-
ist-empirical doctrine, in the effort to calculate variance as a tangible
phenomenon, conventional approaches search for some timeless mate-
rial reality to unearth. Juxtaposed against each other as brute facts, risk
and uncertainty become defined according to quantitative and qualita-
tive classifications. Statistically refined by economists, risk is considered a
quantitative measure of variance around an expected value – usually
denoted as a numerical probability (Chorafas 2007: 24; Hardy 1923;
Short 1992). Risk’s consistency, comparability and remote calculative
capacity purportedly makes messy fiscal relations tractable to rational
choice modeling and equilibrating outcomes; which eliminates the
perception of imperfect information.
For Ulrich Beck (1992), risks are real dangers.1 Conceptualized by
the ‘risk society’ thesis as the unavoidable symptom of globaliza-
tion/modernity, these hazards can be discovered through probabilistic
techniques, and thus potentially guarded against through precaution-
ary measures, such as insurance (Beck 1999; Beck et al. 1994; Reddy
1996). However, by subscribing to the notion that ‘the more we know,
the more we know that we don’t know’, this perspective contends that
mitigating and defending against all these dangers becomes increas-
ingly difficult as they overwhelm our risk management systems.
Now what we do not know may simply reflect the implicit diversity
in the temporality of human conduct instead of some inescapable logic
of reflexive modernity. Thus, as forthcoming sections posit, a more
illuminating investigation moves away from the quest for ontological
equivalence to consider how the calculative rationalities of risk/uncer-
tainty construct their objects/subjects of government. What Beck and
other social pessimists of his persuasion neglect is the political factor
and how it thwarts the functionality of maintaining control through
risk. Beck is critiqued by thinkers, such as Bruno Latour (1993) and

Mitchell Dean (1999), for divorcing technoscientific epistemology from
its disorderly and contingent socio-political context. Should uncer-
tainty only be a risk disguised by cognitive limitations, then:
How ideas inform agency in moments of uncertainty would be irrel-

evant... All ideas would be correspondence theories with zero ambi-
guity, and courses of action, interests, and choices, would be clear.
In sum, politics would be unnecessary; which given its ubiquity sug-
gests that there may be limits to viewing uncertainty as a problem
of complexity (Blyth 2007: 78).
But interests are discursively-bound rather than pregiven, immutable

facts. They have a very striking political character to their composition.
Accordingly, the utility and explanatory capital of models that neglect
conditionality depreciate.
Our fixation with risk/uncertainty becomes problematized in the
forthcoming sections. First, I trace today’s preoccupation to its concep-
tual roots in the first half of the twentieth century. This leads into how
ratings are embedded in a broader period of risk-based financialization;
which has permitted various inconsistencies and dichotomies to prolif-
erate. Once we grasp the dominance of this corporate sector risk ratio-
nality, and its migration across the fields of socio-economic activity,
the subsequent sections dissect its manifestation in the methodologies,
models and assumptions of S&P’s Rating Analysis Methodology Profile
(RAMP) and Moody’s (Steps) rating of sovereign debt. Having revealed
the dubiousness of these analytics of ratings, the final sections of the
chapter offer to remedy these deficits by providing a revised under-
standing of risk and uncertainty as modalities of government. This new
analytical instrumentality illuminates our study in forthcoming
chapters.
Conceptual lineage of risk
Suspect as it is, this verification of some empirical reality is grounded

in the principle of ‘instrumental rationality’ where the objective is ‘to
identify the means by which to obtain certain previously established
ends’ (van Loon 2002: 189). By ‘rendering these co-ordinates “quanti-
tative” and thereby “calculable”’, social inquiry is subjected to the kind
of predictive, and thereby prescriptive, positivism usually visible in the
natural and mathematical sciences (Pryke and Allen 2000: 207). Georg
Simmel, the German sociologist, observed this fixation with probabil-

istic estimations at the beginning of the twentieth century. Noting
how pronounced this calculative mentality of control began to be in
the modern economy, he asserted that:
The calculating exactness of practical life which has resulted from a

money economy corresponds to the ideal of natural science, namely
that of transforming the world into an arithmetical problem and of
fixing every one of its parts in a mathematical formula. It has been
money economy which has thus filled the daily life of so many
people with weighing, calculating, enumerating, and the reduction
of qualitative values to quantitative terms (Simmel 1936: 196).
What is significant about this movement, as Pat O’Malley (1996: 189)

argues, is the popularization and ‘development of a causal knowledge
of deviance and normalization’.
Similarly, in his analysis of the episteme of modern thought, Foucault
(1970) observed a rupture of thinking in terms of ‘classification’ towards
one of ‘causation’. Especially pronounced in the economics discipline,
the discursive and technological risk apparatus is donated to pre-
empting the ‘cause and effect’ relationship. General equilibrium theory,
which often informs neoclassical economics and liberalism studies, is
indicative of this tendency to smuggle in abstract game-theoretic mod-
eling with the intention to identify this degree of probability
(Moravcsik 1998; Putnam 1988; Tabellini 1986). Once it is determined,
this risk variable is then transformed, as ‘objective knowledge’, into a
capacity to pre-empt and mitigate dangers. Recourse to this ‘discourse of
transcendental rationality’ (Thrift 1996: 13) helps enhance the synchro-
nizing effects of risk, which enable a political economy of creditworthi-
ness based on the supposed congruence between diverse sovereigns.
Presented as a scientific fact, risk is said to provide an accurate range of
referentiality according to which fiscal conduct may be empirically
measured, compared and, subsequently, responsibility assigned. On the
basis of this, optimal strategies of action are then designed.
In this vein, uncertainty is defined in these categorical terms as an
incalculable risk (Beck 1992). It is a by-product of a modernity which
produces impending catastrophes that occur at frequencies too low to
statistically predict. Statistical data and computations may continue to
be employed but their utility is very much in question in (non-ergodic)
situations where a calculable probability distribution cannot be
assigned with any degree of precision. Predictability is challenged by
an ‘imprecisely foreseeable future’, which is not repeating itself in any

quantitatively measurable way (O’Malley 2003: 235). Since all that is
supposedly lacking is the requisite information which can transform
uncertainty into a measurable propensity amenable to a utilitarian risk
calculus, the onus rests with experts to uncover and produce said data.
Equipped with a sophisticated apparatus of technical ‘tools’, these
accountants, actuaries or rating analysts patrol the borders of indeter-
minacy between risk and uncertainty in the effort to convert more
contingencies into statistical probabilities. Given the sheer complexity
of these risk management techniques, and their association with a
defendable calculus, ‘it is easy to be seduced by their promises of infal-
libility, and thus downplay the things that continually escape the
efforts to constitute the world in their terms’ (Best 2008: 360). Seldom
are these risk technologies carefully diagnosed for their practical valid-
ity or the veracity of their claims; especially not by the broader public.
Quite often, as Vincent Antonin Lépinay (2011) alludes to, even the
executives are ignorant of how these methods and models actually
work and acquiesce to the ‘quants’ in their design and execution.
Indeterminacy and imperfect information are problems which have
preoccupied thinkers throughout history and across the disciplines.
Most notably, in economic theory they are typically associated with
marginal utility and modeling optimal allocation equilibria (Arrow and
Debreu 1954; Malinvaud 1969). Thus, many of the above accounts
which distinguish between risk and uncertainty according to their
quantitative measurability, and thus equate risk with ‘making calcula-
ble the uncalculable or the monitoring of contingency’ (Lash 1993: 6),
borrow from economist Frank Knight’s (1921/1964) classic analysis of
profit in market economies. In fact, Knight’s definition of uncertainty
informs a wide variety of perspectives; including, to a degree, this
book. But, as we shall see, this diagnostic builds on, but goes beyond,
his core conceptual definitions.
Knight (1921/1964: 197) took exception to the ‘practical omni-
science’ of every actor in the market purported by economic ortho-
doxy. Uncertainty is the inescapable reality of entrepreneurialism.
Subject to imperfect information about an indeterminate future,
‘unique’ business situations demand and reward ‘correct judgment’
rather than just prize statistical calculations (Knight 1921/1964: 227).
This hinders one’s decision-making capacity as expected utility-
maximization is inapplicable in various stages of economic life where
uncertainty prevails. Minus a clear notion of the consequences of their
actions, ‘agents cannot anticipate the outcome of a decision and
cannot assign probabilities to the outcome’ (Beckert 1996: 804).

Nevertheless, the:
‘Degree’ of certainty or of confidence felt in the conclusion after it is

reached cannot be ignored, for it is of the greatest practical
significance. The action which follows upon an opinion depends as
much upon the amount of confidence in that opinion as it does
upon the favourableness of the opinion itself (Knight 1921/1964:
227).
Calculations do occur, but in the form of critical judgments emphasiz-

ing the success of the estimate more so than the actual outcome itself.
Experience assists in the determination of what is considered ‘reason-
able’; which instills a level of confidence about the decision-making
process. As experts collect more available information, their forecasting
capacity improves. In other words, uncertainty is not reducible to risk.
Such a challenge to the orthodoxy of liberal economics found a sym-
pathetic audience in John Maynard Keynes (1921/1979). Keynes
believed that uncertainty eliminates the numerical measure of inci-
dence preventing the forecasting of such things as prices, war or future
interest rates. He also echoed the sentiment that irrespective of the
absence of calculable probability:
The necessity for action and decision compels as...to overlook the
awkward fact and behave exactly as we should if we had behind us a
good Benthamite calculation of a series of prospective advantages
and disadvantages, each multiplied by its appropriate probability,
waiting to the summed (Keynes 1937: 214).
Without the certainty provided by equivalence, the conventional eco-

nomic orthodoxy is undermined as uncertainty questions the integrity
of its decision-making capacity (Beckert 2002: 42). Rather than an indi-
vidual act, managing uncertainty is an inter-subjective process which
relies on social cues to anticipate what is rendered valuable (e.g., the
beauty contest).
For Keynes, the probability of a hypothesis is derived from its avail-
able evidence. Under uncertainty, however, the ‘evidence justifies a
certain degree of knowledge, but the weakness of our reasoning power
prevents our knowing what the degree is’ (Keynes 1921/1979: 34). The
epistemological dimension implicit in the qualitative comparison of
propositions prevents knowing what causal relations maximize utility.
This jeopardizes the rational actor modeling of a predictive Pareto-

efficient equilibrium. Hacking (1975: 73) agrees that numerical
measures of incidence are incapable of adequately forecasting epis-
temic probability. Yet, this does not preclude calculations from occur-
ring with uncertainty. As opposed to adhering to a rigid binary
division between calculable risk and incalculable uncertainty, different –
more singular and contingent – forms of calculation are visible.
Although they are more qualitative in character than the quantita-
tively aggregating apparatus applied with risk, theirs is a dialectical
relationship as both inform how the future is imagined and governed.
At this point, the utility/value-added of conventional conceptualiza-
tions diminishes. Qualitative assessments exceed and escape standard-
ized capture and application. Rather than ‘reduced to merely the
monolithic and generic “incalculable” alternate to risk’, and thus a
false dualism, this opens the opportunity for multiple imaginaries of
uncertainty (O’Malley 2004: 6). No longer is the verification of some
empirical reality, and the exact ontological properties/coordinates of
risk and uncertainty, as salient as deciphering how they are appropri-
ated and deployed as constructs in the constitution of authoritative
knowledge underpinning the problem of sovereign debt. Relieved of
the painstaking burden of calculating either their synthesis or conver-
sion/displacement – derived from a relationship of mutual exclusion –
we can focus on how risk and uncertainty have been incorporated into
governmental rationalities and practices; which help them to exert
epistocratic leverage over democratic fiscal sovereignty.
Period of hegemonic risk-centred financialization
The management of an indeterminate future has sparked intense

debates about the prioritization of certain objectives over others.
Acknowledging the contestability involved, two particular aspirations
associated with the conceptualization, calculation and governance of
risk stand out: security and profit. Credit ratings are embedded in a
broader period of financialization and calculable spaces where these
two ambitions have been pursued and actualized. Although the most
visible dimension of the ratings process may be its institutional agency
– namely Moody’s, S&P and Fitch – arguably, it is the proliferation and
sedimentation of risk practices designed to make us safer and richer –
across the fields and disciplines – from which the act of rating has bor-
rowed and benefited extensively. Coming to terms with its authoritative
capacity to perform the political economy of creditworthiness demands
an understanding of the lineage of risk (and uncertainty) as a principal

organizing category for the precautionary mitigation of dangers; as
well as for the promotion of entrepreneurial market logics (Bernstein
1998; Ericson and Doyle 2004; O’Malley 2004).
Whether conceptualized as a hazard to be avoided or an opportunity
to be reaped by the ambitious and talented, the diverse and multiple
appropriations and enactments of risk over time have been entangled
in the performativity of their own respective calculable spaces and sub-
jectivities. Matters of morality often engendered technologies of pru-
dentialism, while also granting credence to the risk/reward relationship
at the heart of financial speculation (de Goede 2004, 2005). As this
book shows, its entrenchment in this myriad of performative effects
has bolstered the capacity of ratings to constitute the social facticity of
creditworthiness, as a problem of government, without any serious
challenge to the process. But by no means should this be interpreted as
a strict typology of risk/uncertainty or an unproblematic categoriza-
tion. Such a catalogue would omit the contingency and hybridization
implicit in these modes. Rather the intention is to demonstrate how an
alignment with the hegemonic discourse of risk helps to validate
ratings – a process reinforced through their codification and commer-
cialization. Within these overarching, and overlapping, frames of
security and profit, the problem of sovereign debt is re-encoded.
Security
First, the level of security enjoyed by subjects is often intimately con-
nected to their degree of risk aversion (Power 2004: 45). John Adams
(1995) refers to this as one’s ‘risk thermostat’. Prudence is typically
advocated as a way to minimize exposure to potential harms. In these
defensive terms, as a source of insecurity, we enter Beck’s ‘risk society’;
where catastrophic calamities await and new ones are constantly being
manufactured (Beck 1992). All around us, in this phase of ‘reflexive
modernity’, are incalculable dangers (i.e., uncertainties): terrorist
attacks (e.g., 11 September 2001 – US; 7 July 2005 – UK); nuclear
radioactivity (e.g., Chernobyl, Fukushima); or, amongst others, various
environmental pollutants that threaten our air, water and food
systems. Together with the unintended consequences of modernity,
‘they induce systematic and often irreversible harm, generally remain
invisible, [and] are based on causal interpretations…[which] can be
changed, magnified, dramatized or minimized within [that] know-
ledge’ (Beck 1992: 23). Risk management is reflective of the consider-
able effort to transform this domain of insecure knowledge into
quantifiable regularities that may be mitigated through its respective

programs (e.g., hedging, insurance).
Beck, however, is quite skeptical of the role of experts and govern-
ments in controlling these looming hazards. Sharing this sentiment,
Anthony Giddens (1990: 130) is also convinced that ‘[w]idespread lay
knowledge of modern risk environments leads to an awareness of the
limits to expertise’. Of course, not only is this dire pessimism consid-
ered excessive but the discourse of risk – especially in the
finance/rating business – has largely remained monopolized by profes-
sional experts, rather than being effectively democratized as Beck sug-
gests. While the average person may be more economically literate and
savvy than they were say 25 years ago, new and more complex
financial instruments (e.g., derivatives, swaps) are always being intro-
duced, which exceed their common acumen. Nevertheless, it illu-
minates the precautionary principle implicit in risk management.
Nowhere, arguably, is this fascination with transforming organiza-
tional life into an objective measure of susceptibility, as a means for
enhancing security, more visible than in the insurance industry (Baker
and Simon 2002; Ericson and Doyle 2004; Ewald 1991; Knights and
Verdubakis 1993). Dating back to the latter seventeenth century,
various structured forms of protection from liability began to surface.
Security became monetized. Merchants sought to guard against the
threat of insolvency resulting from a naval catastrophe. Lloyd’s of
London exercised a virtual monopoly in underwriting such maritime
contracts.2 But, as Marieke de Goede (2004: 200) reminds us, without a
conceptual distinction between gambling on the vagaries of fate and
‘legitimate’ financial practice, Lloyd’s of London syndicates were infa-
mous for catering to a wide range of speculative appetites. Rampant
gambling included, amongst other uncertainties, wagers on jury ver-
dicts (e.g., Harry K. Thaw’s conviction for the murder of Stanford
White), the longevity of monarchs (e.g., Edward II) and on wars (New
York Times, 1907). A common insurance adage was: ‘if at first you don’t
succeed, try Lloyd’s’ (Ericson and Doyle 2004: 20). Increasingly, factors,
such as life expectancy or mortality, emerged as a discoverable body of
knowledge. By the turn of the nineteenth century, risk developed into
a social category for administrating populations (O’Malley 2004: 179).
Nietzsche observed this development alleging that modern man is the
embodiment of calculability. It is ‘by means of the morality of custom
and the social straitjacket that man was really made calculable’
(Nietzsche 1887/1996: 40). Insurance is an institution where such
applied knowledge finds expression.
Yet the obligation to secure one’s person and property from risk
came to be considered primarily as a private responsibility. In addition
to the stigma from violating social convention, insurance was infused
with moral connotations about virtuous behavior which, according to
François Ewald (1991), transformed insurance into a ‘moral techno-
logy’. Enterprise and morality became mutually constitutive as:
Mathematizing one’s commitments…[meant] no longer resigning

oneself to the decrees of providence and the blows of fate, but instead
transforming one’s relationships with nature, the world and God so
that, even in misfortune, one retains responsibility for one’s affairs by
possessing the means to repair its effects (Ewald 1991: 207).
While this individuation would persist into the twentieth century,

national and compulsory social insurance programs would socialize
prudentialism. Mary Douglas (1990, 1992) describes the moral char-
acter of cultural frameworks through which risk is assessed and articu-
lated as a collective concern. By structuring a ‘risk portfolio’, with
particular attention devoted to the ‘probable magnitude of [the]
outcome’, key interests and priorities are identified, which serve to
organize collective action (Douglas 1990: 10). Europe was a pioneer in
the delivery of such collective provisions, such as sickness benefits and
retirement pension plans for workers. Today it is also a leader in their
retrenchment.
Social insurance, however, would soon be perceived as antithetical to
the risk taking, entrepreneurial subject; whose responsibility for the
provision of his/her own welfare and security was consonant with the
expectations of a neoliberal mentality; which prized methodological
individualism over collective solidarity (Rose 1999: 159). With the
demise of the post-war Bretton Woods system of capital controls in
1971, the ‘disembedding’ of global finance ‘[facilitated] ever increasing
flows of speculative capital’ (Best 2003: 370). From a daily average of
US$620 billion in 1989, the foreign exchange market turnover has
grown to US$1.26 trillion in 1995 to US$3.91 trillion in 2010 (Bank for
International Settlements 2010).3 A principal factor facilitating this
massive expansion has been the new financial instruments designed to
manipulate, as well as rate, risk (Germain 1997: 105). Advanced by
the capital liberalizing, privatizing and securitizing policies of
‘Thatcherism’ and ‘Reaganomics’, risk management assumed an even
greater role in defining what calculations are deemed significant and
the subjects that need to take them.
An entire agencement formed around, first, the supply of anxieties

necessary to instill fear about the future in calculating consumers and,
next, the corresponding solutions available for purchase on the market
designed to redress that distress. Equipped with a portfolio of probabil-
ities derived from scientific knowledge, both the private sector and gov-
ernments routinely deploy these techniques to fuel and then assuage
concerns; thereby structuring the ‘pragmatic discourse of moral nor-
malcy’ (Ericson and Doyle 2003: 6). Particularly virulent in the area of
health and the discovery of new potential ailments/diseases, publics
are consistently advised to take precautionary measures and immunize
themselves against these threats with the latest prescription from ‘Big
Pharma’. The promise to restore some form of equilibrium – mental,
physical, material or economical – through the correction of deviance
via practical measures offered by the market, is a narrative that, as
Power (2007: 195) argues, trumpets a ‘neoliberal morality of enter-
prise’; which increasingly defines what constitutes as acceptable
conduct through reference to probabilistically quantifiable criteria and
market imperatives.
Towards the latter part of the twentieth century, normative claims
emphasizing individual prudence and self-reliance in managing risk
have only exploded. With insurance, this is reflected in the movement
towards ‘more and more risk segmentation or the unpooling of risks’ as
individuals are sorted ‘into pools of standard, sub-standard, and unin-
surable risks’ which ‘are there to magnify differences among indi-
viduals in order to achieve greater precision in the commodification of
insurance products and exclusion of those who do not fit’ (Ericson
et al. 2000: 534). Today, the logics of capital and loss ratio formulas
have also accelerated the partition and wider distribution of risk
through ‘reinsurance’ (e.g., Munich Re, Swiss Re) (Ericson et al. 2003:
114–25). Similar to the mentality informing the securitization of some
of the financial vehicles implicated in the subprime crisis, such as col-
lateralized mortgage obligations (CMO) or collateralized debt obliga-
tions (CDO), risk is perceived as amenable to being divided, repackaged
and spread amongst different parties.
Tensions with these fragmentary trends in the provision of security
are visible with the sovereign debt crisis. Recent turmoil has acceler-
ated the deep retrenchment of social expenditure/programs and the
recasting of social citizens/stakeholders as individual consumers/
shareholders; who must fend for themselves by manipulating free-
market mechanisms rather than depend on government support. Strict
fiscal consolidation, such as Spain’s April 2012 announcement of a
€10 billion a year reduction in health care and education spending,

transfers the cost of and responsibility for these traditional social
democratic programs onto citizens and to the subnational level
through fiscal decentralization. To appease global financial markets,
the European Commission (2012a: 45) forecasts a reduction in expen-
diture of over 5 per cent of GDP from 2011–15 around the periphery.
Damaged growth prospects attributable, in part, to harsh fiscal adjust-
ments may be forcing states to incur more debt; as eurozone debt-to-
GDP is estimated to hit 96 per cent by 2014 (92.7 per cent in Q3 2013)
(European Commission 2012a).4 Private sector debt levels – comprised
on household and non-financial companies – are even higher at
160 per cent of GDP according to official estimates; though probably
closer to 200 per cent in reality (The Economist, 26 October 2013).
Governed through their freedom, and by numbers, subjects are
enticed to become more active investors in their own futures (Haahr
2004; Miller and O’Leary 1987; Rose 1991: 691). Economic citizenship
of this kind is justified in terms of the logic of ‘moral hazard’ – the
more insulated from risk a subject feels, through generous social
welfare programs, the more tempted s/he is to engage in reckless
conduct. However, the consequences of ‘throwing caution to the wind’
are not necessarily internalized by that individual but can spillover to
affect others adversely (Ericson et al. 2000). Europe’s struggles are
exemplary of how disruptive the failure of market moral hazard can be
when it is imposed on governments; especially those in a common
monetary union.
Unlike the ‘impoverished and abstract character of homo economicus’
central to conventional risk analysis/governance, governments are not
unitary and rational actors that readily conform to neoliberal logics of
capitalism or assume all the risks for their supposed deviation from
market expectations (Callon 1998: 51). Collective insurance mecha-
nisms are necessary as the consequences of sovereign debt default are
much broader and more severe than that of a corporate or individual
bankruptcy. Moody’s and the Commission both acknowledge that sov-
ereigns are ‘special’ given their:
Exorbitant privilege of taxation, a very high probability of survival

(countries rarely disappear), a lack of superior judiciary authority to
make debt resolution predictable and a limited sample skewed
towards very high ratings for which there is almost no experience of
default (Moody’s Investors Service 2008a: 5).
Already four Member States (Cyprus, Greece, Ireland and Portugal)

have been forced to seek bailouts, in large part, to prevent the conta-
gion of default from destabilizing the entire eurozone, and nervous
global markets.5 For this very purpose, ‘firewalls’ need to be erected.
Yet the institutionalization of EMU solidarity has experienced some of
its most difficult challenges as it attempts to reconcile the provision of
collective insurance with diverse domestic demands and global neolib-
eral forces.
While the logics of moral hazard may sound convincing, since weak
corporate entities struggling to compete against their more efficient
and profitable rivals do not deserve to be artificially propped up –
unless they are banks deemed ‘systemically important’ – their strict
application to sovereign governments may only trigger a deeper sys-
temic crisis. Many of these fiscal debt woes are reminiscent of the
debates surrounding the November 2003 ‘Stability and Growth Pact’
(SGP) crisis, and its March 2005 reforms. Waltraud Schelkle (2005)
argues how the moral hazard rationale was replaced with an emphasis
on the long-term sustainability of debt positions. Incredulous that
opportunistic politicians could actually restrain themselves from the
pervasive incentive to free-ride, the architects of EMU initially
designed a ‘disciplinarian’ framework as a solution to the collective
action problem. But heated debates about budgetary control revealed
that the apolitical nature of this regulatory regime was, in fact, ficti-
tious. By November 2003, the SGP had progressively come under attack
from a ‘camp of “deficit sinners”’; including today’s staunch fiscal dis-
ciplinarian, Germany, who breached the rules with a 4 per cent deficit
(Heipertz and Verdun 2004: 768). Ultimately, domestic politics
trumped supranational dictates and collective insurance, as a form of
policy coordination, was adopted (Schelkle 2005). Although this
assemblage remains to this day, it is proving increasingly difficult to
locate a moving balance between ensuring security (imperative of pol-
itics) at a reasonable cost, while generating profits (imperative of
markets).
The permanent EU rescue framework, the European Security
Mechanism (ESM), which came into force on 8 October 2012, will run
parallel to the original, but temporary, European Financial Stability
Facility (EFSF) until the bailout programs under the latter expire. Based
in Luxembourg, the ESM has a total subscribed capital of €700 billion
provided by the 18 shareholder Member States of the eurozone. Up to
2014, however, €80 billion will be available in the form of paid-in
capital, with the remaining €620 billion as callable capital. With
Germany supplying 27 per cent of the capital and France 20 per cent,
the effective lending capacity will be €500 billion (ESM 2013). Of
course, given that Italy and Spain are scheduled to refinance about
€670 billion of outstanding total debt in 2013 and 2014, the current
ESM capacity is not sufficient enough to rescue them should their
finances deteriorate substantially; especially as their contributions (i.e.,
Italy’s 18 per cent) to the ESM diminish (Giovannini and Gros 2012:
3). As of January 2014, both Moody’s and S&P had already downgraded
the EFSF from its original ‘AAA’ to a long-term rating of ‘Aa1’ and ‘AA’,
respectively. However, as market imperatives monopolize our under-
standing and (precautionary) provision of security, they begin to
overlap with the generation and protection of profit.
Profit
As the number of identifiable risks ballooned, their growth has been
paralleled by innovations designed to render these estimations of the
future into a calculable form (Beck 1999). Especially acute in financial
markets, risk progressively came to be viewed as a natural derivative of
business (Hacking 1990; Hardy 1923; Knight 1921/1964). Marieke de
Goede (2005: 48) skillfully traces how ‘the increasing denunciation and
demonization of gambling served to accord legitimacy to its discursive
double: speculation’; which ‘legally inscribed, objectified, and rein-
scribed the boundaries between gambling and finance’. No longer was
speculation on securities perceived as a deplorable form of courting
chances and wild uncertainties. Rather, by the late nineteenth century,
a dissociation between the ‘artificial risks’ akin to gambling and the
‘legitimate’ occupation of economic speculation was becoming evident
(Hardy 1923). Codified and objectified, risk management would
become a professional practice of studying the inherent propensities of
enterprise and hedging against their unwanted outcomes. In turn, the
growing body of formal knowledge that started to form was a vehicle
for the further normalization of risk discourse. It was this rearticulation
of risk, and the subsequent ‘information explosion’ that ensued, which
proved quite auspicious for credit ratings agencies (Sinclair 2005: 23).
All the volumes of information about the burgeoning industrial
complex which Henry V. Poor and John Moody began to compile in
their publications provided the material that helped fuel speculative
activity.
As opportunities to be (aggressively) exploited, risk and uncertainty
are considered intrinsic to the entrepreneurial spirit at the heart of
the neoliberal rationality of governance (Bernstein 1998). While the
elimination of harms still plays a prominent role, this rearticulation

through the logic of profit has repositioned the liberal subject as a
‘speculatively adventurous’ economic agent at the centre of an ‘uncer-
tain world of competition [which] is once again the ideal and [where]
the figure of the entrepreneur is once again its [emblematic] hero’
(O’Malley 2004: 57). Innovation and efficiency are principal validating
mechanisms in this era where, as the financial guru Tom Peters (1987:
245) contends, ‘[c]haos and uncertainty will be market opportunities
for the wise’. Although subjective estimations are more accommo-
dated, as this world ‘[makes] demands on entities to exercise their fore-
sight in enterprising ways’ (Ericson 2005: 660), conventional
orthodoxy still advocates enhancing control through the transforma-
tion of (qualitative) uncertainties into tractable (quantitative) risks.
Rooted in the imagery of the enterprising, self-patrolling individual, to
varying degrees, this neoliberal doctrine has penetrated virtually all
forms of organizational life (Power 2007).
Further segmentation into categories such as ‘market risk’, ‘opera-
tional risk’ and ‘credit risk’ – each with a corresponding catalogue of
available calculative techniques and products – seeks to give the
impression that indeterminate futures can be captured as tangible phe-
nomena through quantitative modeling and manipulated through
technical means. Recent scholarship (Aitken 2007; de Goede 2005;
Knorr Cetina and Preda 2005; MacKenzie 2006; Paudyn 2013),
however, is recasting this problematic by showing how rather than
accounting for an exogenous and pregiven world populated by real
‘risks’, these very practices are performing the ‘free market’ and its
entrepreneurial subjectivities into existence. By appealing to their
appetite for opportunity and reward, liberal programs act on the
freedom of subjects in the constitution of these calculable spaces
(Miller 2001). Ratings are a socio-technical device through which this
happens. But in order to understand how sovereign ratings play this
performative role through credit risk, it is necessary to analyze the
mutually constitutive and reinforcing relationship which it shares with
market and operational risks.
Acknowledging the contestability and overlap in defining risk in
such strict terms, this classification system is widely accepted in
finance and informs the migration of key risk-based concepts and prac-
tices through the broader managerial discourse of ‘enterprise risk man-
agement’ (ERM). ERM is considered ‘an imagined organization-wide
process of handling uncertainty and a category which mobilizes a
number of projects of writing directed at standardizing the foundations
of organizational control and governance’ (Power 2007: 68). Although

it also escapes a single and unproblematic definition, with various ver-
sions being operationalized, ERM provides the overarching framework
within which market, operational and credit risks are managed.
Furthermore, in their evaluation of creditworthiness, CRAs judge how
well firms employ ERM strategies. Since one of the gross distortions
under study here is how the migration of corporate rating analytics
into the sovereign domain skews the assessment and articulation of
sovereign creditworthiness, it is significant to diagnose the transition
of these organizational categories and processes. Doing so disturbs
what has ‘come to be taken for granted as the baseline reality around
which other practices are oriented’ (Porter 1999: 142). It is here that we
become more cognizant of the serious inconsistencies that serve to
depoliticize fiscal sovereignty.
Market risk
‘Market risk’ is a primary category underpinning the other forms.
Otherwise referred to as ‘systemic risk’, it is the potential losses to a
portfolio of assets resulting from the overall performance of the market
(Power 2005: 582). Although investment diversification cannot elim-
inate market risk, it can be hedged against through sophisticated
risk modeling techniques. In the aftermath of ‘Black Monday’ on
19 October 1987, which witnessed the Dow Jones Industrial Average
(DJIA) plummet 22.6 per cent, J. P. Morgan published its pioneering
treatise establishing the industry-wide standard for calculating ‘Value-
at-Risk’ (VaR) in 1993. VaR is the quantile to the distribution of aggre-
gate risk. As a standard statistical practice – the other being
‘risk-adjusted return on capital’ (RAROC) – it seeks to calculate how the
movement of key market variables, such as prices, will impact portfolio
returns and losses over a specific time frame (de Goede 2004: 209;
Jorion 2001).6 In other words, VaR calculates the degree to which a
business is susceptible to financial costs. With advances in computer
modeling, RiskMetrics was the first technique to synthesize the multiple
methods of calculating portfolio loss. Not only does it provide risk esti-
mations, it can also determine the amount of capital necessary to
weather the storm in the event of a crisis (Panjer 2006: 45). Knowledge
of these figures simply allows organizations to design internal controls
that squeeze these margins to the greatest extent possible. Then, as the
‘Great Recession’ illustrates, they breach into excess. On top of all this,
executives find VaR models relatively comprehensible.
Market risk became aligned with ‘the respecification of the problem

of control as a problem of risk management’ at the level of the organ-
ization (Rose 1999: 263). Internal controls could be adjusted to meet
changing market conditions. Acceptable levels of capital reserves are
particularly vital in the banking industry. Inadequate reserves expose
banks to illiquidity/insolvency, the risk of default and potential col-
lapse. Such crises have adverse spillover effects that destabilize markets
and erase volumes of wealth. When Spain’s decade-long property
bubble burst during the ‘Great Recession’, the government had to
nationalize four major banks: Bankia, Catalunya Caixa, Novagalicia
and Valencia Bank. However, barely managing its own deficit troubles,
in 2012, Madrid was forced to request EU assistance twice to recapital-
ize (and restructure) these financial institutions. The total €41.3 billion
disbursement provided by the ESM was contingent, in part, on the
adoption of more stringent market risk procedures at these banks.7
Nevertheless, weak asset quality, ongoing balance-sheet deleveraging
and low interest rates have contributed to their deteriorating profitabil-
ity; therefore prompting Moody’s (2013b) to make further downgrades,
which only compounded the difficulty of the government to ‘off-load’
them and return the banks to market.8 Cyprus, a tiny country compos-
ing only 0.2 per cent of EMU GDP, also witnessed its (oversized) banks
amass assets reaching 800 per cent of GDP by 2011; only to implode a
couple years later as their exposure to stockpiles of toxic Greece gov-
ernment bonds helped dry them of desperately needed liquidity (The
Economist, 23 March 2013). Eventually, a €10 billion bailout package
was agreed upon.
Of course, European banks are not the only ones frustrated by the
task of managing market risk in a global economy; but in political
environments inclined towards the provision and protection of social
forms of security. Slowing economic growth, higher household indebt-
edness and their entanglement in the (countercyclical) social policies
(e.g., housing) of the Brazilian government, convinced Moody’s
(2013a) to downgrade Brazil’s largest (state) mortgage lender, Caixa
Econômica Federal, and its national development bank BNDES during
the period of the entire Cypriot debacle. Responsible for 70 per cent of
all mortgage financing, Caixa’s bank financial strength rating was
reduced from ‘D+’ to ‘D’ and its standalone baseline credit assessment
(BCA) dropped from ‘Baa3’ to ‘Ba2’; which aligned it with Brazil’s sov-
ereign rating. Again, poor recapitalization played a role in the decision
as Caixa relied excessively on Tier 2 capital, with its limited loss-
absorbing capability.9 More entwined with domestic economic policies,
financial institutions in emerging markets must endure having their

credit grades relatively aligned with their governments’ ratings.
In the process to establish the correct allocation levels for capital ade-
quacy, the prominence and circulation of market risk modeling
increased. VaR modeling was at the heart of the 1996 decision by the
Basel Committee on Banking Supervision (BCBS) to officially sanction
‘in-house models’. The political economy of banking regulation
changed from the conservative ‘command-and-control’ approach to
accommodate ‘enforced self-regulation’ as a central tenet (Power 2007:
106). Otherwise referred to as ‘Pillar 1’, it entrusted individual banks
with the responsibility of devising the proper quantitative/qualitative
schemes for minimum capital requirements; since it was these banks
that were in the best position to assess their own conduct and its
derived risks.10 What is significant for our purpose is how market (and
credit) risk were deemed be to exogenous probabilities which could be
quantitatively measured. Compounded by a (known) fundamental
flaw, where VaR estimates of the future are thought to mirror the past,
thus negating the chance of a ‘Black Swan’ like the 2007–08 financial
crisis, its reliance on statistical correlations, and subsequent low results,
diminish the perception of risk.
As MacKenzie (2003) shows in reference to the demise of Long-Term
Capital Management (LTCM), without perfect knowledge of future
variables, VaR models are based on a mentality of estimation; but with
performative effects. Herding behavior accelerated the liquidation of
arbitrageur positions as VaR models ‘magnified adverse market move-
ments, which reached levels far beyond those anticipated by these
models’ (MacKenzie 2005: 183). They represent a future that is yet
undetermined but constantly being constructed, to a significant
degree, on the basis of subjective perceptions. Similar to the con-
formity bias witnessed with ratings during the 1997–98 Asian Flu, which
also triggered a massive sell-off, as a management tool, such risk mod-
eling exerts ‘isomorphic pressure’ across organizations to conform to
the neoliberal orthodoxy underpinning strategic normality (Leicht and
Jenkins 1998: 1325). An analysis of the precise sites and specific histor-
ical moments when this happens exposes the rubric of operational risk.
Operational risk
A central contention made in this book describes the antagonistic rela-
tionship that develops when hypothetical risk models lack accommo-
dation in the (uncertain) practicality of organizational life; with its
fluid socio-political activity. The apparent lucidity and luster of risk
calculus diminishes with its application in the real world. Behavioral

risks can always jeopardize the execution of any business plan.
Identifying and classifying loss inflicting events, and their subsequent
costs, which were once considered empirically incalculable uncertain-
ties, constructs a regulatory space where these objects of government
are drawn into and repositioned. Here the discursive practice of
‘taming through naming’ often satisfies the governmental desire for
control. Now more and more become manageable as ‘the institutional
visibility of these risk objects has been re-constructed within the dis-
course of operational risk’ (Power 2007: 125). Once a new idea is intro-
duced into the governing constellation as an object, Hacking (1986:
231) argues that ‘new possibilities for action come into being in conse-
quence’. By repositioning these rather nebulous and difficult to quan-
tify uncertainties within a new managerial narrative, expertise can now
be deployed to devise specific techniques to govern them as new opera-
tional risks. While such recasting may make these fluid variables
appear more tractable to a utilitarian risk calculus, it fails to alter their
contingent characteristics, which make them so elusive in the first
place. Unless the resulting tensions are resolved or accommodated
effectively, there are bound to be conflicts between the universal pre-
scription and particular operations (Best 2003: 366).
Although losses suffered due to the deficiencies and uncertainties in
the internal control apparatus or informational systems designed to
target the market risks noted above have been a fixture of business
activity for a long time, as a regulatory category, ‘operational risk’ for-
mally entered the managerial discourse with the new Basel Capital
Accord (Basel II) proposals in the mid-1990s. Andrew Kuritzkes (2002:
47) contends that ‘the starting point for evaluating the BIS II proposals
is to place the definition of “operational risk” in the context of a
broader taxonomy of bank risks’. Given this tendency, Power (2005:
579) alludes to how ‘tempting [it is] to regard Nicholas Leeson, the
“rogue” trader attributed with the destruction of Barings bank in 1995,
as the true author and unwitting inventor of “operational risk,”’
because of all the attention he has garnered as an ‘[iconograph] of reg-
ulatory failure’.
With the objective of transforming the unexpected into the
quantifiable, and thus predictable, the Basel Committee on Banking
Supervision (BCBS) offered a broad definition, which continues to
‘evolve’ to this day. Operational risk includes the risk of ‘loss arising
from various types of human or technical error’ and ‘typically
measures of internal performance, such as internal audit ratings,
volume, turnover, error rates and income volatility, rather than ex-
ternal factors’ (BCBS 1998: 1).11 Furthermore, the preoccupation with
‘event types’ of operational risk has expanded this definition to include
also ‘damage to physical assets’ resulting from calamities, such as ter-
rorism, vandalism, earthquakes, fires and floods. Acknowledging that
the development of a bank’s operational risk categories and ‘Advanced
Measurement Approaches’ (AMA) is its prerogative and should reflect
the unique idiosyncrasies of its business models and risk profiles, Basel
II expects that, ‘over time, the operational risk discipline will mature
and converge towards a narrower band of effective risk management
and risk measurement practices’ (BCBS 2011: 2). However, the perform-
ative effects of this movement – similar to that of VaR – cannot be
predetermined.
Similar isomorphic logics promoting the synchronizing performative
effects of risk are espoused by CRAs. S&P (2008: 11) concedes that
‘comparative statistics are affected by the small number of rated sover-
eign defaults’, but given the ‘same rating definitions’, it ‘expects sover-
eign default probabilities to be closer to private-sector ratios over time’.
Dubious claims such as this flow from an excessive reliance on prob-
ability convergence implicit in repetitive risk metrics/measures.
Methods make the markets. Their application to contingent fiscal rela-
tions distorts both the assessment of sovereign debt and the
verification of its methodological compliance because, as Moody’s
(2008a: 13) admits, there is ‘no quantitative-based approaches that sat-
isfactorily replace analysts’ disciplined judgment on these questions’.
While we have not (yet) witnessed another bank collapse because of
unauthorized rogue transactions, neither has such fraudulent activity
ceased. In fact, the damages are mounting. Jerome Kerviel cost Société
Générale €4.9 billion (US$7.2 billion) in 2008 on European index
futures and Kweku Adoboli, who lost US$2 billion for UBS in 2011, are
a testament that no matter how sophisticated the technical modeling,
human conduct is itself an unanticipated operational risk that escapes
being readily captured or pre-empted in this fashion. Sleep may seem
innocuous; that is unless it is at a (German) bank keyboard and acci-
dentally helps transfer €222,222,222.22 instead of €62.40 from
accounts. Furthermore, no internal controls can prevent heavy
damages if the warning signs are deliberately ignored; as with the
integrity of VaR. Feeble internal controls, and subsequent (alleged)
cover-ups, were part of the investigations by the US Department of
Justice, Security and Exchange Commission (SEC), and the UK’s
Financial Conduct Authority into how J. P. Morgan Chase lost
US$6.2 billion on speculation in derivatives, by a UK trader (Bruno

Iksil) known as the ‘London Whale’.12 Admitting to breaking US secur-
ity laws, the US bank was slapped with US$920 million in fines to settle
civil law investigations into the debacle. The issue of how to deal with
the overseas supervision of ‘too big to fail’ financial institutions – or
what Basel refers to as ‘global systemically important banks’ (G-SIBs) –
that flaunt the rules may also be addressed.
On the one hand, there are governing agencies that prefer the con-
servative ‘command-and-control’ program for its greater managerial
scope; especially post-credit crisis. Specific capital-to-asset ratios endow
national regulators with a fair degree of control over their banking
sectors. Lacking the authority to issue these mandatory directives or
impose sanctions, the Basel Committee is significantly more dependent
on voluntary acceptance of its recommendations than its national
counterparts (Marcussen 2007: 214). On the other hand, there are
entrepreneurial bankers who consider these capital adequacy ratios
excessive restrictions that place their firms at a competitive disadvan-
tage. Anglo-American banks favor a lower benchmark than their con-
tinental European rivals.
With the recent credit crisis fuelling demands to implement pruden-
tial reforms that would minimize the probability of future bank failures
and systemic instability, Basel III proposals require that banks hold
4.5 per cent of common equity Tier 1 (up from 2 per cent) – plus a
capital conservation buffer of 2.5 per cent – of ‘risk-weighted assets’.13
Unfortunately, Basel III has been diluted and modified because of,
amongst other things, industry complaints about competitiveness and
monitoring tests; which indicated a shortfall between high-quality
liquid assets and net cash outflows of €1.8 trillion for 209 banks as of
31 December 2011 (BCBS 2012). After numerous negotiations through-
out 2012, a compromise was finally announced in January 2013, which
reduced the ‘liquidity coverage ratio’ (LCR) obligations – highly liquid
assets necessary to survive a 30-day credit crunch – that banks have to
meet to 60 per cent by 2015; before the full rule is phased in annually
by 2019. Banks will also be able to satisfy all of their LCR responsibil-
ities using government bonds that are (supposedly) risk free. Not only
does this entrench the reliance on external ratings but critics have
accused the US and EU for using the LCR as a method for incentivizing
banks to buy and hold their sovereign debt at a time when the attrac-
tion of doing so has greatly diminished (Hannoun 2011: 11). Banks
have been off-loading their toxic liabilities to central banks in return
for sovereign bonds.
What is striking about operational risk is that it is actually devoted to

regulating through uncertainty more so than risk. Often labeled as risk,
it is, in fact, a misrepresentation of uncertainty. Just as there exist no
sound measures indicating when the next rogue trader will surface to
exploit a system, there is no probabilistic method to predict when
politicians, such as Silvio Berlusconi, former Italian prime minister,
will (re)introduce instability in their quest for power. Of course, polit-
ical ‘exits’ can be just as disturbing as ‘entries’. With the sudden resig-
nation of its finance minister Vitor Gaspar and foreign minister Paulo
Portas, Portugal once again witnessed the yields on its ten-year bench-
mark bonds climb to above 8 per cent in early July 2013 as doubts
resurfaced about its commitment to austerity reform. While down from
the 14.7 per cent Portugal faced in January 2012, markets were rattled
by any inkling of a change in trajectory. Thus, politicians, as rogue
traders, do not lend themselves to being readily captured as a numer-
ical operational risk. Herein lies the tension between the programmatic
and operational dimensions of fiscal governance. Since operational risk
is actually a form of uncertainty, it is imprudent to problematize its
management in terms of risk. Yet this is consistently being done by
rating agencies as they disguise the discretionary conduct of their
rating committees to compensate for the lack of representative data
samples and similar quantitative inconsistencies in the attempt to
transform more budgetary contingencies into credit risks. Seldom is
this migration of corporate rating analytics seriously scrutinized to
reveal the false sense of certainty which it instills or its consequences.
Common to all organizations, uncertainty encompasses not only a
propensity to failure based on internal and external events but also
what is conventionally referred to as ‘business risk’. Business risk may
be considered a catchall category that covers losses from such factors as
a drop in volumes, a shift in demand, a price squeeze, a cost surge, reg-
ulatory changes, or technological obsolescence (Kurtizkes and Scott
2005: 263). It occupies an uneasy position because of its rather nebu-
lous character, which straddles both risk and uncertainty. Surprisingly,
this category is absent from the Basel definitions. The difficulty with
incorporating further additions is that there is an inherent overlap
between these categories of risk and uncertainty. Kuritzkes (2002: 49) is
correct to observe that ‘internal and external events can quickly bleed
into business risk: in fact, the knock-on effects can often be greater
than the initial loss’. Excessive delineation may even fuel perpetual
regression and spiral out of control as further divisions are categorized
ad infinitum. This is the curse of modernity proclaimed by Beck. But by
conflating categories and importing methodologies common in the

management of market and operational risks – no matter how dubious
– the assessment and articulation of sovereign creditworthiness
becomes distorted. Rather than searching for strict ontological (binary)
distinctions, a preferred understanding ‘regards [risk and uncertainty]
as related along multiple axes, with the effect that no single contin-
uum (such as one running from statistical probability to vague
hunches) will adequately represent their relationship’ (O’Malley 2004:
21). With this conceptualization in mind, an analysis of credit risk now
follows.
Credit risk
One of the supposed principal virtues serving to validate risk manage-
ment is its ostensible ability to grapple with large and complex phe-
nomena by isolating key arrangements, disaggregating them into so
many components, judging these individually, before reassembling
them again. ‘Credit risk’ is indicative of this approach. While the
potency of the numerical probability derived from this exercise may
seem hard to discount, substantial doubts exist whether the disaggrega-
tion of all these variables can adequately account for their interdepen-
dencies and interplay in shaping the debt-bearing capacity of an entity;
especially an entire country (Paudyn 2013). As neat and concise as this
application may seem, arguably, the preoccupation with methodologi-
cal systematicity, rigorous transparency and logics of explanation, by
both CRAs and regulatory bodies (e.g., European Securities and Markets
Authority (ESMA)), tends to negate the importance of its actual accu-
racy – that is until its systemic consequences throw economic affairs
into disarray.
Granted there is no objective or true essence of creditworthiness to
unearth. How truth claims about creditworthiness are produced and
legitimated depends on their articulation to a market imagination as a
social fact. Credit ratings, however, do contribute to a particular
knowledge of deviance; whose effects may be evaluated in how well
they translate this rationality into the material world. No matter how
pervasive the performative effects of ratings may be, ultimately, the
tensions sparked when their calculative flaws prevent their accommo-
dation in reality can undermine their epistocratic strength as they
incite a backlash; or counterperformativity. To mitigate such conflicts,
their embeddedness in the broader discourse of risk, which serves to
define and validate the knowledge networks discussed by Sinclair
(2005), helps to compensate for some of these detractions; or at least
temporarily. Credit risk has been specifically objectified and formulated

as a quantifiable measure of debt default, which can be ranked through
corresponding rating designations (Cantor and Packer 1996).
Whatever the purported benefits, however, one only has to be
reminded of the recent 2007–08 financial crisis for a stark example of
their dismal failure in calculating default risk. Billions of dollars were
lost as (alleged) CRA incompetence assigned excellent ‘AAA’ scores to
dodgy ‘residential mortgage backed securities’ (RMBS), only to then
slash three quarters below investment-grade (‘BBB–’) (IMF 2010: 88).
The subsequent crises in liquidity and valuation triggered the most
severe economic correction since the ‘Great Depression’. As a result,
accused of manipulating models and/or delaying revisions, S&P now
faces a US$5 billion legal battle.
Arguably, as Langley (2008a: chapter 7) posits, the disaggregation
implied in risk models often overestimates the calculability of objects
by isolating the individual at the expense of the intersubjective dimen-
sions of the problematic or in the above case, the social effects of
extensive defaults. With the increasing securitization of new financial
instruments, such as derivatives, the hegemony of the discourse of risk
in the constitution of authoritative knowledge is reinforced because of
this false sense of security regarding the calculability of default.
Presenting these propensities as tangibles to be measured translates
into a greater reliance on the act of credit rating; as it is deployed to
establish the threshold for creditworthiness and provide the necessary
(empirical) validation for the normality of market sentiments.
Subsequent peer comparisons are plausible because of the reaggregat-
ing character of risk to pool diverse variables together. Regrettably,
however, this entire process involving the fragmentation, calculation
and reassembly of credit risk not only skews the assessment of (sover-
eign) creditworthiness but normalizes an adherence to this dubious
approach by embedding it in the broader logics of risk management
and the neoliberal models of capitalism; which also helps to immunize
it from critical political debate.
Whereas initially investment and merchant banks underwrote sover-
eign bond issues in the nineteenth century, growing disintermediation
has increasingly allowed CRAs to perform this certification role
(Sinclair 2005: 54). Utilitarian risk calculus has been a driving force
behind this movement. Whether in-house models are designed or
external scores adopted, sovereign ratings are regarded as the calcula-
tive measurement of fiscal performance capable of identifying some-
thing called ‘credit risk’, and thus a tool to objectify and commodify
those budgetary relations for speculative investment purposes. Ratings

are considered as chief signals of credit risk, which inform market par-
ticipants of the suitability standards of an issuer. By applying similar
risk techniques found in the assessment of corporate balance-sheets or
household leverage to sovereigns, CRAs magnify the communicative
tool of ‘risk-based pricing’ to process all these numerous and simul-
taneous enterprising calculations. Especially ubiquitous with credit
scoring, Langley (2009: 285) argues how:
Both the future and the past meet in the stratified risk calculations
and pricing decisions that are made in the present by lenders.
Probabilities for default for different categories of borrower are
determined on the basis of inference from statistics on past credit
records and behaviour (sic).
Estimations gauging the probability of default enable lenders, and

rating agencies, to differentiate between applicants/issuers. Risk-based
pricing has been integral to the division and securitization of various
tranches of risk composing CDOs, CMOs and ‘collateralized loan oblig-
ations’ (CLOs). In fact, such financial engineering enhanced the ratings
awarded to this ‘toxic debt’ by CRAs (Langley 2008a); only eventually
to implode during the subprime mortgage crisis. By 2013, however,
these securities began to return to favour as record low interest rates
(0.25 per cent in EMU and the US) persisted as the new normality (The
Economist, 6 April 2013).
Of course, such market signals are derived from means-variance
analysis, which itself depends on repetitive, high-volume data flows.
When such appropriate data samples are lacking, as in the case of sov-
ereigns, it jeopardizes the statistical modeling used to arrive at a mean
and subsequent expected values. Subjective estimations are used to
plug the gaps. Furthermore, their commercialization through the
market endows ratings with a legitimacy that serves to compensate for
some of these inadequacies. Legal statutes and certification also help
reinforce the perception that ratings are valuable mechanisms for
dealing with this field of credit risks by recognizing which securities
can serve as part of regulatory capital requirements (Partnoy 1999).
Together they assist in the creation a calculative space into which gov-
ernments are drawn and recast through the discourse of credit risk.
Pivotal to the subjectification/objectification which ensues, is the
authority granted to ratings through their alignment with a risk dis-
course that claims to re-encode unique credit properties as universal
hazards. Drawing on Flandreau et al. (2011), Bruce Carruthers (2013: 5;

original italics) confirms that:
It was not because of superior predictive performance that rating

agencies became the chief information brokers in mid-twentieth-
century sovereign debt markets. Rather, bond-rating agencies helped
create the perception that uncertainty could be turned into risk.
Unfortunately, this kind of alchemy fails to eliminate fundamentally

the very unique contingencies about the willingness and ability of a
debtor to meet its obligations, which it claims to have mastered. It
merely distorts the dialectical relationship between risk and uncer-
tainty involved in the construction of the social facticity of creditwor-
thiness, by selectively identifying what components comprise credit
risk and subjecting these supposedly more amenable particulars to risk
analysis. Contrary to the promises of clarity offered by risk measure-
ment/management, however, a diagnosis reveals it as really an illusion
of transparency rooted in methodology rather than borne out of sub-
stantive budgetary affairs. While omitting the endogeneity implicit in
fiscal relations may bolster the impression of their objectification
through a regime of calculation/classification as control, the repercus-
sions from such misrepresentation can be vast as these judgments are
often readily incorporated into multiple business models and regula-
tion with little serious scrutiny. Even more disconcerting are the socio-
political costs arising when those budgetary uncertainties left out of
the credit risk equation suddenly produce enough havoc to disturb the
supposed continuity upon which ratings and market expectations
operate. As the case of Portugal illustrates, these shocks can have a
domestic catalyst or they can spill across borders.
At the beginning of 2012, S&P (2012a) became the latest CRA to
declare Portuguese debt ‘junk’ (‘BB’/negative outlook from ‘BBB–’) on
January 13. Yields on the benchmark ten-year bonds shot up as much
as 204 basis points to 17.26 per cent; while Portuguese CDS hit record
highs as fears mounted of a 70 per cent probability that Portugal would
follow Greece and default within five years (Financial Times, 30 January
2012). Additional austerity measures were announced, some of which,
by the fall of 2012, the government of Pedro Passos Coelho, the prime
minister, was already reversing because of what Moody’s describes as
the increasing ‘emergence of social upheaval’. An announced 7 per
cent ‘tax-swap’, which proposed a hike in the social security contribu-
tions of workers and a reduction from employers, or better known as
‘fiscal devaluation’, was aborted because of massive protests (Financial

Times, 5 October 2012).
All of this uncertainty was only compounded when, on 5 April 2013,
the country’s Constitutional Court rejected Lisbon’s intention to
suspend a summer payment to civil servants and pensioners; while
excluding the private sector. Unconstitutional because it failed to distrib-
ute the burden of adjustment equally, it left a hole of €1.3 billion
(0.8 per cent of GDP), which S&P warned could prevent the release of
additional funds from its €78 billion bailout program and delay extend-
ing the maturity of Portugal’s official debt.14 A third extension was even-
tually granted in April 2013, but such unforeseen uncertainties could
jeopardize Portugal’s ability to hit bailout budget targets; though a
‘clean’ bailout exit and a return to markets seem likely when its bailout
program ends in May 2014. Amidst all this discord, the resignations of
its finance and foreign ministers sent jitters through the markets.
Of course, none of these estimations included the procyclical effects
that the downgrade(s) have had. That is because similar to the public
unrest and judicial activism, they cannot be captured within the gov-
ernmental category of credit risk. As much as it has helped reframe the
problem of budgetary profligacy in terms of quantitative analysis, this
particular definition of credit risk has simultaneously introduced
serious inconsistencies by neglecting entire swathes of socio-political
life that can undermine its predictive capacity. As the forthcoming
chapters show, the unintended consequences can pose systemic
dangers.
What is so astounding is that subjects willfully submit themselves to
this questionable process of determining and assigning credit risk for
the sake of their reputational status; which becomes monetized. At the
individual level, self-disciplinary tendencies which promote compli-
ance are optimized and malignant dispositions are minimized through
‘tools of synchronization, standardization, and responsibilization that
penetrate deep into the conduct of everyday life’ (Langley 2009: 283).
All the ‘league tables, rankings, and indices construct self-reinforcing
circuits of performance evaluation, thereby perpetuating the internal
importance of externally constructed reputation and giving to reputa-
tion a new governing and disciplinary power’ (Power 2007: 141).
Whether it pertains to consumer credit cards (Guseva and Rona-Tas
2001) or mortgage credit (Burton 2008; Langley 2008a), this attempt to
transform uncertainty into risk comprises a leverage that is exerted by
the calculative surveillance apparatus to normalize subjects into
compliance.
Within this epistocratic constellation of expertise and risk-centered

strategies of government, credit ratings are deployed as a primary tech-
nology in the managerialization and commodification of uncertainty
as risk. Akin to Alex Preda’s (2009) analysis of how the introduction of
the stock ticker precipitated new arbitrage calculations or Karin Knorr
Cetina and Urs Bruegger’s (2002) research into computerized trading
screens as ubiquitous, ‘real-time’ mechanisms for price dissemination,
credit rating scales ‘[construct] data that, owing to their format,
[produce] specific effects of cognition and action’ which ‘distribute
their calculative activities’ to entrench risk discourse in the constitu-
tion of markets and the politics of limits (Callon and Muniesa 2005:
1237). Risk’s aggregating character helps facilitate the distribution of
this calculative capacity among human actors and material devices; or
a socio-technical agencement.
But this is more than just a superficial experience or a purely func-
tional application – the effects of which can be repudiated or ignored at
will. Credit rating is a form of subjectification that ‘helps to fabricate and
extend practices of individualization and responsibility’ while it ‘serves
to establish a mutuality or reciprocity between forms of personal identity
and the realm of economic calculation…thus helping to create the calcu-
lating self as a resource and an end to be striven for’ (Miller 2001: 381).
Here the identity of the subject is intimately linked to a supervisory
process that seeks to maximize reputational capital. Its sense of self
becomes implicated in economic definitions of (market) legitimacy.
Attempts to internalize external metric elements lead to the perception
of the subject as a performance variable. Concurrently, by rendering cal-
culable the operations of its freedom, as it opens itself to assessment, the
entity is standardized as a risk object/subject of government. A calcula-
tive logic is cemented in both the performativity of subjectivity and the
act of rule. Since governments are comprised of networks of subjects, the
broader collective shares some of these programmed propensities.
In any attempt to calculate the willingness and capacity of a debtor
to meet its obligations, a starting point entails establishing the para-
meters of a possible field of outcomes which the calculation can yield.
Accordingly, what is revealing about the category of credit risk is not so
much the empirical veracity of its claims but how this potential refer-
ential infrastructure is constructed and what is left out of the equation;
or at least supposed omissions. Reduced primarily to a catalogue of
(incontestable) economic variables, which are presented as defining
components of credit risk, fiscal relations supposedly become more
tractable to the rational choice scenarios and stress tests implicit in
CRA propriety models. Debt default then becomes a probable feature of

an exogenous reality that can be quantitatively determined. Of course,
in order for this approach to be convincing, the transformation of
fiscal unknowns into measurable data is necessary. With so much
vested in the displacement of uncertainty and its synthesis with risk, it
is quite troubling, though not surprising, that how this happens is
never clarified by CRAs.
Instead, as the analysis of S&P’s and Moody’s rating analytics in the
next section shows, a fiscal normality is constituted through the qual-
culative effects of risk – where the distinction between the qualitative
and quantitative collapses – which helps to induce a sense of budgetary
deviance by claiming to introduce the potential for an objective
average; without ever proving that any correlations that do exist
between governments are, in fact, causal. We are simply asked to
assume that this descriptive metaphysics imported from the corporate
domain is applicable with sovereigns. Its degree of plausibility is
heightened by risk’s purported ability to explain all these disaggregated
credit components. Irrespective of the validity of this comparative
(ab)normality, a relative judgment about creditworthiness may now be
possible; albeit within strictly defined parameters.
Yet as much as risk ratings promote calculative speculation, by rating
committees and investors, they simultaneously circumscribe such
conduct by limiting the degree of discretional input into the scoring
process. Discretion is constrained through the application of risk calcu-
lus; as hard measurable data is privileged over subjective estimations
wherever possible. For example, when comparing the ‘affordability’ of
the same level of debt between peers, Moody’s (2008a: 12) first empha-
sizes quantitative differences, such as interest payments and revenues,
before qualitative judgments fill in the remaining gaps. Otherwise, as
one senior fixed-income manager suggested, it would compromise the
‘rigorous transparency and comparability’ of the ratings process. Rather
than eliminating the discretional contours of the referential infrastruc-
ture surrounding creditworthiness, however, the preponderance of
methodological rigor and systematicity merely ‘drives the qualitative
elements deeper into obscurity’.15 But because the degree of exigency
involved in budgetary politics does not lend itself to being readily cap-
tured as a statistical probability through the prescriptive positivism of
risk, this misrepresentation of uncertainty as risk attempts to mitigate,
if not remove, the very qualitative calculations that make sovereign
ratings possible. While constraining the subjective faculties necessary
for the assessment of sovereign creditworthiness seems like a defeatist
exercise, it makes business sense if the process through which this

social fact becomes authoritative knowledge is considered.
Optics of objectivity – no matter how dubious – are reinforced by a
defendable and hegemonic risk calculus (Power 2004: 11). Because
there is no objectively true state of creditworthiness to measure against,
one can be performed into existence as a social fact through the right
methods and sufficient modeling; which gives the impression that it
actually does exist. Their commercialization only amplifies the author-
itative capacity of sovereign ratings as this knowledge becomes more
salient as it is legitimized through the market. In the end, it is not a
question of an inherently right or wrong rating analytic in an absolute
sense, but a matter of degree and how distortive they are in this perfor-
mativity, as well as the consequences which this triggers.
Credit rating methodologies
In order to grasp how credit ratings perform a specific (neoliberal) pol-

itics of limits into existence, it is necessary to problematize how sover-
eign ratings are conducted. Given their dismal performance and alleged
complicity in recent crises, CRAs have been under tremendous pressure
by government regulators – especially in Europe – and the major invest-
ment banks, which advise national governments and underwrite their
debt, to open the black box and make the ratings process more trans-
parent.16 Desperate to salvage their reputations and avoid excessive regu-
latory hurdles, all three main CRAs were quick to provide an updated
version of their sovereign rating methodology. In its response to the
civil lawsuit filed against it by the US Department of Justice, S&P
(2013b) lamented – though not repented – that it ‘has taken to heart
the lessons learned from the financial crisis’, and in the previous five
years, ‘[has] spent approximately $400 million to reinforce the integrity,
independence and performance of [their] ratings’; by introducing ‘new
leadership, [instituting] new governance and [enhancing] risk manage-
ment’. Similar to Moody’s and Fitch, S&P’s 30 June 2011 update was a
series of transparency initiatives designed to clarify its methodology
rather than to substantively reform the fundamentals of the ratings
process.17 In fact, S&P compressed and reduced its analytical framework
from nine to five categories. These proposals include:
• Strengthening analytical independence from issuer influence –

better analyst training; a rotation program; separation from policy
governance, criteria management and quality assurance.
• Improving rating methodologies through enhanced transparency;

more stringent criteria; separate body charged with model
validation.
• Monitoring global credit risks – interconnected and coordinated risk
analysis.
• Enhancing regulatory compliance and analytical quality.
Despite sounding credible, S&P (2012b: 2) itself concedes that the

update’s ‘implementation [has] only a limited impact on...sovereign
foreign-currency ratings’; which historically have had a higher default
rate than local-currency debt. Changes to the latter may be more pro-
nounced, but only if any ensuing political ‘instability’ or ‘predictabil-
ity’ upon which such revisions depend can indeed be captured through
these techniques. Subsequently, another update was released on
24 June 2013 which claims to fine-tune S&P’s ability to accomplish just
that. Again, however, business is as usual.
Greater consistency, independence and transparency are also at the
core of Moody’s September 2008 ‘Sovereign Bond Ratings’ methodol-
ogy. In that document, Moody’s (2008a: 1) correctly admits that ‘no
quantitative model’ or ‘mechanistic approach based on quantitative
factors alone is unable to capture the complexity of the interaction
between political, economic, financial and social factors that define the
degree of danger, for creditors, of a sovereign credit’. Unfortunately,
evidence of that qualitative significance is markedly absent in the
December 2012 proposed refinements to that methodology. Instead
scorecard-indicated rating is prioritized with an increased granularity
of factor scores and the enhanced quantification of sub-factors
(Moody’s Investors Service 2012a). Given the degree to which the
authoritative capacity of ratings is determined by their alignment with
risk calculus, irrespective of the rhetoric, CRAs were never really com-
pelled to reconsider fundamentally the models and methodologies
underpinning their sovereign ratings.18 Pressures from governments for
enhanced transparency merely helped introduce even more quantita-
tive techniques into this domain. But that does little to open the black
box of sovereign rating analytics. In fact, by heightening its technical
sophistication, this can actually shield such epistocratic knowledge
from contestation by removing it even further from political debate.
Additional categorical delineations may not only be more conceptu-
ally confounding but they can also adversely complicate the clear
application of rating methodologies and are often misunderstood/mis-
appropriated by investors. In the attempt to aggregate and pre-empt
the available combinations that factor into a decision-making process,

CRAs make the further distinction between ‘sovereign’ and ‘country’
credit risk. Although acknowledged to be ‘clearly related’, the former is
defined as the chance that a national government will unilaterally
repudiate its debt obligations. Sovereign bond ratings are indicative of
this propensity to default.
Much broader, and more difficult to quantify, country risk:
Refers to all risks associated with cross-border lending to a country

due to factors particular to that country but outside the control of
the private sector. Country risk includes such risks in a given
country as domestic economic and financial risks that arise from
political and economic factors, as well as sovereign risk and the risk
that governments will interfere with the ability of a domiciled bor-
rower to repay its cross-border debt (Moody’s 2008b: 5).
Corporate credit analysts scrutinize a country’s business and legal envi-

ronments, levels of corruption and socio-economic variables (e.g.,
income disparity), amongst other factors, for clues to how well a firm
will perform within that national jurisdiction. To calculate a score
from all this diverse information, S&P first computes a numerical figure
by aggregating the key factors: law, government and human develop-
ment. However, it then has to use human ‘judgment to translate this
score into a country risk score in letter grades’ and compensate for the
fact that the ‘underlying indices are largely driven by survey informa-
tion that is somewhat backward looking, so it’s critical to make sure
the final ratings take on a forward looking flavour’ (Heinrichs and
Stanoeva 2012: 20). How this happens is never revealed. But given the
preponderance of statistical back-testing as a means of validation by
CRAs, one can argue that these projections reflect risk-based forecasts.
Although country risks include sovereign risks, their correlation is
tenuous. Their movements are not necessarily in tandem.
Unfortunately, it is common practice to treat sovereign bond ratings as
proxies, or even interchangeable, for the more encompassing country
risks.19 Nowhere, arguably, is this problem more prevalent than in
regards to emerging markets. It is also with most of the BRICs (i.e.,
Russia, India, China) that S&P Capital IQ observes the greatest diver-
gence between sovereign and country risk (Heinrichs and Stanoeva
2012: 21). Systemic corruption, vast income inequality and the lack of
transparent regulatory frameworks are but a few of the factors that con-
tribute to the maze of obstacles which corporations must navigate and
manage in these developing economies. While their impressive relative

economic growth up to now has helped diminish the threat of a sover-
eign default, it has also reduced the urgency to attend to the contin-
gencies which serve to elevate the country risks facing the BRICs. But
as that torrid economic pace decelerates, however, those country risks
may prove more disruptive; which may deteriorate credit conditions
and trigger downgrades. A reassessment of the BRICs is already under-
way. Consecutive quarterly declines in China’s economic growth
(7.5 per cent forecast for 2014) and a 10.4 per cent drop in the MSCI
Emerging Markets Index – compared to an 18 per cent hike for the
Dow Jones Industrial Average (DJIA) during the same period – reflect a
growing pessimism; which, if amplified by rating downgrades, may
prove antagonizing.
Conflation, as mentioned, between these categories is extensive
because of their substantial overlap and the fact that sovereign ratings
are readily treated as an out-sourced form of due diligence. Rather than
conducting their own necessary research and assessments, large seg-
ments of the investment community simply opt to rely on these scores
as variables denoting creditworthiness; which they plug into their risk
models. Consequently, the question of accuracy may not be as imme-
diately salient since all these rating-derived expectations help to
perform a calculative space into which countries are drawn, objectified
and commercialized as performance indicators of creditworthiness.
Exactly how this happens is what the next sections document. Devoid
of anchors in budgetary reality, however, the success of such illocu-
tionary performativity is only temporary. Once the disjuncture
between expectations and actuality becomes alarmingly apparent, the
consequence is often crisis as market sentiment quickly sours and
everyone heads for the exits at once (i.e., herding mentality).
Methodologies, models and assumptions

Before dissecting the respective propriety approaches deployed by S&P
and Moody’s to calculate sovereign ratings, it is significant to distin-
guish credit rating methodologies from analytical models and principal
rating assumptions. Similar to the categorical distinctions above,
conflation is a serious problem here as well. Acknowledging their inter-
dependence in the rating process, their individual dissection allows us
to come to grips with the role that each plays in the constitution of
authoritative knowledge underpinning the problem of creditworthi-
ness, and thus the performative capacity of ratings. Unless govern-
ments are attentive to these different dimensions of rating production,
effective policies aimed to redress the inconsistencies which aggravate

the asymmetry between epistocracy and democracy will be difficult to
tailor. As a result, regulatory agencies may be compelled to either inad-
vertently promote the status quo through an excessive preoccupation
with risk calculus or be placed in the awkward position of repoliticizing
the ratings process without any clear mandate.
Rating methodologies refer to the specific frameworks and processes
which govern the application of criteria principles to produce a credit
score. Parametric statistics are an example of the (technical) methods
employed by rating agencies to assess variables like current and future
(corporate) cash flows or the ability to cover expected interest expenses
for issuers in particular industries (Standard & Poor’s 2010a). Implicit
in these methodologies are inferences about the parameters (defining
properties) of the population distribution; including deviation. Correct
assumptions help enhance their statistical power – erroneous assertions
prove misleading. Comparative metrics and rating transition matrices
are parameterized for use in credit risk models. More recent continu-
ous-duration estimation methods (cf. Christensen et al. 2004; Lando
and Skødeberg 2002), such as the ‘through-the-cycle’ (TTC) rating
methodology, aim to smooth out the rating over the business cycle in
order to provide the kind of stability which ‘point-in-time’ (PIT)
methods lack.
Serious criticisms of the TTC, however, attack it for its procyclical
bias (IMF 2010), and weaker default prediction accuracy as it fails to
capture adequately the translation of political movements into credit
risk (Valles 2006). Deteriorating fiscal positions can induce recessionary
pressures which, if persistent, serve to validate the smoothing rule’s
prescription of additional downgrades implicit in the TTC rating
methodology. During economic contractions, such as the Asian crisis,
the probability of a downgrade grows substantially; whereas in an
upswing, the probability of upgrades increases (Lowe 2002). Typical of
most downgrades, as noted above, Moody’s and S&P only adjusted
their credit scores for the Asian Tigers once the downturn had already
begun. Anchored in a long-term default horizon, the TTC suffers from
a lag as it ‘waits to detect whether the degradation is more permanent
than temporary and larger than one notch’, which tends to ‘accentuate
the already negative movement in credit quality’ (IMF 2010: xiii).
Prudent migration policies often result because the point-in-time rating
prediction necessary to trigger a revision fails to surpass the ‘actual
rating by at least 1.25 notch steps’ (Altman and Rijken 2004: 2712). As
a result of this procyclical time lag, Haldane et al. (2000) observe that
Moody’s and S&P have only cut a sovereign rating before the onset of a
correction in less than 25 per cent of cases. As forthcoming chapters
document, this procyclicality tends to reinforce the self-validating
effects for CRAs as downgrades and ‘negative outlooks’ create the dete-
riorating conditions which precipitate further ratings cuts.
Models are ‘a simplification of, and approximation to, some aspects
of the world’ (King et al. 1994: 50) that help rating committees analyze
the shock-absorbing capacity and resilience of a sovereign. Stress sce-
narios implicit in these propriety models primarily rely on a synthesis
of informal judgment and statistical probabilities to validate compet-
ing propositions about the willingness and capacity of a sovereign to
fulfill its obligations. How this occurs is never revealed. Such opacity
only fuels the contestation surrounding the design of ratings. At the
centre of this is the hotly debated definition of ‘default’; which informs
the respective model construction of individual agencies. Moody’s
privileges expected loss and the ability to pay,20 while S&P evaluates
default probability along with the willingness to pay and Fitch relies
on some aggregation of the two. Compounding the contestability are
the banks and other active asset managers who attempt to outperform
the CRAs with similar methods but different models. Rare sovereign
defaults only preclude a clear and concise understanding or the
unequivocal reliance on statistical probabilities.
An appropriate ‘balance between quantitative measures and qualita-
tive analysis’, therefore, is necessary because the act of rating ‘would
not be possible using a purely quantitative, automated, or model-
driven approach’ (Standard & Poor’s 2010a: 4). Even Moody’s (2008a:
1) admits that:
There is no quantitative model that can adequately capture the

complex web of factors that lead a government to default on its
debt. The task of rating sovereign entities requires an assessment of
a combination of quantitative and qualitative factors whose interac-
tion is often difficult to predict.
Of course, the correct synthesis of these qualitative and quantitative

techniques is highly contestable and remains distinctively opaque
since, as S&P (1992: 15) concedes, ‘there is no formula for combining
these scores to arrive at a ratings decision’. Nevertheless, irrespective of
the acknowledged ‘singular nature of sovereignty’, there are still ‘con-
tinuous efforts to make the analysis more quantitative’ (Moody’s
Investors Service 2008a: 6). As much as a balance may be sought,

Fitch’s (2012: 6) Sovereign Rating Model (SRM) reaffirms that:
Only those factors that were found to be statistically significant (at

90% confidence) and those with the appropriate sign (+/–) are
employed…The model uses empirical data, does not allow for judge-
mental analyst input and aims to provide a transparent, coherent
framework for comparing sovereigns across regions and through
time.
These hypothetical tests are associated with a particular rating category

and are informed by their underlying premises. Mimicking methods,
however, that attempt to transform (singular) fiscal uncertainties
into (aggregate) pools of risk only makes CRAs complicit in their
misrepresentation.
Assumptions are the ‘projections, estimates, input parameters to
models, and all other types of qualitative or quantitative expectations
that [CRAs] use to arrive at a ratings opinion’ (Standard & Poor’s
2010a: 3). Forward-looking, they help analysts to identify and discrim-
inate what constitutes as relevant criteria and how these quantitative
and qualitative factors should combine to formulate, as with S&P, a
RAMP. Again, these assumptions are never revealed or else CRAs would
betray just how subjective the ratings process actually is and be forced
to account for their political judgments. Rather they prefer to redirect
attention away from these forms of managing through uncertainty to
the more defendable risk calculus or the newly rendered titles of over-
arching (economic) categories (Sinclair 2005: 34). Whatever substan-
tive explanations are available, they are often framed in binary, and
nebulous, terms, such as ‘more’ or ‘greater’ than before; as opposed to
offering any deeper insight into the analytical considerations involved.
Of course, given the uncertainty of rating, these analytics escape such
standardization. Once an assessment is completed, the lead analyst
presents it to the rating committee for discussion and an eventual
vote.21
The significance of these assumptions cannot be discounted as they
are the fundamentals which inform and determine the remainder of
the rating enterprise. After all, S&P (2012b: 7, added italics) reminds us
that ‘rather than providing a strictly formulaic assessment’ it ‘factors
into its ratings the perceptions and insights of its analysts based on their
consideration of all of the information they have obtained’. One would
think that admissions such as this would make rating agencies more
assailable, as they accentuate the discretionary character of rating.

Through the hegemonic discourse of risk, however, our preoccupation
instead shifts to what is purported to be the higher priority, namely
the verification of quantitative calculations, at the expense of seriously
scrutinizing their subjective underpinnings. Yet discretion can always
trump a scoring metric and often does; especially in the aftermath of
the credit crisis.22
As such, an alternative approach to assessing and articulating credit-
worthiness, and a subsequent budgetary normality, may be possible if
the assumptive and normative dimensions of ratings are deconstructed
through more endogenous forms of due diligence. But as long as exter-
nal ratings are readily adopted on the basis of their (risk) methods,
without an earnest evaluation of their underlying models or assump-
tions, then the status quo will be performed and regenerated repeat-
edly. Since financial markets have little incentive to spearhead this
change, governments are charged with devising appropriate policies
that can open the black box of rating enough to introduce more sub-
stantive, rather than simply procedural, clarity into the ratings process;
which can subject it to greater political contestation. This demands
that regulatory attention focus on the government through uncer-
tainty as opposed to prioritizing risk.
Sovereign rating analysis

To better understand how credit ratings help to facilitate the transla-
tion of diverse national (fiscal) problematizations into mutually cor-
responding global ones, which can be commercialized and exploited
by markets, it is necessary to dissect how CRAs conduct this sovereign
rating analysis. Although each rating agency possesses its own propri-
etary models, corporate culture and institutional identity, this exercise
reveals substantial similarities between their respective approaches. Not
only are there significant methodological parallels but, upon closer
examination, the affinities between their guiding assumptions, as well
as the programmatic ambitions embodied in their ratings, become
apparent. Available for public consumption, S&P and Moody’s have
regularly released updates to their rating methodologies. Yet, as noted
above, rather than introducing fundamental reforms, the principal
revisions concentrate on the finer calibration of existing categories.
Part of their campaign of transparency and accessibility, these are
designed to appease regulators, while portraying the rating process as
open and progressive.23 Such measures are also intended to rehabilitate
their eroded credibility by signaling to the market what to expect.
Simultaneously, all of the CRAs are quick to accentuate what ratings

are not. Neither are they intended to be indications of investment
merit nor absolute measures of default probability, but informed opin-
ions. However, as this book contends, such simple and supposedly
innocuous characterizations are blind to their performativity as socio-
technical devices of control and governmentality. To document how
this happens, the next sections problematize the sovereign rating
approaches deployed by S&P and Moody’s.
As crisis hits and a panic in the markets ensues, it is quite common
to seek out the dastardly ‘culprits’ responsible for the entire mess. A
spade of consecutive sovereign downgrades and increasingly strained
public finances mean that politicians, especially in Europe, have been
conspicuously vocal in identifying and vilifying the rating agencies as
not only one of the chief architects of the 2007–08 credit crisis but for
supplying much of the firepower for the onslaught which allowed it to
morph into the sovereign debt crisis (Sinclair 2010). Amidst all this
antagonism, which the March 2012 Greek debt restructuring only
exacerbated, what constitutes as the ‘real’ risk of sovereign default has
become a hotly debated topic. Terms like ‘rescheduling’, ‘reprofiling’ or
‘selective default’ have increasingly entered the discourse as various
propositions have been tabled for coming to grips with the crisis.
Given that ‘default’ is the ultimate reference point for all the other
rating designations, a clear definition is vital.
Standard & Poor’s Rating Analysis Methodology Profile (RAMP)

Standard & Poor’s (2011c: 2) defines sovereign default as ‘the failure to
meet interest or principal payments on the due date, or within the
specified grace period, contained in the original terms of the rated
obligation when issued’. Debt denominated in either a local- or
foreign-currency also cannot be exchanged, rescheduled or restructured
on ‘less-favorable terms’; which may include a reduced principal
amount, extended maturities, lower coupon, different currency of
payment or effective subordination (ibid.). Similarly, any exchanges
must be ‘voluntary’ and cannot be ‘coerced’ or ‘distressed’. Distress
may be interpreted when investors are compelled to accept less-
favorable conditions given the threat of more dire consequences (i.e.,
outright default) to follow should they refuse what is being offered.
Furthermore, not only do sovereigns seldom fail at the higher inci-
dence of corporates but when they do face difficulties in servicing their
debt obligations, rarely does it entail completely reneging on all pay-
ments. S&P assigns ‘selective default’ (‘SD’) in these cases.
Yet, irrespective of how often these definitions and methodologies

get refined, the success rate of accurately capturing and forecasting this
propensity to default remains dismal. Shortly before what appeared like
an imminent Greek default occurred, based on historical experience,
S&P (2011c: 4) estimated that rated at ‘B’ (negative watch), the
Hellenic Republic had an 8 per cent chance of defaulting within three
years and 33 per cent within a decade. Nine months later that event
proved to be 100 per cent. What this governmentality diagnostic
demonstrates by tracing the various criteria updates is that the trans-
formation of uncertainties into risks still remains at the core of rating
sovereigns. While such fundamental inconsistencies persist, little
substantial improvement is anticipated. Exact accuracy, however,
diminishes in significance since it is (unenthusiastically) recognized
that the nature of the exercise (i.e., determining sovereign creditwor-
thiness) precludes such unequivocal precision; a feature which makes
the epistocratic process more susceptible to ‘politics’. Nevertheless, sub-
jects willingly subscribe to this (risk) mentality and submit to the per-
formative effects of risk ratings because they complement their
business ambitions.24 Subsequently, this only convinces CRAs that sov-
ereign ratings do, in fact, ‘serve as anchors of expectations in the
market’ (Standard & Poor’s 2013d: 5); which reinforces their own self-
generative effects.
S&P (2013c: 2) is confident that its methodology is ‘sufficiently
specific to account for a variety of individual sovereign risks, yet broad
enough to ensure global comparability among the 127 sovereigns
[rated]’. Since peer comparison is pivotal to the rating process, CRAs
must accommodate the rich heterogeneity evident in individual cases
in a progressive fashion relative to each other’s fluctuating risk/uncer-
tainty factors. S&P depends on an analysis of disaggregated criteria in
the hope of providing such comparable scores and a global benchmark.
The Rating Analysis Methodology Profile (RAMP) is the culmination of
this analytical enterprise; whereby the quantitative and qualitative are
combined to yield a ‘common vocabulary’ (rating) about sovereign
credit risk (Standard & Poor’s 2010a).
Whereas previous versions disassembled nations into nine analytical
categories,25 the latest reincarnations of the RAMP have condensed
these to concentrate on five main factors:
1) Institutional and governance effectiveness score – includes security

risks; previously labeled ‘political risks’;
2) Economic score – economic structure and growth prospects;
3) External score – external liquidity and international investment

position;
4) Fiscal score – budgetary performance and flexibility; government
debt burden;
5) Monetary score – monetary flexibility; exchange rate stability
(Standard & Poor’s 2011b, 2013c).
Each factor is then graded along a six-point numerical scale ranging

from ‘1’ (the best) to ‘6’ (the weakest). Next, the ‘institutional and gov-
ernance effectiveness and economic profile’ is devised from adding
those respective scores, while the external, fiscal and monetary scores
are combined to produce the ‘flexibility and performance profile’. Once
the committee factors in any applicable adjustments, it finally renders
a foreign-currency sovereign rating.26
For our purposes, it is the calculation of institutional and gover-
nance effectiveness, or the political risks, which is of particular interest.
Not only, as S&P (2011b: 9–10) reminds us, are ‘governance and polit-
ical risks…among the main drivers of poor economic policies that lead
to default’, but also while the other variables of the debt profile are
more amenable to quantitative analysis, given their economic coor-
dinates, these socio-political factors elude such capture because they are
‘primarily qualitative’. Developed by S&P’s criteria officers, these vari-
ables are incorporated into hypothetical risk stress scenarios/models by
its analysts to calculate the economic resiliency and financial robust-
ness of a government. In order to help facilitate the comparability of
diverse sovereigns across time, each hypothetical stress level is used as
a ‘benchmark for calibrating [the] criteria’ and ‘associated with a par-
ticular ratings category’ (Standard & Poor’s 2010a: 7). Recent crises, and
in particular Ukraine and events exemplary of what has been dubbed the
‘Arab Spring’, have magnified the salience of domestic security concerns,
and have prompted more direct references to ‘civil society cohesiveness’
and ‘social inclusion’. While crucial to sovereign creditworthiness,
however, such additions only complicate its calculation.
Government through uncertainty, more so than risk, is necessary
when attempting to come to terms with the resilience of a political
economy to fluctuating ‘political instability’ and ‘escalating domestic
conflict’ (e.g., Arab Spring, Brazilian protests) or deciphering the ‘pre-
dictability of the sovereign’s policymaking and political institutions’
(Standard & Poor’s 2013c: 9–12). Judging how ‘proactive policymaking’
is in its ‘capacity…to respond to societal priorities’ is a painstaking
endeavour that cannot be satisfactorily objectified and codified
through risk metrics. Neither can statistical estimates reveal how con-
sensual the political succession process is nor the path of escalating
social upheaval; as these oscillate in unpredictable ways. The task
becomes even more complicated and uncertain when these primary
factors are ‘qualified’ by additional secondary criteria, such as the
‘transparency and accountability of institutions, data, and processes, as
well as the coverage and reliability of statistical information’ (Standard
& Poor’s 2013c: 9). Emerging markets, however, are not the only
source of doubt regarding the quality and transparency of these
numbers. Member States fiddled with their figures in order to meet the
convergence criteria for EMU accession, and Greece continued to
manipulate its fiscal data to disguise its deteriorating finances well after
it adopted the euro in 2001.
Finally, any institutional and governance effectiveness score is
adjusted for a sovereign’s ‘debt payment culture’ and exposure to ‘ex-
ternal security risks’. Should ‘a public discourse that questions the legit-
imacy of debt contracted by a previous administration’ exist, amongst
other things, then S&P (2013c: 13) cannot assign any score better than
‘6’.27 Of course, as is visible around the eurozone, but common in pol-
itics more broadly speaking, blame is regularly attributed to past govern-
ments and publics openly criticize having to shoulder the burden of debt
through austerity. What is striking about this consideration is that even
if all the economic data indicates a strong debt-bearing capacity, govern-
ments can always be willing to renege on their obligations. Politics can
prove the numbers wrong. Unfortunately, even though S&P privileges
this category in its definition of default, the RAMP fails to capture expli-
citly this willingness to honor debt. Numerous other fluid and political
contingencies also serve as examples of how S&P seeks to quantify the
willingness and capacity of unique governments to service their obliga-
tions by deploying uncertainty forms of management in the constitution
of sovereign creditworthiness.
Even if the assessment of certain individual categories may be calcu-
lated separately and quantitatively, much more perplexing is how they
all factor into an aggregate grade. If, as S&P (2008: 2) concedes, these
‘analytical variables are interrelated and the weights are not fixed, either
across sovereigns or across time’, then in order to produce the compar-
ative budgetary normality against which peers are evaluated, this scoring
slope (RAMP) must be artificially static. Accomplished through ceteris
paribus clauses, which attempt to freeze fluid fiscal relations, such stabi-
lizations are subject to the strict confines of these underlying assump-
tions. Forward-looking, the rating process is less a macroeconomic
forecast per se and more a debt sustainability simulation constrained by
the multiple discretionary judgments of the criteria officers/analysts

(Bhatia 2002: 26).28 Yet how can disaggregating governments into so
many components, judging these individually before reassembling
them adequately account for all their interdependencies and interplay
in shaping the debt-bearing capacity of an entire nation? Compounding
matters is the fact that S&P is not unique in this approach.
Moody’s Steps
In its assessment of sovereign creditworthiness, Moody’s employs a
four-stage process known as ‘Steps’. For its purposes, four events consti-
tute a debt default for Moody’s:
1) A missed or delayed disbursement of a contractually obligated inter-

est or principal payment (excluding missed payments that are cured
within a contractually allowed grace period), as defined in credit
agreements and indentures;
2) A bankruptcy filing or legal receivership by the debt issuer or obligor
that will likely cause the missing of or delay in future contractually
obligated debt service payments;
3) A distressed exchange whereby (a) an obligor offers creditors a new
or restructured debt, or a new package of securities, cash or assets
that amount to a diminished financial obligation relative to the
original obligation, and (b) the exchange has the effect of allowing
the obligor to avoid a bankruptcy or payment default in the future;
4) A change in the payment terms of a credit agreement or indenture
imposed by the sovereign that results in a diminished financial
obligation, such as a forced currency redenomination (imposed by
the debtor himself or his sovereign), or a forced change in some
other aspect of the original promise, such as indexation or maturity
(Moody’s Investors Service 2011b: 3).
A product of Moody’s Sovereign Risk Group, these ratings have become

associated with the severity of default. This expected loss, which is a
function of the probability of default and the potential recovery rate,
can either have a mitigating or magnifying effect on the pure default
risk. Nevertheless, given the features enumerated above that make a
sovereign ‘special’, Moody’s (2008a: 5) concedes that:
It is difficult to deconstruct what is ‘pure’ probability of default and

what is pure ‘loss severity’ at times of default. In fact, this is almost
impossible for countries that are high in the rating spectrum (unless
there is a clearly discernible, yet unlikely, default scenario).
Government through uncertainty is necessary to imagine the adverse

consequences produced by a default and determine how that expected
loss should affect the other components of the assessment. That said,
as an extension of the Black-Scholes-Merton model of credit risk,
Moody’s Analytics’ (2011: 4) Expected Default Frequency (EDF) plat-
form is an example of what is claimed to be an ‘objective, forward-
looking’ probability default metric; where a structural credit risk model
seeks to filter and separate underlying credit components into quanti-
tative variables, such as market capitalization, volatility and historical
default data. A ‘narrow rating range’ is then compiled; whereby
national political economies are synchronically standardized through
an ordinal ranking of credit risk and then compared.
Just like its rivals, Moody’s has also proposed refinements to its sov-
ereign rating methodology.29 Reflected in a revised ‘scorecard’, this
summary is a reference tool which weighs the various factors under
consideration in the effort to approximate their significance in the
rating process. Scorecards accompany a methodology and are ‘based on
the expert judgment of [the] rating analysts and codified using tech-
niques that standardize the analysis of individual factors’ (Moody’s
Investors Service 2013a). Such standardization is usually accomplished
through the enhanced quantification of the four principal ratings
factors – economic strength, institutional strength, fiscal strength and
susceptibility to event risk – and by the addition of modified sub-
factors evident in the proposed update. Particularly notable in Factor 4:
Susceptibility to Event Risk, it is here that ‘political risks’ are appraised.
Yet whereas the initial claim states that all of the ten sub-factors are
now quantifiable, including the political risks, Moody’s later acknowl-
edges the ‘stylized’ nature of the scorecard (Moody’s Investors Service
2012a: 24). Because socio-political developments are not completely
captured by this approach, admittedly, Moody’s exercises a tremen-
dous degree of discretion in their assessment. As such:
Rating outcomes may consider additional factors that are difficult to

measure or that have a meaningful effect in differentiating credit
quality only in some, but not all cases. While these are important
considerations, it is not possible to precisely express them in the
rating methodology scorecard without making it excessively
complex and significantly less transparent. Ratings may also reflect
circumstances in which the weighting of a particular factor will be
substantially different from the weighting suggested by the grid
(Moody’s Investors Service 2012a: 24).
Furthermore, disclosure of any kind is not necessary if it violates

confidentiality. Government through uncertainty, as this statement
indicates, is riddled with numerous contingent liabilities; which
implicitly assign CRAs the burden of justifying their judgments.
To address such outstanding questions, in addition to enhancing the
supposed risk-based quantification of sub-factors, Moody’s proposes to
treat qualitative sub-factors ‘more systematically’ as ‘adjustment
factors’, which can ‘have an effect on factor scores without unduly
altering the balance between quantitative and qualitative elements’
(Moody’s Investors Service 2012a: 2). Similar to S&P, Moody’s invokes
this ambiguous notion of balance without ever defining what it entails
or how to achieve it. Especially nebulous in regards to its calculation of
political risks, this category is comprised of two sub-factors: domestic
political risks and geopolitical risks. Ostensibly broad and all-
encompassing, in fact, estimations of the former are devised primarily
on the basis of only two main indicators: the World Bank’s Voice and
Accountability index and GDP per capita. Moody’s frequently relies on
the World Bank’s Worldwide Governance Indicators (WGI) – as well as
the IMF, EU, the Organization for Economic Co-operation and
Development (OECD) and the Bank for International Settlements (BIS)
– for its information/data; and in particular for Factor 2: Institutional
Strength. Readily accessible percentiles that provide relative country
rankings undoubtedly make it tempting to borrow statistics about eco-
nomic activity.30 Adopting the qualitative judgments made by these
organizations, however, implicates Moody’s in their political agendas.
Expectations of a more in-depth or clear analysis of the international
dimension of sovereign political risks are equally disappointing. Oddly
enough, Moody’s asserts that, in fact, geopolitical risks are not that
significant since they are only really relevant in regards to a few coun-
tries (e.g., North Korea). In most cases, this is actually a non-factor. Of
course, Moody’s is the first to admit that ‘it goes without saying that
this is a rather rough two-indicator grid which may only be a starting
point of the analysis in cases that involve political factors that go
beyond this framework’ (Moody’s Investors Service 2012a: 22). Given
that political economy often overflows such narrow parameters, this
basic approach illuminates quite little about how sovereigns are actu-
ally rated. Scant substantive insight is provided as to what those other
factors are or how they are assessed independent of and in relation to
one another.
As we wade further through the proposed revisions, their problem-
atic nature merely becomes starker as they compound each other. An
analysis of the deteriorating credit conditions across the advanced

economies over the previous decade has allowed Moody’s (2012a: 2) to
conclude that a ‘longer-term secular trend is undermining the previ-
ously strong positive correlation of per capita wealth with economic
resilience and credit stability’. As a result, in the effort to re-establish a
predictive dependence relationship, greater emphasis is now placed on
factors like the potential economic strength (Factor 1) or the susceptibil-
ity of a sovereign to those very fluid political risks which Moody’s con-
cedes escape quantitative capture. In other words, government through
uncertainty is stressed but without any better or clearer notion about
what exactly such an approach entails.
Whatever criteria are selected from this diverse pool of political phe-
nomena, three additional gradients (‘plus’, ‘neutral’ or ‘minus’) must
now be assigned for each of the five factor scores (‘Very Low’, ‘Low’,
‘Medium’, ‘High’, ‘Very High’). Greater granularity, arguably, only
complicates the process and makes it that much more dependent on
the individual discretion of analysts to differentiate between the
degrees of separation evident in national political economies.
Accordingly, the value-added of these proposals is minimal if the
objective is to enhance real transparency or ensure that indeed ‘qual-
itative elements are integrated within a structured and disciplined
framework so that subjectivity is constrained’ (Moody’s Investors
Service 2008a: 6).
Both the deductive and normative processes that combine these four
factors into a rating range may be adversely affected. First, there is little
to guide the formation of the premises/assumptions involved in deduc-
tion; aside from historical experience which is recognized as being neg-
ligible in relation to unique sovereigns. Next, ‘what makes a
government a better “credit”’, or the normative process, ‘comes from
comparative economics and financial analysis’, which rely on more
standardized benchmarks for peer assessment (Moody’s Investors
Service 2008a: 18). Continuity and comparability are often taken for
granted as most of the Government’s Financial Strength profile (aggre-
gation of Factors 1–3) are numerical figures. But the willingness to repay
debt is more reflective of the fluctuating elements associated with
Factor 4; of which any sub-factor risk elevation warrants an equal
increase in the overall Susceptibility to Event Risk score.31 In
November 2008, Ecuador was negligent on an interest payment of
US$30.6 million owing on US$510 million of global bonds maturing in
2012; which it deemed as ‘illegitimate’. Convinced that this was a
problem of willingness, as opposed to ability to pay, Moody’s cited ‘the
government’s decision to default was based on ideological and political

grounds and not related to liquidity and solvency issues’ (Moody’s
Investors Service 2008c: 12). Of course, no accurate measurements exist
to forecast such temperaments.
To some extent, Moody’s recognizes their significance by reassigning
these discretionary contingencies greater weight in constraining the
final step in the determination of the Government Bond Rating
Range.32 Unfortunately, this acknowledgement of the gravity of these
socio-political factors is not reinforced with enhanced conceptual
clarity or guidance on which ones to privilege and how they should be
incorporated in the performance of a credit assessment. A principal
explanation for this omission is that they render the problem of bud-
getary profligacy intelligible through the modality of uncertainty,
aligned with perceptions of contingency and normality, rather than
standardized through risk. With so much of the ratings process
monopolized by quantitative analysis and embedded in the discourse
of risk, however, this final but crucial step diminishes in visibility and,
subsequently, in supposed pertinence. Diverted attention reduces the
explanatory burden, which helps to facilitate the normative construc-
tion of what counts as proper sovereign creditworthiness by granting
CRAs more liberty to make those kinds of judgments. Minus the hassle,
it is here that the core of the neoliberal programmatic embodied in
ratings is constituted.
Secretive and opaque

In calculating the debt-bearing capacity of an entire nation, CRAs
cannot stress enough that their (forward-looking) ratings reflect endur-
ing, long-run credit trends rather than changes induced by transient
cyclical factors. Cognizant of the fact that its ‘ratings incorporate
expectations around future metrics and risk developments, while the
information that is used to determine the grid mapping is mainly his-
torical’, similar to the other agencies, Moody’s (2012a: 24) not only
attempts to predict recovery rates but must also develop apposite tran-
sitional matrices that can account for the uncertain vicissitudes
unleashed by the singular nature of sovereignty. Transitional matrices
are a tool for computing the probability of rating migrations. Lacking
context-specific approaches that yield differentiated ratings, this is yet
another arbitrary dimension of the decision-making process
which remains concealed in the black box. Triggers for rating down-
grades/upgrades are not automatic but must be interpreted for their
intensity and the tolerance of a sovereign to their effects. Again, these
movements are predicated on informal judgment; as the ‘pain’ thresh-

old which a constituency can endure fluctuates according to its chan-
ging political economy. Because downgrades – especially into ‘junk’
territory – can prove so disruptive, the rationale behind these rating
migrations is often fiercely contested. As it stands, however, little will
change since little remains disclosed about the actual mentalities/
mechanics of such rating transitions.
CRAs must keep the analytical process, whereby the quantitative
(risk) and qualitative (uncertainty) are synthesized to render a rating,
secret since the dissemination of RAMP scores or adjustment factor
assumptions would force them to justify their discretionary conduct, or
government through uncertainty. This would severely undermine the
authoritative capacity of sovereign ratings as it strips them of recourse
to defendable risk calculus. Once a numerical/scale score is assigned,
discretionary techniques acquire some of the semblance and legitimacy
accorded to the quantitative analysis and its consonance with the
hegemony of risk discourse. Orthodoxy dictates that the more sup-
posed uncertainty that CRAs replace with risk, as they attempt to
aggregate contingent fiscal relations into a calculable measure of vari-
ance around an expected value – represented as ‘AAA’ – the more con-
sequential ratings become. Regular updates, as noted above, strive to
expand this constellation of measurable vectors as they subject more
socio-political phenomena to techniques of risk measurement/manage-
ment. Unfortunately, not only does this fail to account for the ‘con-
stantly mutating formation’ of ‘contingent social arrangements’ (Barry
and Slater 2005: 14), but in this search for ontological coordinates
identified as risks or uncertainties, which correspond to budgetary pol-
itics, a false dichotomy between (qualitative) uncertainty and (quanti-
tative) risk is reinforced in the determination of sovereign
creditworthiness. Any conversion/displacement, however, is usually
based on a misrepresentation of uncertainty as risk.
From a governmental perspective, the synthesis between quantitative
measures and qualitative judgments remains problematically opaque. If
revealed through enhanced qualitative and explanatory transparency
then what counts as authoritative knowledge underpinning the polit-
ical economy of creditworthiness would be disturbed as it opens the
ratings process to greater contestation; in effect repoliticizing this epis-
tocratic domain. Irrespective of these outstanding issues, however,
there is little appetite in the business community to undermine the
virtual monopoly of risk which serves to validate the preponderance of
quantitative analysis in commerce.33
Ratings are an internal form of governmentality through which

‘“risk” itself is constructed as the central coordinating social mech-
anism for financial actors’ (Green 2000: 78). However intersubjective
and reflexive, such financial practices are valorized because they help
to constitute calculable subjectivities and spaces where risk-taking and
speculation are sanctioned to occur. Francesco Guala (2007: 134; ori-
ginal italics) notes that ‘social properties are extrinsic properties of a
special kind: they depend on the context, and in particular on what
other human beings know, believe, or in a single word intend about the
entity in question’. After all, those who scoff at S&P and Moody’s seek
to outperform them by employing similar methods/models to objectify
and commodify sovereign creditworthiness.34 Since aggressive asset
managers typically constitute the majority, together they expand the
performative capacity of risk ratings through the broad commercializa-
tion of this misrepresentation. Yet such performativity cannot perpetu-
ally mitigate the dangers that erupt with the imposition of an artificial
budgetary normality. Destabilizing effects result as the degree of uncer-
tainty surrounding fiscal relations exceeds the capacity of a (probabilis-
tic) risk calculus. Crisis abounds as fiscal sovereignty is reasserted.
Modalities of government
Most agendas intent on rendering regularities probabilistic tend to

treat fiscal relations as an unproblematic and incontestable reality to be
unearthed. Nowhere, arguably, is the predictive/prescriptive positivism
which ensues more visible than in the ratings space. When faced with
fluid socio-political factors to assess, a diagnosis of the main rating ana-
lytics above reveals that CRAs adhere to a dubious qualitative (uncer-
tainty) versus quantitative (risk) dichotomy in their evaluation of
creditworthiness. Based on this relationship of mutual exclusion,
recourse to the fragmentation, calculation and reassembly of some-
thing called ‘credit risk’ is validated in the effort to decipher the correct
balance or synthesis of what are essentially treated as brute facts.
Increasingly subjecting more criteria to quantitative analysis, as CRAs
refine their methodologies, this binary opposition becomes reinforced
with the supposed transformation of more uncertainties into risks. But
rather than inducing the fundamental conversion or displacement of
any ontological properties, what this economistic approach does is
promote the misrepresentation of the former as the latter.
Sovereign creditworthiness, like any economic valuation, does not
possess any intrinsic merit or propensities. Instead value is assigned
through the discursive construction and legitimation of sovereign debt

as a particular problem of government. Deployed in various configura-
tions, risk and uncertainty serve as modalities of government to help
constitute what counts as authoritative knowledge surrounding sover-
eign debt and its subjectivities. An analytics of government provides an
enhanced understanding of how CRAs mobilize this managerial
approach to align a programmatic (neoliberal) mentality with the tech-
niques which allow it to modulate fiscal conduct. In large part, the suc-
cessful control of the subjects/objects at the heart of the sovereign debt
crisis is commensurate with how well ratings eliminate the perception
of imperfect information, which prevents convergence around single
notions of normality, and thus make diverse and messy budgetary rela-
tions tractable as objects of government. Therefore, the act of rating
mediates the representational process of surveillance as regulation; as
opposed to orchestrating the ontological equivalence or synthesis of
tangible risks and uncertainties. It is through their deployment as
modes of governance that risk/uncertainty help translate diverse
national (budgetary) problematizations into mutually corresponding,
and often reinforcing, global notions of fiscal normality. As calculative
practices, how they articulate this specific governmental program is
vital to the configuration of the economic and social relations that
comprise this ratings space.
Not only is there both a discursive and technological dimension to
modalities of rule, but their mutual constitution prevents a rigid
dualism, and consequent binary exclusion, or the absolute dominance
of one over the other. The refutation of such false dichotomies opens
us to the dialectical relationship between risk and uncertainty. While
the increasing push to quantify fiscal relations is energized by its
embeddedness in a broader period of risk-based financialization, the
centrality of contingent liabilities (government through uncertainty) in
the ratings process attests to the tensions which plague the constitu-
tion of the social facticity of creditworthiness. Since risk’s inability to
account for the uncertain vicissitudes unleashed by the singular nature
of sovereignty often proves insurmountable, subjective estimations are
smuggled in to help perform the credit analysis. If popularized, this
assortment of (informal) discursive practices has the potential to
disrupt the supposedly totalizing and monolithic character of risk
management. As constitutive authority is granted to non-quantitative
methods anchored in critical judgment, it may reconfigure expertise
and its antagonistic relationship with politics. After all, its claims of
objectivity and legitimacy are rooted in the defendable calculus of risk;

which is contrasted to the capricious behavior of politicians. Oddly,
however, the rating agencies themselves exhibit the very discretionary
methods that they condemn.
Conclusion
Efforts to redress the actual asymmetry between epistocracy and

democracy need to focus on a skewed analytics of ratings. Serious
inconsistencies, which distort uncertainty as risk, remain and inform
the performativity of an austere politics of limits; with its depoliticiz-
ing effects on fiscal sovereignty. Contingent liabilities are not rendered
explicit, but mitigated through an adherence to the hegemonic dis-
course of risk. This solidifies the impression that the control exercised
by ratings is universally synchronizing, and can be independent of or
removed from its multiple sites of articulation/actualization. It is such
fallacies which this book critiques. Locating the analysis in unique
budgetary contexts reveals how tenuous the performative capacity is of
sovereign ratings predicated on a utilitarian risk calculus. The artificial
fiscal normality imposed by this socio-technical agencement of credit-
worthiness may actually precipitate the converse of convergence
around the prescribed disinflationary programmatic, or counterperfor-
mativity, as national governments seek to repoliticize the discourse
and reclaim their diminishing fiscal sovereignty. Attention to these
developments allows for a more comprehensive and sophisticated
understanding of fiscal governance and the political economy of cred-
itworthiness than currently available.
What is important to note is that these ‘technical practices can open
up the space of political contestation, without being reducible to pol-
itics as it is conventionally conceived’ (Barry 2001: 82). This helps to
immunize risk governance from the traditional political debates and
interference; while still remaining aligned with neoliberal precepts for
organizing and managing the economy. Only by recognizing how
these modes of management are integral to the performative capacity
of ratings, as socio-technical devices of control, can we grasp, and poss-
ibly move beyond, the performation, regeneration and sedimentation
of this particularly antagonizing politics of limits. Admittedly, the
conflict between the imperatives of private markets and public govern-
ments will likely persist. But as the assessment and articulation of
sovereign creditworthiness changes so can the subjectification/
objectification of the entities implicated in this performativity; namely

governments, CRAs and investors. This may affect the degree to which
political discretion is marginalized and censured in fiscal governance.
It is the construction and renewal of this calculative space through
the performative effects of credit ratings which occupies the forthcom-
ing chapter. Such an enhanced analysis, however, requires a proper
understanding of how risk/uncertainty are deployed as modalities of
rule in the ratings process in two principal ways; which grants ratings
their authority and utility. In the first instance, their manipulation
helps to objectify sovereign creditworthiness. Through the distortions
documented above, budgetary governance becomes depoliticized as an
artificial fiscal normality is validated and promoted. Once creditworthi-
ness is captured as a relative performance indicator, ratings then enable
its commercialization for market speculation. Alternatively, the limits
of conventional approaches bog us down with the painstaking burden
of attempting to calculate (probabilistically) the real frequencies of
fluid fiscal relations, so as to compare their relative propensities
towards failure. To avoid this dubious agenda, the subsequent perfor-
mativity analysis relies on the conceptual territory and analytical appa-
ratus elucidated above. By reconnecting technoscientific epistemology
with its politico-economic contexts, it shows how sovereign credit
ratings are an internal form of governmentality underpinning the nor-
malization of a neoliberal political economy of creditworthiness.
3
Rating Performativity
The notion of the ‘market economy’ as a pregiven, ontological totality

is increasingly being called into question. Its status as an autonomous
reality separate from politics or society, with its own distinct laws and
causal dynamics, is being disturbed by a burgeoning critical scholar-
ship (Callon 1998; Knorr Cetina and Preda 2005; Langley 2008a;
MacKenzie 2006), which ‘suggests that processes of knowledge and
interpretation do not exist in addition to, or of secondary importance
to, “real” material financial structures, but are precisely the way in
which “finance” materializes’ (de Goede 2005: 7; original italics). It is
this mutual constitution between the discursive and practical which is
at the heart of the social studies of finance analysis of ‘performativity’.
Rather than a unified category or natural phenomenon, which needs
only to be unearthed with the appropriate methods, the market
economy is constantly being constructed and regenerated through a
multiplicity of discursive processes; each with their own particular
effects on the configuration of its composition. There is no intrinsically
‘optimal’ position from which to deviate or use as an ultimate bench-
mark for the organization of economic activity.
By shifting attention away from an exogenous characterization of
the market, we begin to appreciate how endogenous the performativity
of financial economics is in this enterprise. How economic relations are
problematized and represented affects how they are constituted. Thus,
‘economics’, ‘with the multiplicity of frames of analysis and theoretical
models that it develops, contributes to the constitution of the object
that it studies’ (Callon 2010: 163). Expertise helps mediate this perfor-
mative process as it deploys specific (calculative) techniques through
which the future is imagined, captured and rendered intelligible in the
present. Yet, as Rob Aitken (2007) or Paul Langley (2008a) remind us,
135
the value-added of this line of enquiry is enhanced by the fact that it is

not simply within the purview of formal epistocracy, but may be
extended beyond the haute finance of ‘Wall Street’ or ‘The City’ (of
London) to the common spaces of everyday life and culture, or the
‘democratization of finance’; in order to account for the constitution
and penetration of prevailing Anglo-American forms of capitalism.
Governmentality studies diagnose these ‘conditions of possibility and
intelligibility for certain ways of seeking to act upon the conduct of
others, or oneself, to achieve certain ends’ and bring about a specific
political economic reality (Rose 1999: 19). Thus, the emphasis shifts
from attempting to explain agential intentionality and why actors
behave in certain ways to analyzing the ‘procedures which render
actors able to negotiate their ways through one another’s world-
building activity’ (Latour 1999: 21). Credit ratings help to facilitate this
translation of diverse national problematizations into mutually cor-
responding global understandings of fiscal rectitude; which inform the
construction of a neoliberal politics of limits.
In regards to this emerging political economy of creditworthiness,
the salience of an analytics of performativity derives not from illum-
inating some inescapable logic or natural propensity but from its expo-
sition of the intellectual apparatus deployed to render fiscal reality
thinkable in terms of its susceptibility to governmental intervention
through the development of socio-technical agencements. Control as
calculation/classification becomes revealed and institutionalized
through the performativity of credit ratings. As the authoritative
knowledge underpinning the political economy of creditworthiness is
constituted, ratings create the conditions and subjectivities that help to
validate the austere politics of limits advanced through them. In this
process, the problem of budgetary profligacy is framed through the
modalities of risk/uncertainty so that fiscal normality/rectitude appear
to be ascertained predominantly through quantitative means and rep-
resented via a corresponding ratings scale. Sovereign creditworthiness
becomes objectified and ostensibly fixed through the manipulation of
these constructs; and through its subsequent commercialization, it is
rendered a social fact.
Unfortunately, the monopoly of risk discourse over this rating
process serves to distort this social facticity through the virtually ubiq-
uitous application of quantitative techniques that treat its constitutive
components as verifiable material conditions. Borne out of this
methodological dominance, and its quest for certainty equivalence and
objective knowledge, sovereign creditworthiness appears more
Rating Performativity 137
amenable to such risk analysis and framing. Whether analytically

sound or not, their reiteration and embeddedness in broader fields of
risk-based financialization enable credit risk ratings to perform this
conceptualization of creditworthiness into existence. But as opposed to
being merely an ideational supposition, the infrastructure of referen-
tiality which informs this socio-technical agencement exhibits an
authoritative capacity to engineer the three principal subjectivities
implicated in the sovereign debt crisis: CRAs, investors and govern-
ments. In this chapter, I trace how these performative practices have
self-validating/self-generative effects on CRAs, constitutive effects on
investors and prohibitive consequences for national governments. It is
through this repetitive construction of the objects/subjects of their rule
that ratings are regenerated and manage to sustain their authority in
the face of a consistent stream of failures and lackluster performance.
To posit that through credit ratings action and authority combine to
‘govern-at-a-distance’, however, is not to claim that their performative
effects are uniform or internalized in the same way, and at the same
time, by all of their objects/subjects of government. That would be the
abstract and atemporal notion of agency characteristic of conventional
economic modeling and doctrine. Although, as Chapter 2 notes, the
stress test models employed by Moody’s or S&P to simulate debt sus-
tainability are indicative of this approach, given the centrality of tran-
scendental rationalism, homo economicus and ceteris paribus assumptions,
they represent a ‘socially meaningless world’ circumscribed by a
‘heavily restricted notion of causality’ (Watson 2007: 65). Pre-
suppositions about creditworthiness grounded in a descriptive
metaphysics may claim to explain, but ultimately fail to prove, the
causality which underpins the coherent and self-perpetuating (neolib-
eral) reality purported in their models. Furthermore, they precede the
cultural, historical and discursive expressions of creditworthiness that
are path-dependent and subject to multiple agencements, whose effects
cannot be predetermined a priori. In other words, there is no causal
necessity whereby ratings must yield a particular outcome. The perfor-
mativity of this calculative space is mediated by the unique contexts
and contingencies confronting subjects and the hybrid of power rela-
tions in which they are implicated. Attempts to diminish the alterity
between sovereigns through recourse to dubious dichotomies (e.g., eco-
nomics/politics) and distortions (e.g., risk/uncertainty) may facilitate
the imposition of an artificial fiscal normality against which they are
judged. Ultimately, however, it only conflicts with the heterogeneity of
national political economies and the singular nature of budgetary
sovereignty. As a consequence, unsuspecting forces of instability may

be unleashed.
Yet ‘to say that the market is performatively produced is not to say
that it is produced ex nihilo at every instant, but only that its appar-
ently seamless regeneration brings about a naturalized effect’ (Butler
2010: 149). After all, this is not a realist account concerned with the
discovery of true ontological essences but a study of how the constitu-
tion of authoritative knowledge serves to shape the social facticity of
creditworthiness, according to which identities and actions are defined.
While particular socio-technical devices, such as credit ratings, can
exert a greater authoritative capacity over the normalization of these
calculative subject positions, their effects are never static or uniform
since the ‘performance of these remains contingent, contradictory, and
uncertain’ (Langley 2008a: 35). Given the indefinite amount of ways
that subjects/objects can be manipulated, contestation abounds as to
their constant performativity. As sovereigns are repeatedly drawn into
these specific fields of calculability and recodified as subjects/objects of
credit risk, however, they become increasingly susceptible to the par-
ticular mentalities of rule embedded within the corresponding rating
mechanics. The accelerating frequency with which this reoccurs, works
to cement austere notions of budgetary rectitude as the norm; while
invalidating competing prescriptions and dispositions. Notions of
exclusion are just as significant to the performativity of ratings as those
of inclusion. Through this process, a fiscal normality is constructed.
Reinforced by the operationalization of risk-management in sur-
rounding market and non-market domains, ratings exemplify how
quantitative measures render qualitative judgments, or what is dis-
cussed as qualculation in Chapter 1. Here the rigid dualism between
the quantitative (risk) and qualitative (uncertainty) collapses, as we
become cognizant of how rating techniques are, in themselves, consti-
tutive of the objects of creditworthiness, and thus a politics of limits.
No matter how questionable the misrepresentation of uncertainties as
risks is in the ratings process, it still produces performative effects
which enable this social facticity. In fact, the more that fiscal contin-
gencies are translated into quantitative coordinates, the greater the syn-
chronizing effects through which sovereign alterity is eliminated. As
Michel Callon argues, ‘the power of a qualculation depends on the
number of entities that can be added to a list, to the number of rela-
tions between those entities, and the quality of the tools for classify-
ing, manipulating, and ranking them’ (Callon and Law 2003: 4).
Through the modalities of risk/uncertainty, and the subsequent dissec-
tion, compartmentalization, and comparison of fiscal relations which

ensue, CRAs expand the criteria comprising what sovereign creditwor-
thiness entails and, in the process, encompass a growing number of
elements within this field of calculability; thereby subjecting them to
its performative effects. Their normalization through control as calcu-
lation/classification proceeds because the articulation and codification
of power ‘in the hierarchized surveillance of the disciplines is not pos-
sessed as a thing or transferred as a property’ but ‘it is the apparatus as
a whole that produces “power” and distributes individuals in this per-
manent and continuous field’ (Foucault 1979: 176–7). This chapter
analyzes how this socio-technical agencement affects CRAs, investors
and governments.
Developing these lines of argumentation, the first section introduces
the concept of performativity and its relationship to risk/uncertainty.
This leads to a distinguishment of ‘illocutionary’ from ‘perlocutionary’
performativity. Next, subsequent sections will operationalize this dis-
tinction in relation to the constitution of the three principal sub-
jects/objects of government involved in the sovereign debt crisis: CRAs,
investors and governments. Through an analysis of the performative
effects of ratings, the construction, regeneration and sedimentation of
this austere political economy of creditworthiness becomes intelligible.
Light is also cast on the tensions and shocks generated by this perfor-
mativity, its potential breakdown and what this means for the asym-
metric relationship between epistocracy and democracy – a topic
further developed in Chapter 4. Accordingly, not only do we become
more attentive to the modalities and mechanics which engender par-
ticular ontological effects but, as Butler (2010: 147) reminds us, we
begin to grasp how these ‘lead…to socially binding consequences’.
Performativity terrain
A distinguishing feature of risk/uncertainty as modes of government is

their seemingly inexhaustible capacity to enlarge the number of enti-
ties tractable to (rating) performativity. There are two dimensions to
this. First, as alluded to throughout this book, government through
uncertainty is predicated on the scope of discretionary conduct
deployed to render sovereign debt intelligible as a specific problem of
government and, subsequently, mobilized to devise apposite forms of
intervention; as well as speculative activity. Mindful of the ‘polyva-
lence of social life’, here limits to the imagination, and conditions of
felicity, define the potential parameters of performativity (Best 2008:
356). Uncertainty’s notability as a mode of governance is also

enhanced by its disavowal of prescriptive positivism or metaphysical
presumptions. By redressing the false dichotomies that arise from
these, which plague the analytics of ratings and much of the main-
stream literature, a myriad of performative effects becomes more
visible. Whereas once obscured by misleading quantitative modeling or
disqualified as causally insignificant on the basis of false dualisms,
which themselves are ‘performatively produced through a process of
selection, elision, and exclusion’, these effects endow the political
economy of creditworthiness with social facticity (Butler 2010: 149).
From the perspective of the sovereign debt crisis, this chapter is a col-
lection of these main performative effects through which financial
markets and fiscal landscapes materialize.
Second, just as ‘chance made the world seem less capricious: it was
legitimated because it brought order out of chaos’, so does the sup-
posed taming of uncertainty as a calculable risk instill a greater sem-
blance of control over fiscal relations (Hacking 1990: vii).
Conventional accounts often reflect the supposed paradox captured in
Ian Hacking’s (ibid.) observation that ‘the greater the level of indeter-
minism in our conception of the world and of people, the higher the
expected level of control’; which is at the heart of his venture into
explaining how determinism was subverted by laws of probability.
Such laws inform the development of the risk society thesis and much
of the field of finance – especially the ratings space. By identifying and
quantitatively capturing what was once considered outside the realm
of formal calculation, Chapter 2 documents the preoccupation of risk
with the transformation of such elusive socio-political phenomena into
more manageable variables. Risk technologies grounded in probabilistic
measures of incidence sanction calculative chance taking and create
the spaces and opportunities where such conduct can be exploited for
profit (de Goede 2005; Langley 2008a: 53). Sovereign credit ratings
extend this approach to fiscal relations. While in The Taming of Chance
Hacking provides a philosophical analysis of the multiple ways that
truth-or-falsehood may be formulated for the purpose of social control,
a similar binary opposition has come to define the political economy
of creditworthiness: success or failure. Ratings assess and articulate how
accordant national budgetary positions are with the disinflationary
normality prescribed by programs of neoliberal capitalism. Closest con-
vergence earns the coveted ‘AAA’ score.
The utility and value-added of the category of ‘performativity’ has
been expanding, as a growing body of social studies of finance has
deployed it in various contexts to provide a better understanding of

market relations and how ‘economics’ (models, theories, concepts,
etc…) helps constitute these very realities (Callon and Caliskan 2005;
Holmes 2009; Knorr Cetina and Preda 2005; MacKenzie 2006; Muniesa
2007). Given the centrality of risk and credit ratings in the organiza-
tion of financial markets – not to mention their dismal track record –
oddly, virtually no attention has been donated to unpacking the black
box of risk ratings to help us come to terms with how the
subjects/objects implicated in the political economy of creditworthi-
ness are performed. Irrespective of its promising potential, to regard
performativity as an unproblematic theoretic or exclusive to ‘econom-
ics’ would be to grant it excessive coherence and be blind to the con-
testability implicit in its conceptualization and operationalization
across the disciplines. Amongst others, performativity’s migration to
IPE has been facilitated through its problematization in the study of
gender (Butler 1993) and security (Campbell 1998; Laffey 2000).
Many of its core arguments, however, may be attributed to the
philosopher J. L. Austin (1962). For Austin, performative utterances do
what they say, so as to bring about, or perform, the actions that they
enunciate; as opposed to describing a pre-existing condition. One of
the most popular examples involves the act of marriage, which is
enacted through the response ‘I do’ and the utterance of ‘I thee wed’
by the priest. Two additional delineations made by Austin that inform
this book – namely ‘illocutionary’ and ‘perlocutionary’ performativity –
are discussed in the forthcoming sections. But before developing how
they enhance this analysis of the political economy of creditworthi-
ness, a few words about the failure of performativity are necessary in
order to avoid the impression of automaticity or inevitability.
To the degree that financial markets are an epiphenomenal by-
product of economic models and theories, and their discursive prac-
tices, an analytics of performativity reminds us that by no means is
this a totalizing or linear process; whereby a particular outcome articu-
lated by the model/theory is guaranteed to be successful. Without a
‘felicitous set of circumstances’ (Butler 2010: 151) anchored in the real-
ities of national budgetary sovereignty, the conditions are lacking
which would validate the assumptions implicit in CRA credit models,
and thus accommodate and provide traction to the programmatic pre-
scriptions embodied in ratings. Vulnerable to failure, this matrix may
normalize, and thereby (temporarily) stabilize, a particular politics of
limits, but it nevertheless remains fragile and susceptible to disruption.
To a great degree, this may be attributed to the fact that ‘all framings
are incomplete and imperfect because by definition, to frame is to

make selective inclusions and exclusions. In the sense that it structures
an exterior to itself, a framing is its own inescapable source of the
threat of overflows’ (Callon and Caliskan 2005: 8). Unless the tensions
triggered by the antagonistic relationship between the programmatic/
expertise and the operational/politics dimensions of fiscal governance
can be rendered inactive and neutralized, which, if possible, can only
be temporary, the breakdown of performativity ‘generates issues that
lead to the explanation and discussion of the politics that it implies’
(Callon 2010: 165).
At this stage, the depoliticization implied in, and following from, the
imposition of an artificial fiscal uniformity proves unstable as excessive
austerity subjects the populations of heterogeneous countries to
unbearable socio-political costs. For example, the prevalence of new
HIV infections in Greece increased by 50 per cent in 2011 compared
with the previous year, as severe cuts to health services have reduced
the number needle-exchange programs available (The Economist,
24 August 2013). While for the moment this may affect a certain
demographic (i.e., drug users), the longer-terms effects of the spread of
such serious diseases will not only add to the financial burden of an
already ailing health care system but lead to the corrosion of commu-
nity and social society. Worker productivity may also decline and
magnify the adverse effects.
Once a critical breaking point is reached, the performativity of
ratings to engender successfully their programmatic ambitions begins
to fail as governments start to take decisive steps to repoliticize the dis-
course and reclaim their diminishing fiscal sovereignty. As performativ-
ity ruptures, it opens spaces for a (temporary) repoliticization of
technical practices (e.g., ECB acceptance of defaulted Greek bonds as
collateral; the partial ban on short-selling introduced by France, Italy,
Spain and Belgium; imposition of capital controls by, amongst others,
Brazil, Cyprus, Iceland or India), a renegotiation of competing visions
of budgetary normality, and attempts by governments to enact (social
democratic) policies which protect their citizens from the adverse
effects of compliance with neoliberal austerity. If the ensuing hard-
ships and volatility prove excessive, rather than promoting conver-
gence through compliance, reconstruction shows how ratings can
actually precipitate divergent effects that are the converse of what they
advocate; not to mention further impair their calculative capability
based on risk.
This refutation/reversal is what Donald MacKenzie (2006: 19) refers

to as ‘counterperformativity’. By tracing where these eruptions
‘overflow’ (Callon 1998: 18), we gain a better appreciation of how the
authoritative capacity of ratings to perform an austere political
economy of creditworthiness fluctuates according to the context in
which its control is being exercised. At these sites, the successful trans-
lation of credit assumptions/models into reality can be determined by
how effective the socio-technical device of rating – which reflects and
projects said models – is in modulating the conduct of asset/portfolio
managers and changing national budgetary policy. After all, repeatedly
adopted and applied, ratings are how this (neoliberal) normative state-
ment about creditworthiness gets translated into practice to become a
social fact (Paudyn 2013: 800). Nevertheless, this should not be mis-
construed as proving performativity. Various other factors may be
responsible for the changes witnessed aside from the effects of rating-
induced financial speculation. My objective is to help us better under-
stand the potential elements contributing to the constitution of a
hegemonic political economy of creditworthiness rather than explain
why it happens in any strict (positivistic) sense.
One of the main advantages of performativity in the study of credit
ratings is that it eschews this kind of positivism, and its derived
‘economism’ (de Goede 2003); which delimit our understandings of
the market, governance and risk/uncertainty (Butler 2010). Rather than
searching for a prediscursive material reality, and its natural propens-
ities, to unearth, or the correct methods with which to do so, the ana-
lysis shifts to the contested and contingent constitution of the ratings
space through specific discursive practices. As such, Judith Butler
(2010: 147) contends that ‘performativity works, when it works, to
counter a certain metaphysical presumption about culturally con-
structed categories and to draw our attention to the diverse mecha-
nisms of that construction’. Relieved of artificial and unnecessary
dichotomies, economistic conceptions of power or abstract notions of
agency and causality, in the sections that follow, the above con-
tentions about the performativity of ratings are problematized to reveal
how action and authority combine to enable the calculative
subjects/objects which give meaning to and help sustain a particular
(neoliberal) politics of limits.
Deconstruction of the ratings space shows how these practices of
representation/truth production – whereby sovereign debt is made into
a problem of government – help frame sovereigns and investors as
‘objects of government’ susceptible to technical expertise and the pro-

grammatic codes embedded in ratings. This serves to ‘open the “black
box” of the object and to demonstrate how the constitution of objects
could be accounted for by the way in which actors open and close
them’ (Barry and Slater 2005: 180). Subsequently, we begin to appreci-
ate how ratings entangle CRAs, sovereigns and investors in this perfor-
mativity by inducing the internalization of these codes of conduct in
accordance with said problematizations; thereby delimiting their dis-
cursive constitution as ‘subjects of government’ embedded in a neolib-
eral political economy of creditworthiness. New geographies of power
form as budgetary relations are reconfigured to align with both the
deployment and adoption of ratings. Moves to regulate dispersed gov-
ernments at diverse sites of potential fiscal deviation are akin to the
exercise of control in their articulation and fixation as objects of gov-
ernment. Efforts linking rating compliance to investment strategies or
national fiscal ownership target freedom in the critical ontology of self-
regulating subjectivities; or the ‘conduct of conduct’. Of course, sover-
eignty also plays a central role in this discussion.
Illocutionary and perlocutionary performativity
To claim that economic models and theories create the realities which
they describe does not imply that such translation is either automatic
or complete. Neither does it mean that these are ideational constructs
that are simply incorporated as ‘beliefs’ or ‘ideologies’. Nor is this
simply a contention that ideas influence reality. That would resemble
the world of epistemic communities alluded to by Tim Sinclair (2005).
Rather for performativity to yield a material reality which conforms to
its modeled depiction, that model/theory/technique must be applied
over and over again. Socio-technical agencements composed of ‘prosthe-
ses, tools, equipment, technical devices, algorithms, etc.’ are how they
find expression in operation, and thus become performative (Callon
2005: 4). Anchored in specific discursive practices, ‘economic
models…can have effects even if those who use them are skeptical of
the model’s virtues, unaware of its details, or even ignorant of its very
existence’ (MacKenzie 2006: 19). In fact, this is quite an accurate
account of sovereign credit ratings. Vociferous denunciations of the
CRAs, by (downgraded) governments, are a regular occurrence – the
investment community also scoffs at them. Opaque propriety models
reveal very little about the actual synthesis of the qualitative and quan-
titative elements involved in generating a score. Upon closer examina-
tion, a skewed analytics of ratings serves to normalize serious inconsis-

tencies. Yet they remain at the heart of finance. How is that feat
achieved?
Calculation/classification as causation in this context does not report
on an exogenous domain but constitutes an infrastructure of referen-
tiality which, to varying degrees, becomes internalized as a dominant
way that subjects come to understand themselves and their environ-
ment. Abbreviated and condensed into a rating, sovereign creditwor-
thiness becomes more manageable as the messy and uncertain world of
budgetary relations appears tractable to ‘commensuration, or the trans-
formation of different qualities into a common metric’ (Azimont and
Araujo 2010: 96); namely a rating designation. To account for this
process, two delineations made by Austin prove valuable. First, ‘illocu-
tionary’ performatives are utterances that constitute the reality which
they speak (Austin 1962). Reiterated as a discourse, ‘words perform the
decisive function of creating context – countless contexts – that frame
data series, statistical measures, and econometric projections’ (Holmes
2009: 383). Through their description of fiscal positions, ratings com-
municate a range of judgments about the quality of sovereign credit-
worthiness. Relative to an (artificial) fiscal normality, prescriptions of
rectitude are then made.
Of particular significance is the pronouncement of ‘junk’ (below
‘BBB–’), which triggers massive sell-offs, as statutes curtailing the reten-
tion of speculative-grade bonds take effect (Cantor and Packer 1995).
Another notable marker is the ‘AAA’ score; which is the highest award
bestowed upon a government in recognition of its consonance with
the programmatic implicit in ratings. Both exemplify the translation of
a normative statement into practice which, once commodified repeat-
edly by credit markets, acquires the authority of a social fact. Yet,
arguably, both benchmarks are rather arbitrary since the difference
between one notch up or down are slim and, ultimately, validated
through judgment.1 Lacking time, real inclination and a reliable
approach to assess these judgments, market participants incorporate
and act on these credit scores to create the conditions which help vali-
date the assumptions implicit in the rating. ‘In this sense’, Butler
(2010: 151) posits, ‘the illocution appears more clearly to rely on a
certain sovereign power of speech to bring into being what it declares’.
This authoritative capacity of ratings is intimately linked to their risk-
based assessment and articulation of sovereign creditworthiness; which
privileges epistocratic commands and marginalizes (political) discre-
tion in the constitution of a political economy of creditworthiness.
How this engineers an austere politics of limits depends on another

form of performativity: perlocution.
Second, rather than just a linguistic process, ratings have ‘perlocu-
tionary’ performative effects, which depend on the reality produced by
illocutionary utterances (i.e., ratings) in order to translate that depiction
into material existence. Through the normalization of the neoliberal
logics implied in and promoted by ratings, changes in fiscal relations
and market conditions result that render ratings performative. Parallels
between the gradations in performativity outlined by MacKenzie and
the performation of the ratings space prove informative. In the first
instance, the incorporation of risk ratings into professional economic
practices, or what MacKenzie (2006: 18) labels as ‘generic’ and ‘effective’
performativity, affects how creditworthiness is calculated. More
significantly, however, the translation of this disinflationary program-
matic into reality reflects a stronger (‘Barnesian’) performativity, as
‘practices informed by the model [alter] economic processes towards
conformity with it’ so that ‘its referential character – its fit to “reality” –
[is] secured’ (MacKenzie et al. 2007: 67). Once again, for convergence to
occur, conditions of felicity are necessary. Governments more aligned
with ‘business friendly’, Anglo-American rationalities of capitalism tend
to be more accommodating of the prescriptions implicit in ratings than
their more social democratic counterparts; whose ‘generous’, deficit-
financed programs are viewed as antithetical to maintaining a strong
credit grade.
Successful performation, however, demands upon more than mere
conservative budgetary management. Publics must also be persuaded
of the merits of austerity programs, and tolerant of their socio-
economic costs, in order for such political agendas to be executed
without imposing that unbearable economic sacrifice, which CRAs
dread. Otherwise, the ensuing backlash unleashes turmoil that can not
only disrupt domestic affairs but also spill across borders to destabilize
other economies – contagion can even seriously rattle global markets.
Sufficiently severe, such crises threaten to precipitate counterperforma-
tivity. To assess the degree of this performation, the forthcoming sec-
tions will evaluate examples to show how fiscal relations transform to
correspond to the performative effects of ratings.
Before proceeding, however, it is wise to clarify an ongoing debate
about the performative power of models (Abolafia 2005; Beunza and
Stark 2010; Triana 2009). Automaticity, as noted above, is not an
inherent characteristic of performative processes. Their capacity to
configure realities – especially in the strong (Barnesian) sense –
depends on how they are applied; rather than simply on the model
itself. For Ekaterina Svetlova (2012: 420), ‘institutionalized “calculative
cultures”’2 work to mediate their application, and thus produce varying
results. Discretion, or the management through uncertainty, plays a
pivotal role since:
Model users account for unrealistic assumptions and neglected

factors by applying their own judgements. Precisely because this
judgement is necessary, the model is not an ultimate determinant of
decision and action. A model is either a channel to transmit the
analyst’s judgement into a number or it provides soft guidance in
the decision-making process (Svetlova 2012: 422).
With this in mind, the performative capacity of ratings is not based so

much on a particular credit risk model per se – or equivalent to what
MacKenzie (2005, 2006) demonstrates with the Black-Scholes-Merton
options pricing formula – as on the calculative risk analysis and
methods through which the core stress tests underpinning these
models are performed in the manufacture of a credit grade; as well as
the broader, hegemonic risk-oriented financialization.
Since risk calculus is the most visible, and widely regarded as the
most legitimate, practice in this assessment of the risk of default, and
numerous other rankings, it plays the dominant role in defining the
parameters of this space of calculability, its subjectivities, and what is
permissible within it. The indexical power of ratings is entangled with
the ‘mathematization’ and ‘scientization’ of this black box; which gives
the impression that what is inside or results assumes a similar degree of
‘objectivity’ and ‘legitimacy’. Inferences about the quality and normal-
ity of sovereign creditworthiness are rendered because the qualculative
character of ratings allows this primarily quantitative analysis to com-
municate a qualitative judgment about fiscal deviance. Adjustments by
analysts/rating committees, however, are quite common since, as
Chapter 2 documents, sovereign ratings are derived from their manipu-
lation of models and methods through the modalities of risk and
uncertainty.3 Risk is pushed to the forefront in order to mask such con-
tingent liabilities; thereby serving to justify epistocratic discretion
(Paudyn 2013; Sinclair 1994: 454).
Emphasis, therefore, on one particular model is unwarranted because
the success of performation is more a function of the rating technique
actualizing the programmatic embodied within it, rather than just
because of a single proprietary model. This is not to claim, of course,
that credit risk models are insignificant. What it does is recognize that the
principal status of the government through uncertainty in the ratings
process extends well beyond the construction of the stress scenarios used
to analyze the shock-absorbing capacity and resilience of a sovereign.
Attention now shifts to how ratings, as a socio-technical device of
control/governmentality, work to constitute the subjects/objects of gov-
ernment operating in this emerging calculative sphere.
Self-generative effects for credit rating agencies
Mainstream discussions about credit ratings tend to focus predom-

inantly on those entities being graded. At the same time, rating agencies
appear as detached, neutral observers calculating an independent
domain of risks – to the neglect of how ratings affect their very authors.
Credit rating agencies, however, are not immune from the performative
effects of their own (socio-technical) devices. In fact, to a large degree,
CRAs are themselves constituted through the self-generative feedback
loops of ratings. Accounts which remove them from these spaces of cal-
culability, by granting them independent observer status, are blind to
how CRAs implicate themselves in these governmentality power rela-
tions and become susceptible to their self-validating effects.
A fundamental contribution of the social studies of finance is the
critique of such abstract, economic characterizations through the re-
introduction/re-embedding of the subject in its contexts (Callon et al.
2007). With ‘the intervention of the observer in markets in which he
operates’, Elena Esposito (2013: 7) confirms that ‘these abstract
hypotheses become empty’ since ‘economics is included within the
object it describes’. Paradoxically, however, ‘the task of economics is
self-limited in advance’ because its:
Performative role prevents it from seeing performativity. The theory

must affect the behaviour of operators by providing a description of
the economy and its functioning. If the theory attempted to take
account of performativity and the resulting uncertainty, it would
fail to do so. Its task would become all the more complex. An inter-
nal observer who is aware of his influence on the subject he
describes is lost in circularity and can no longer give univocal indi-
cations (ibid.).
Unequivocality, or at least its perception, is what CRAs desire since

ensuing contestation can threaten the authoritative capacity of their
ratings to perform the political economy of creditworthiness.

Performativity, after all, functions through its ability to exclude com-
peting assessments and articulations of creditworthiness, as much as to
include other ones. For this purpose, the ratings process is riddled with
false bifurcations – in particular between economics and politics – in
order to capture a (static) fiscal world amenable to technical risk assess-
ment, and thus preclude making, and justifying, such difficult,
reflexive judgments. Lacking this self-reflexivity, it is through the prob-
lematization of ratings that we arrive at a better understanding of this
self-induced performation. Two dimensions of this self-generative CRA
performativity are apparent. Drawing on Hacking’s (1999) notion of
‘looping’, positive feedback effects are visible with both the risk-based
calculations at the heart of the ratings process and its credit rating
outcome.
To claim that CRAs are themselves the product of their own devices
may seem banal, if not for the tremendous amount of effort donated to
aligning the act of rating with defendable risk calculus. Masking gov-
ernment through uncertainty, which accommodates such self-
reflexivity, CRAs engage in a process of self-referential verification by
performing risk analyses. With the emphasis being on the quantitative
calculation of as many of the sub-factors in the four ‘Steps’ as possible,
similar to other CRAs, Moody’s becomes implicated in this performa-
tivity by conducting these risk calculations and running its stress tests.
Whether it is verifying economic resiliency, financial robustness, or the
results of the Expected Default Frequency (EDF) metric, all these risk-
based techniques work to divorce the technoscientific epistemology of
the CRA from the messy, politico-economic contexts in which it, and
its objects of governance, operate. Ostensibly on the outside, CRAs
seem to assess credit risk from a privileged subject position.
For example, back-testing is itself a method of validating reliable
inputs, such as the correct size of a data sample, which, when con-
stantly repeated, normalizes the subject (i.e., CRA) performing the cal-
culation into adopting those validating impulses into its own
self-understanding. Thus, the predictive positivism practiced by CRAs
enables these self-generative effects as it implicates Moody’s and S&P
in the calculation of binary oppositions, such as the (false) dualism
between quantitative risk and qualitative uncertainty, which reinforce
their removed subject positions and calculative ontologies. Three
(neglected) elements of managing through risk help facilitate how
CRAs come to identify themselves through its calculus: conditionality,
reactivity and interactivity.
Conditionality, reactivity and interactivity of risk (and

uncertainty)
First, with some cues from David Garland (2003), risk modalities are
‘conditional’ because they fulfill a specific objective that is predefined.
As such, they do not exist devoid of a particular context or problem-
atic. The risk of default is deliberately framed as a primarily probabil-
istic frequency towards fiscal failure by CRAs in order to suit their
objective of determining creditworthiness. But by privileging the quan-
titative over the qualitative, CRAs erect parameters of permissibility,
which constrain their own conduct as available options are eliminated.
Flexibility, however, is essential because although ‘quantitative
measures and models are useful in assessing credit risk’, S&P (2010b: 4)
does ‘not believe they capture all the nuances of the real world, which
can sometimes contradict the information exhibited in financial ratios
or provided by a quantitative model’. Conditionality plays a key role in
stress-tests where model predictability is ‘conditional on the occur-
rence of the stress event’, relative to a baseline condition (Moody’s
Analytics 2012a: 1). Validation involves selecting and applying the best
risk function (an econometric formula) to ascertain if the model pro-
jections uphold. The scope for misuse compels Moody’s Analytics
(2012a: 2) to admit that:
Too often we see models used for portfolio forecasting or stress-

testing being validated in ways that are unrelated to their
use…Instead, validation criteria must be established that make it
likely that the model will perform correctly should stressed circum-
stances actually occur.
Already CRA discretion begins to entangle them even in what is pur-

portedly an objective calculation of (fiscal) facts.
Second, risk management is ‘reactive’ since future credit forecasts
hinge on the circumstances which preceded them and their interpreta-
tion by analysts/rating committees. For Garland (2003: 53), ‘extrapola-
tions from past experiences are always inferences from a limited data
set using premises (about cause and effect, about factors involved,
about ceteris paribus) that may be disproved by subsequent events’.
Human judgment compensates for the fact that the past – especially
socio-political history – does not exactly repeat itself at regular inter-
vals. Actual (in)accuracy, however, is not that serious of a concern for
CRAs because their experience with corporates reaffirms their belief in
regularizing socio-economic activity by establishing ‘statistical correla-
tions between series of phenomena’ (Castel 1991: 284); thereby endow-

ing the exercise with a semblance of objectivity.4 Moody’s (2002) con-
cedes that ‘there is an expectation that ratings will, on average, relate
to subsequent default frequency’. All that is necessary is repetition and
time; both of which are lacking in the assessment of sovereigns.5 A
common mentality in the industry is that accuracy may be sacrificed
for comparability.6
Even in a less methodologically-driven environment, however, accu-
racy would not be as pertinent given that creditworthiness has no
intrinsic value to unearth; as it is socially constructed. Its ordinal char-
acter also removes the onus to verify accuracy against some absolute
(i.e., cardinal ranking). While this may seem to collapse the distinction
between risk and uncertainty, as the above is also descriptive of the
government through uncertainty, it is more a difference of degree, and
the emphasis on probabilistic measures, which normalize CRAs as sub-
jects of risk discourse. In fact, it is the heteromorphic and dialectical
relationship between risk and uncertainty which actually helps
entrench this naturalization, since it is more conducive to the
conflation of (immeasurable) uncertainty with (probabilistic) risk.
Skewed towards the latter, risk discourse entangles CRAs through its
calculus which feeds back to yield self-generative effects.
Lastly, the degree to which individuals and institutions expose them-
selves to potential hazards varies as risks are ‘interactive’. Adjustments
to changing conditions are constant. As much as this involves rating
design, the performative effects of this sort of interactivity are most
visible once the rating is commercialized. Upon rendering a rating,
CRA observe how a sovereign reacts to it, and consequent market activ-
ity; either by adjusting accordingly or tolerating any unwanted
outcome, such as higher financing costs. From these observations, con-
clusions are drawn which influence subsequent credit assessments. For
their part, governments either comply with the disinflationary pro-
grammatic embodied in ratings, by implementing austerity policies
that converge with the expectations of financial markets, or persist
with the status quo and incur the consequences. Convergence, and
bond yields, signals to the CRA that their assessment was correct and,
if adjustments are considered substantive enough, a revision/upgrade
may be warranted.
Contagion amplified self-generation

Self-referential effects of this kind are most notable when Moody’s or
S&P either downgrade debt into ‘junk’ territory or reward it with the
coveted ‘AAA’ grade.7 Speculative ratings trigger clauses in financial

regulation and investment by-laws, and thus large bond sell-offs. With
the imminent Greek (structured) default, Moody’s (2011c) downgraded
Portugal debt to junk status – from ‘Baa1’ to ‘Ba2’ (negative outlook) –
on 5 July 2011. Citing a growing risk of a second bailout, it warned
that this could also entail a private sector ‘haircut’. Although not
utterly unexpected, markets tumbled with Lisbon’s PSI 20 tumbling
3 per cent to 7126 and the UK FSTE 100 index falling below the psycho-
logical 6000 mark (5988), and the euro depreciated. Fears of contagion
spread as Portugal’s ten-year bonds surged above 13 per cent to a euro-
era record against German Bunds. With the introduction of significant
adjustments addressing its internal and external imbalances, Portugal’s
five-year cumulative EDF began to decline, only to jump again to a
high of 4.89 per cent on 12 July 2013 in reaction of the near collapse
of the government (Moody’s Analytics 2013a). Of course, the transla-
tion of ministerial resignations into such a risk metric is quite perplex-
ing. Nevertheless, by the end of the summer, the political turmoil
subsided and Portugal’s EDF and government bond yields were falling
once again; which validated CRA prescriptions that politics is a liability
to be mitigated. Though its fiscal consolidation was not sufficient
enough to reduce tremendously Portugal’s debt and deficit levels
which, in addition to a weak economy and shocks still emanating from
the Cyprus rescue package’s ‘bail-in’ of uninsured bank deposits,
prompted another downgrade to ‘Ba3’ with a negative outlook.8
Contagion amplified by such rating downgrades also exhibits self-
generative properties for CRAs. Negative spillover effects exert down-
ward pressure on the trajectory of neighboring economies, which can
trigger or exacerbate deteriorating conditions (Arezki et al. 2011).
Studies of the reactions in sovereign yield spreads even indicate bivari-
ate Granger causality (Gande and Parsley 2005; Reisen and Maltzan
1999). Caution should be exercised with such claims, however, since
the complex set of interactions associated with these movements is not
accommodated by conventional Granger bivariate vector autoregres-
sion (De Santis 2012). Asymmetry is also observed by António Afonso
et al. (2011), as the spillover effects from a rating announcement on
the yields of a non-event country are greater if the sovereign being
downgraded is initially rated lower than the one being affected. In
other words, ‘non-event countries with a better credit rating will expe-
rience a significantly larger change in [their] sovereign yields spreads
from spillover effects than a lower credit quality rating’ (Afonso et al.
2011: 18–19). Such asymmetric effects of contagion can imperil health-
ier public finances more than economic fundamentals justify; thereby

highlighting the need for early reforms stipulated by CRAs.
Together with the heightened threat of a Greek exit from the euro
and the greater than anticipated credit loses plaguing Spanish banks,
market sentiment deteriorated following the Portuguese downgrade,
allowing Moody’s (2012b) to conclude that, amongst other pressures,
the systemic spillover effects from rating events were making Italy
more susceptible to elevated financing costs. Given its €2 trillion debt,
Italy was scheduled to roll over €415 billion (25 per cent of GDP) in
2012–13, and could not afford to absorb the costs of contagion
emanating from abroad. If it lost access to affordable credit channels, the
size of Italy’s outstanding obligations would severely tax the European
Security Mechanism (ESM). Accordingly, on 13 July 2012, Moody’s
slashed Italy’s credit score from ‘A3’ to ‘Baa2’ – on the cusp of ‘junk’.
Not only was ‘Italy’s increased susceptibility to event risk’ a concern for
Moody’s (2012b), but the CRA was also critical of ‘an eroding non-
domestic investor base’. Governments, after all, must be attractive for
capital. Although Italy still managed to sell €5.25 billion of medium-
and long-term notes, it was its domestic banks, rather than foreign
investors, who bought it.
Some reprieve was finally granted when, on 6 September 2012, Mario
Draghi, ECB President, clarified an earlier announcement by
confirming that the central bank was prepared to engage in the ‘unlim-
ited’ purchase of troubled sovereign eurozone bonds – dubbed Outright
Monetary Transactions (OMT) – in order to do ‘whatever it takes’ to
preserve the common currency. Subsequently, the effective interest
rates on Spanish and Italian ten-year bonds fell to more sustainable
levels but still remained elevated.9 The contagion from ratings, there-
fore, can accelerate downward movements in neighboring jurisdictions
which loops back to reinforce CRA assessments and rationalities.
Similar to the havoc that politics has played with Portugal’s credit-
worthiness, Italy’s often boisterous and colorful politicians may appeal
to its citizens but fail to make a positive impression on CRAs. Lest cred-
itworthiness be jeopardized, CRAs are of the opinion that political dis-
cretion and flamboyance should be minimized. Such conduct often
incites conflicts and injects instability. Given how much weight is
assigned to ‘political risks’ in the calculation of a rating, cautious and
technocratic governments are usually awarded a higher grade. S&P
(2013d: 3–4) contends that ‘a sovereign’s failure to secure prudent
public finance management can materially and negatively influence its
debt service capacity, even in cases where the sovereign enjoys a
buoyant economy’. For example, S&P (2012a) commended the Italian

government of Mario Monti for having, in its words:
Stepped up initiatives to modernize [Italy’s] economy and secure the

sustainability of public finances over the long term. We consider
that the domestic political management of the crisis has improved
markedly in Italy. Therefore, we have not changed our political risk
score for Italy because we are of the opinion that the weakening
policy environment at the European level is to a sufficient degree
offset by Italy’s stronger domestic capacity to formulate and imple-
ment crisis mitigating economic policies.
Thus, as economic governance assumes a more conservative stance,

there is a greater tendency to adopt fewer inflationary policies. Fiscal
retrenchment confirms for CRAs that less politics in budgetary man-
agement is indeed better politics and deserving of a higher political
score.10 In short, ratings yield self-generating effects for CRAs.
Procyclical reinforcement
Procyclicality only reinforces these self-validating effects as down-
grades and negative ‘outlooks’/‘watches’ create the deteriorating condi-
tions for further ratings cuts (Dittrich 2007: 105; FSB 2010). As fiscal
positions continue to worsen, countries are denied their traditional
countercyclical (demand management) tools, recessionary pressures
grow and amplify the economic cycle during a fragile period; which
could morph into a full-blown crisis. Conversely, in good times, ratings
tend to be higher than what is justified. One account posits that poor
ratings adversely impact revenue streams; whereas higher assessments
are thought to attract more clients and generate richer profits.
Particularly ‘virulent regarding the rating of structured finance instru-
ments’, such as credit derivatives, the inflation of creditworthiness is
not internalized by the CRA but by misguided investors (European
Commission 2010b: 5). John Patrick Hunt (2009) discounts that
‘market sophistication’ is sufficient enough to understand the com-
plexity of such novel products or unique credit profiles; especially
those of emerging markets. Even if Moody’s and S&P are so well
entrenched that they are virtually immune from being held hostage by
rating shoppers (Sinclair 2003: 149), the overly generous ratings that
they assigned to securities at the core of the sub-prime meltdown
demonstrates that CRAs themselves frequently miscalculate their own
business and are prone to egregious mistakes (Taylor 2008).11
‘Rating inflation’ fuels market euphoria and the excessive expansion

of credit and leverage; thereby heightening systemic risk as bubbles
form. Since these market sentiments factor into many of the risk
metrics employed by CRAs, such as Moody’s CDS-implied EDF, they
feedback to influence ratings. Accelerating market losses can only ex-
acerbate herding behavior and the boom-and-bust cycles that elevate
systemic risk (Sy 2009). As market sentiment quickly deteriorated in
the wake of the Portuguese downgrade by Moody’s, the procyclicality
of the negative forecast was confirmed first by Fitch (‘BB+’ on
24 November 2011) and then by S&P (‘BB’ on 13 January 2012).
Irrespective of the finance ministry’s accusation that ‘serious inconsis-
tencies’ existed in S&P’s rating methodology, the ‘BB’ utterance
prompted another broad sell-off. With subsequent rebalancing, the
benchmark ten-year bond yield shot up to yet another record of above
17 per cent (Financial Times, 30 January 2012).
While a lack of consensus about the main drivers of the business
cycle precludes an uncontested, universal proposition about rating pro-
cyclicality, various studies have identified periods when they exacer-
bate cyclical fluctuations to damage the prospects facing governments
(cf. Ferri et al. 1999; Kaminsky and Schmukler 2002). In particular, the
problem lies in the fact that assigned ratings are slow to adjust to
changes in credit quality. When that revision is finally made, however,
the rating is slashed abruptly and often well beyond what economic
fundamentals justify. ‘Cliff effects’ frequently follow because the con-
sequence of ‘such procyclicality-induced feedback effects’ is the ‘excess-
ive deleveraging in falling asset markets’, and the worsening of already
collapsing credit channels, which has serious ‘consequences for
financial stability and the real economy’ (IMF 2010: 69). Because:
Rating assignments have tremendous power to influence market

expectations on a country and, to a certain extent, the ratings can
affect investors’ portfolio allocation decisions, they may subse-
quently undermine macroeconomic fundamentals of the country.
As macroeconomic fundamentals of the country deteriorate, model-
predicted ratings also tend to decline and thereby converge with
actual ratings, though with a lag. Thus, we may just be observing a
self-fulfilling prophecy (Ferri et al. 1999: 352).
There are two dimensions to this procyclicality: reputation and

methodology.
On the one hand, as Frank Partnoy (1999) contends, rating agencies

have an incentive to preserve and maximize their reputational capital.
Optics of impartiality are pivotal to enhancing rating prestige and the
authority of their franchise. Credibility is difficult to attain but easy to
lose. Given such reputational incentives, coupled with the frequency
with which CRAs fail to predict the onset of a correction, rating pro-
cyclicality results from CRA attempts at damage control and efforts to
retain as much reputational capital as possible. Already lagging market
movements, Ferri et al. (1999) argue that CRAs attempt to salvage their
status by becoming excessively conservative. In order:
To recover from the damage these errors caused to them and to

rebuild their own reputation…they tend to overly downgrade sover-
eign ratings so as to protect their reputation capital. Such a sover-
eign rating pattern indicates that rating agencies might have
exacerbated the already worsening economic fundamentals by has-
tening capital outflows and causing future capital inflows to evapo-
rate (Ferri et al. 1999: 336–47).
Adopting the Cantor and Packer (1996) method, which analyzes deter-
minants of credit scores and their impact on yield spreads, Ferri et al.
conclude that the ratings of the Asian economies were both overly
inflated prior to the correction and excessively downgraded during the
1997–98 crisis; which only exacerbated their plight (see Chapter 1).
Their explanation for the discrepancy between modeled ratings predi-
cated on economic fundamentals and the delayed sharp cuts witnessed
in reality is the discretionary conduct of CRAs to over-compensate in
the correction of their lackluster performance. In other words, govern-
ment through uncertainty contributes to a procyclical bias which rein-
forces the self-generative effects on CRAs.
Similar procyclical observations are made by Gärtner et al. (2011) in
their calculation of how the European periphery misfits (Portugal,
Ireland, Greece and Spain) have been excessively downgraded. In the
case of Ireland, the difference between its ‘systematic’ rating, as a func-
tion of economic and structural variables alone, and its actual credit
score, reveals a substantial increase in the ‘arbitrary component’ of the
grade – ‘defined as what is left unexplained by observed previous pro-
cedures of rating agencies’ (Gärtner et al. 2011: 3). Again, a lag is
evident as bond spreads began to climb towards the end of 2009 –
accelerated by Greece’s revised budget deficit – but without any cor-
responding major rating adjustments.
Greek ten-year bond spreads jumped from 50 basis points in 2008 to

surpass 300 by January 2010 and then 1021 basis point over benchmark
German Bunds by late April 2010. Nevertheless, ratings merely followed
the market with only moderate downgrades from S&P (from ‘A’ to ‘A–’) in
January 2009, Fitch (from ‘A’ to ‘A–’) in October 2009 and finally Moody’s
(from ‘A1’ to ‘A2’) in December 2009 (Tichy 2011: 239). It was not until
April 2010 that CRAs began to slash the periphery debt by several
notches. In just over 18 months (December 2009 to July 2011), Greece
was knocked down 15 notches to ‘C’ and Ireland nine levels to ‘Ba1’. The
consequences of such drastic and abrupt revisions were cliff effects, which
compounded the difficulties for beleaguered countries. Sylvester Eijffinger
(2012: 918) contends that ‘at the end of 2011, the ratings of most agen-
cies converge, and even overshoot. This is especially severe for Greece and
Ireland, who experienced very sharp downgrades to excessively low levels
not justified by their respective credit spreads’. As governments go into
damage control mode, the threat of systemic disruption looms.
Arguably, the qualitative dimension of rating, or government
through uncertainty, contributes to this disjunction. Especially pro-
nounced after 2009–10, not only does this discretionary element ex-
acerbate the situation facing these Member States by raising risk premia
(i.e., yield spreads), but the ‘arbitrary rating downgrades trigger
processes of self-fulfilling prophecy’ that only fuel the sovereign debt
crisis (Gärtner et al. 2011: 2). Equally significant in both the Asian
Crisis and sovereign debt debacle:
It is apparent that rating agencies attached higher weights to their

qualitative judgement than they gave to the economic fundamen-
tals both in pre- and post-crisis rating assignment, thereby exhibit-
ing a pattern that when the economy is booming, economic
fundamentals are ignored and when the economy is deteriorating,
economic fundamentals are also disregarded (Ferri et al. 1999: 349).
Lambasted for their failure to anticipate the deterioration in credit

quality, CRAs seem to rely even more on techniques of uncertainty in
the effort to restore their tarnished reputations. The procyclicality
which results exhibits (amplifying) feedback effects which work to val-
idate the position of CRAs when they most need it.
On the other hand, as discussed in Chapter 2, the ‘through-the-cycle’
(TTC) rating methodology aggravates this procyclical bias as it
smoothes out the rating over a longer default horizon in order to
prevent exactly this kind of amplification of the business cycle. The
maintenance of rating stability and prudent migration policies, which

wait to determine if any deviation is cyclical, result in excessive down-
grades once triggered.12 The difficulty lies in the aggregation of specific
and dynamic knowledge about the obligor’s debt position and in
deciphering what constitutes as a permanent transition in credit
quality since there is no single reliable detection mechanism avail-
able.13 Thus, Edward Altman and Hubert Rijken (2004: 2682–3) submit
that a ‘combination of thorough analysis and expert judgment is
needed to separate the permanent and transitory components’, but
‘because of the uncertainty inherent in forecasting credit quality, agen-
cies follow a prudent migration policy’; which generates procyclical
cliff effects. Qualitative judgment is once again at the heart of this
forward-looking decision to adjust. While the ‘TTC rating process esti-
mates the distance to default based on fundamental values’, it ‘imposes
a stress scenario on the cyclical component’ (IMF 2010: 116); which
demands the exercise of forward-looking, discretionary conduct. In
addition to the lag, already noted above is how this may induce pro-
cyclicality. Because managing through uncertainty is more vulnerable
to fluctuating market sentiments, it threatens to generate cliff effects.
Just as early warnings may temper market euphoria, if they lead
expectations with new information, rash and late movements can
entice panic. Helmut Reisen and Julia von Maltzan (1999: 18) argue
that this capacity to moderate or intensify boom-bust cycles is espe-
cially acute in regards to emerging economies. In the case of the Asian
Crisis, blame was unanimous that lagging and erratic rating events
helped trigger swift and severe reactions from market participants;
which only exacerbated the crisis for these struggling countries (BIS
1998; IMF 1998; World Bank 1998). While CRA damage control con-
sisted, to a great degree, in the condemnation of the dubious delivery
of incomplete information by opaque crony capitalist regimes (Sinclair
2005: 165), Altman and Rijken (2004) suggest that such lags may be
attributed to the long-term bias in the ‘through-the-cycle’ rating
methodology. Rating stability must accommodate rating responsive-
ness in order to prevent frequent and disruptive rating reversals. Alas,
responsiveness was sacrificed for a stability which never materialized;
as a succession of late, and excessive, rating downgrades only acceler-
ated the evaporation of credit necessary to stop the hemorrhaging.
In light of the above methodological deficits, and eager to demon-
strate their capacity to evolve and learn from their mistakes, CRAs have
begun experimenting with new methodologies that subject an entity
to various shocks as it goes ‘through a crisis’ (IMF: 2010). S&P (2010a:
7) constructs ‘hypothetical stress [scenarios] as benchmarks for calibrat-

ing the criteria’, where ‘each level of stress is associated with a particu-
lar ratings category’. In order to be assigned that particular rating
designation (e.g., ‘AAA’), the sovereign must endure that configuration
of stressful conditions without defaulting. Increasingly, debt sustain-
ability simulation tests are supplanting the projection of (past) macro-
economic variables into the future inherent in the TTC framework. In
other words, government through uncertainty, and its implicit contin-
gent liabilities, is slowly displacing government through risk in the
assessment and articulation of creditworthiness.14 Should this continue
to become the norm then the self-generative effects on CRAs will even
be more pronounced as ratings embody and represent a greater degree
of the informal judgment exercised by the rating agency itself.
Whereas risk mitigates this self-reflexivity, management through
uncertainty is much more endogenous and promotes the internaliza-
tion of how creditworthiness is problematized by the subject.
Nevertheless, ‘through a crisis’ methodologies are still ‘prone to
smoothing-induced cliff effects, although perhaps with less frequency,
because of the more severe ex ante stress tests’ (IMF 2010: 111). Not
only does this infuse more uncertainty into the rating process than
may be desired, but the rating is only as good as the minds designing
and executing the tests. Whether it will enhance the quality of ratings
is questionable. Transparency will suffer as subjective judgment is less
consistent and much more opaque than defendable risk calculus. As
such, many outstanding questions still remain that need to be
addressed.
To claim that credit ratings are simply opinions that Moody’s or
S&P commercialize is to neglect their self-referential performative
effects as socio-technical devices of governmentality; which feedback
to constitute the very subjectivities of CRAs themselves. CRAs are not
immune from the power relations which construct this calculative
space; rather they are implicated in its fields through their own
ratings. The conditional, reactive and interactive elements of risk and
uncertainty modalities of government entangle CRAs in their perfor-
mativity. Both rating design and the final rating product exhibit
looping effects which help validate CRA subject positions and calcu-
lative ontologies. Intensifying these self-generative understandings is
the organizational isomorphism between Moody’s, S&P and Fitch;
whereby similar ratings are issued close to each other. Contagion and
procyclicality only serve to validate them further. Together they help
instill a self-understanding in CRAs.
Constitutive effects for investors
One of the key objectives which the investment community shares

with rating agencies is comparability. Asset/portfolio managers need to
synchronically connect heterogeneous fiscal landscapes, in a simple
fashion, in order to select, price and trade various securities, such as
government bonds. Although they may ‘strive to consider each issuer
on its own strengths and weaknesses, thus avoiding placing issuers in a
rigid grid based on a limited number of economic and financial ratios’,
differentiated ratings are not accommodated by aggregating methods
that attempt to transform singular fiscal uncertainties into pools of risk
(Dominion Bond Rating Service 2011: 5). Irrespective of CRA claims,
the rating scale resembles a ‘rigid grid’ derived from a risk-defined
analysis. This classification system has proven quite attractive for both
CRAs and investors since it helps to determine who is eligible to access
liquid capital markets and at what cost. Without these quantitative
methods of objectification, which establish the criteria denoting what
is considered ‘important to understanding the differences and nuances
of each issuer, and maintaining consistency across sovereign credit
ratings’, such broad ‘peer comparisons’ would be much more idiosyn-
cratic and arduous to perform (ibid.); if not systematically unsustain-
able over the longer-term. Thus, the exploitation of these nuances and
variations, upon which profits depend, is inextricably connected to
how the problem of sovereign debt is framed. BlackRock (2012), one of
the largest fund managers – with assets under management (AUM) of
over US$4 trillion15 – confirms that:
Ratings provide a benchmark or a reference point that investors use

to evaluate a security or issuer’s potential eligibility for the inclusion
of that investment in a portfolio. Without globally recognised stan-
dards for inclusion or exclusion, investor uncertainty about the
credit quality of the investment could undermine the confidence of
investors.
Risk ratings are the language which allows CRAs and investors to com-
municate creditworthiness; as complementary business ambitions and
modalities facilitate the exploitation of available synergies.16
Rather than being monopolized by the questionable merits of the
institutional agency (i.e., Moody’s or S&P), which distracts us with
rhetoric and vilifications that fail to elucidate how authority is exer-
cised to constitute and sustain this political economy of creditworthi-
ness, the contention here is that a more fundamental process is virtu-

ally ubiquitous in its authoritative capacity to render economic rela-
tions intelligible and calculative spaces real: risk discourse. It is the act
of rating risk that enables a socio-technical agencement of creditworthi-
ness, which helps to construct these subjectivities implicated in the
sovereign debt crisis by making their understandings of themselves
meaningful and their actions permissible. As such, through an analysis
of how the modes of risk/uncertainty are deployed, and the subsequent
performative effects of ratings, we come to terms with how ratings
align creative entrepreneurialism with a calculative mentality and
mechanics, which foster allocative activities that help constitute
investors as ‘speculators’. For this purpose, ratings signal and validate a
rational decision-making process, where expected utility maximization,
the pursuit of profits, and the minimization of costs through the miti-
gation of risks compose the dominant procedural rationality adopted
by market participants (Carruthers 2013). In other words, whether they
are an internal form of due diligence or adopted as an out-sourced,
external assessment, risk ratings function as a feedback loop through
which investors – both passive and active – are constructed.
Over the recent decades, growing disintermediation, deregulation
and securitization through financial innovation have not only dis-
tanced managers of debt from its issuers (Sinclair 2010: 100), but have
introduced an arsenal of complex financial models and products, such
as derivatives, onto the market that are beyond the complete compre-
hension of large segments of investors (Krippner 2011; Pryke and Allen
2000). Fuelled by an increasing appetite to manage this ever expanding
universe of ‘risks’, agencements of epistocratic niches have flourished
which help to simplify and communicate these fields in order to
enhance their broader appeal and circulation. Edward LiPuma and
Benjamin Lee (2005: 422) argue how ‘the notion of abstract risk,
embodied in the derivative and propelled by a self-expanding specula-
tive capital, is globally significant because abstract risk functions as a
social mediation, creating a new form of interdependence in the sphere
of circulation’.
In a similar vein, the popularity of ratings may be attributed to their
purported capacity to capture and represent (fluctuating) credit risk;
which helps feed this appetite for calculation/classification as control
and the mutually constitutive market relations surrounding its com-
mercialization. Their technical proficiency works to buttress a
‘mechanical objectivity’ (Porter 1995) in the constitution of the ratings
space and its political economy of creditworthiness. Here the discursive
practice of rating ‘alluringly suggests an open space of possibilities, a

freedom of movement and thought’, while simultaneously it ‘closes
down political and social space because it names its own condition and
renders alternative interpretations’ deficient or redundant (Amoore
2004: 176). By repeatedly enacting this risk-derived social facticity of
creditworthiness, ratings entangle both CRAs and investors in a socio-
technical agencement of mutually reinforcing performative effects.
At the same time, however, this is a tenuous relationship riddled
with inconsistencies and oddities. As ‘an unusual paradox’, Partnoy
(2006: 61) contends that:
Rating changes are important, yet they possess little informational

value. Credit ratings do not help parties manage risk, yet parties
increasingly rely on ratings. Credit rating agencies are not widely
respected among sophisticated market participants, yet their fran-
chise is increasingly valuable. The agencies argue that they are
merely financial journalists publishing opinions, yet ratings are far
more valuable than the opinions of even the most prominent and
respected financial publishers.
It is this perplexing, yet persistent authoritative capacity of ratings

which this book explores. As noted above, too often the debate centers
on the institutional agency at the expense of the discursive practice of
rating credit risk. But it is through an adherence to the hegemonic dis-
course of risk that investors become implicated as objects/subjects of
government in the constitution of a (neoliberal) political economy of
creditworthiness, and thus the validation of their own existence. To
varying degrees, this performativity encompasses financial manage-
ment professionals of all stripes; including in banking and insurance.
Although multiple investment strategies populate securities markets,
as firms privilege their own proprietary models, the conventional core
of the business consists of maximizing returns through the purchase
and sale of various types of ‘risks’ (Hardie 2011). Treated as a commod-
ity to be manipulated, hedged and traded, risk (calculations) informs
how bond markets price sovereign debt. Asset managers are attracted
by risk’s probabilistic (predictive) potential, which promises some sem-
blance of relative stability in an otherwise constantly changing world
of finance. The supposed continuity, comparability and remote calcu-
lative capacity which this affords, provides a platform for their calcula-
tions. Ratings serve as principal inputs into this decision-making
process, and subsequent bond market expectations (Afonso et al. 2011;
FSB 2010; IMF 2010; Kaminsky and Schmukler 2002). Whatever their
disdain for CRAs, financial managers very rarely discount the utility of
risk calculus in the rating of creditworthiness.17 In fact, pressures to
justify investment strategies (to clients and regulators) entail being
quantitatively sophisticated and defendable; a mentality which further
cements a false dichotomy between (quantitative) risk and (qualitative)
uncertainty. Even active fund managers like BlackRock (2012) employ
‘ratings as a preliminary screen in [their] own independent credit
review; that is, [they] use the ratings as a “starting point” in [their]
assessment of an investment’. Seldom do they also reject the notion
that ratings induce market reactions and influence expectations
through the construction of an infrastructure of referentiality to a
degree sufficient enough so as to pay attention to them; an effect
amplified by issuing rating ‘outlooks’ and ‘watches’ (Hamilton and
Cantor 2004).18
Mainstream functionalist explanations

A panoply of mainstream accounts primarily resorts to functionalist
explanations of why credit ratings occupy such a privileged position
for the investment community. Amongst others, Günter Löffler (2004:
2716) assigns their broad-based appeal to the fact that, ‘while there are
market-based guidelines that lead to better performance than ratings,
ratings lead to lower losses than some plausible market-based guide-
lines’, and because they are also ‘less volatile than market-based
measures, ratings tend to produce lower trading costs than market-
based strategies’. Most common measures, such as market data where
expectations of default are reflected in bond prices or credit default
swap spreads, have a procyclical bias (European Commission 2010a).
Price swings can translate into greater capital requirements and
potentially more volatility; which increases transaction costs.
Another common contention portrays ratings as performing a
‘certification’ role by signaling the suitability standards of an issuer for
possible inclusion into a portfolio as stipulated by corporate statutes or
denoting which securities can serve as part of regulatory capital
requirements, such as collateral by central banks for money market
operations. As such thresholds, ratings trigger the sort of mechanistic
herding behavior responsible for cliff effects. Partnoy (1999: 684)
cynically equates such recognition to bestowing CRAs with ‘regulatory
licenses’. Their inclusion into regulation allows ratings to be sold as
certifications of compliance with the statutes. Designations, such as the
NRSRO, ‘constitute forms of indirect merit regulation’ (Schwarcz 2002:
21); which only narrow market expectations further as they diminish

contestation by reinforcing the oligopolistic configuration of these
‘gatekeepers’ (Partnoy 2006).
Accompanying this primarily financial and legal literature are
numerous econometric studies which attempt to explain the advantage
of ratings by calculating how much they affect key variables like
spreads on bond yield or CDS (cf. Blundell-Wignall 2011; Mora 2006;
Reinhart and Rogoff 2009; Reisen and von Maltzan 1999).
Unfortunately, given the variations in formulas/methods employed,
significant disputes regarding the actual causality of ratings or the reli-
ability of said calculations have only erupted. One of the more notable
brouhahas targeted a 2010 paper by Carmen Reinhart and Kenneth
Rogoff (2010), entitled ‘Growth in a Time of Debt’; in which the authors
claim that average economic growth plummets by –0.1 per cent when
public debt levels exceed 90 per cent of GDP. Although frequently
cited in support of fiscal austerity, these findings are highly contested
by multiple academics.
Amongst others, one critique attacks Reinhart and Rogoff for failing
to recognize that, irrespective of the 90 per cent threshold, governments
that issue debt in their own domestic currency cannot be forced into
insolvency (Nersisyan and Wray 2010). More recently, studying data
from 1821 to 2012, Pescatori et al. (2014) attributed slower growth to
factors unrelated to debt levels, such as the collapse of the German and
Japanese economies due to World War II. Furthermore, averaged over
15-year periods, debt levels over 80 per cent did not hamper growth as
suggested by Reinhart and Rogoff. Another group from the University of
Massachusetts, Amherst found that substantial ‘coding errors, selective
exclusion of available data, and unconventional weighting of summary
statistics led to serious errors’ (Financial Times, 17 April 2013). If the lack
of reliable fiscal inputs and limited population samples can jeopardize
back-testing and contribute to such ‘unsupportable statistical tech-
niques’, then similar ‘straightforward miscalculations and unconven-
tional methods of averaging data’ can plague CRA assessments of
sovereign creditworthiness (Pollin and Ash 2013).
While many of these accounts may sound sophisticated because they
pander to the discourse of risk, ultimately, they fail to supply an ade-
quate understanding of how ‘ratings became part of normal and taken-
for-granted business practice’ to play such a principal role in the
constitution of what counts as authoritative knowledge in the market
and the subjectivities implicated in the sovereign debt crisis
(Carruthers 2013: 17). This is not always a matter of gross erroneous-
ness (for the most part); as such contributions often satisfy their
narrow aspirations. As a matter of fact, our research agendas are not
mutually exclusive in some fundamental sense. What they lack,
however, is a suitable understanding of how all these empirical phe-
nomena are in constant symbiosis with the intersubjective elements of
the problematic; rather than separate, brute facts. Attentive to this
mutual constitution between the practical and discursive, we now turn
to how a discussion of how performativity helps to translate these cal-
culative knowledges and expert representations into material condi-
tions and the naturalization of speculators.
The naturalization of speculators

As internal forms of governmentality involved in embedding the nar-
rative of risk, through which the normalization of these subject positions
occurs, ratings yield constitutive effects for both passive and active
asset managers. Given the hybridization and blending of investment
approaches, by no means is this a rigid, binary juxtaposition. Neither
do the forthcoming sections advocate a preference in their long-
standing debate about which one is superior. Recognizing the diversity
in their respective investment strategies, however, classification along
these lines acknowledges that the performative capacity of ratings
relies on how they are deployed; as well as on conditions of felicity
(Svetlova 2012). Both camps subscribe to the utility of risk analysis in
the determination of creditworthiness. A distinguishing difference
between them is the degree to which they execute that assessment by
themselves; as opposed to resorting to external credit ratings. Excessive
reliance on external assessments is one of the contributing factors
behind herding tendencies, which can exacerbate both rapid inflows of
capital and just as fast, but much more destabilizing, outflows (Cai
et al. 2010; Kahler 1998). In other words, how are risk ratings appropri-
ated and deployed in portfolio security selection and allocation?
Passive asset management

On one side of the debate, as Chapter 1 discusses, are passive managers
who assemble a portfolio to mirror a benchmark index, such as the
S&P 500 Index or the J. P. Morgan Emerging Market Bond Index
(EMBI). Index tracking is advocated as a low-cost approach based on
the efficient market hypothesis (EMH). It seeks to match benchmark
performance, based on the conviction that ‘beating the market’ is
nearly impossible over time.19 For this purpose, mutual or exchange-
traded funds (ETF) are an increasingly popular option.20 The first ETF,
the State Street SPDR S&P 500, celebrated its 20th anniversary in 2013.
At a cost of 0.2–0.3 per cent a year, ETF fees are notably less than the
1.0–1.5 per cent plus charged by active managers for their research,
transaction costs and shrewd judgment. Although the exact numbers
are difficult to ascertain due to limited data availability, Morningstar
(2013: 6) estimates that ‘while 78% of worldwide mutual fund and ETF
AUM still resides in actively managed funds, passive products captured
41% of estimated net flows – USD 355 billion – in 2012’. Hence, a
strong trend in favor of passive instruments is visible; especially in the
US where 34 per cent of assets (US$1.3 trillion) are now under passive
management (Financial Times, 23 June 2013).
In the aftermath of the credit crash, this shift has been accelerated by
the lackluster performance of active funds; apart from a brief bounce in
2009, nearly 75 per cent have trailed the benchmark. Such perfor-
mance contrasts are captured in the popular S&P Indices Versus Active
(SPIVA) Scorecard (2012c), which documents that, although ‘2012
marked the return of the double digit gains across all the domestic and
global equity benchmark indices’, the ‘gains passive indices made did
not, however, translate into active management, as most active man-
agers in all categories [including fixed income]…underperformed their
respective benchmarks’.21 Investor dissatisfaction with such poor value
for money and the burgeoning of new (indexed) products are only
heightening the appeal of passive management; and with it the adop-
tion of external credit ratings.
As an inexpensive form of out-sourced due diligence, external ratings
compliment these kinds of passive strategies, with their longer invest-
ment horizons, because they are considered a leading driver of general
market expectations about sovereign creditworthiness.22 If perceptions
matter more than immediate accuracy and all that is required is to
mirror the broader indices, then CRA ratings are sufficient enough for
this purpose. Not only is comparability expedited through the com-
mensuration of a single rating scale, which serves to disseminate
widely an illocutionary statement about the health of public finances,
but CRAs assume the liability risk of making a wrong assessment.
Errors which can jeopardize potential bonuses or career advancements
deter more endogenous forms of due diligence. Economies of scale also
factor into this decision-making process since ‘smaller and less-
sophisticated investors that do not have the economies of scale to do
their own credit assessments will inevitably continue to rely exten-
sively on external information, including credit ratings’ (IMF 2010:
93). This dependence becomes even more pronounced when dealing
with emerging markets because of their distance and relative opacity.

Moody’s maintains a worldwide presence in 29 countries, and S&P is
located in 23; the benefits of which cannot be easily replicated. Even
larger investment outfits, however, may prefer external ratings for the
cost advantages (e.g., lower tax rate) afforded by less frequent rating
reversals; especially when there is sufficient portfolio diversification to
help compensate for loses.23
Yet it is the dominance of risk and technical analysis underpinning so
much of passive asset management, which reinforces this attraction to
external ratings. After all, as mentioned above, this shared discourse
modulates investors to accept the authority of ratings as they compli-
ment and complement their business ambitions. Recourse to this men-
tality and its quantitative/technical apparatus acts to justify and
endorse their speculative investment activities and subjectivities; a
rationality which makes the misrepresentation and commodification of
uncertainties as risks more tolerable.24 Given the embedded hegemony
of risk-based financialization over the decades, this modulation is even
more authoritative now that it is the established normality for the
assessment and articulation of creditworthiness. Lacking a readily avail-
able alternative to risk calculus, or the incentive to devise one, passive
portfolio managers continue to rely on these ratings to function.
But it is this mechanistic over reliance on external ratings –
cemented by the ‘hard wiring’ of CRA ratings in regulatory and con-
tractual architecture – which is of grave concern (European
Commission 2011a; IMF 2010). Out-sourced due diligence diminishes
the urgency for investors to replicate these credit assessments and to
manage through their own uncertainty. A primarily exogenous concep-
tualization of credit risk, as a tangible phenomenon to be unearthed
with the correct (quantitative) tools, is entrenched, which leads passive
managers to relinquish their critical faculties by subscribing to external
grades and the risk logics inherent in them; thus helping to facilitate
their own objectification and subjectification. Failure to conduct
proper internal risk assessments, however, inhibits the necessary inter-
nalization of self-regulation afforded by the government through
uncertainty. As a result, the susceptibility to cliff effects and systemic
disruption increases because this omission is:
One cause of herding in market behaviour, if regulations effectively

require or incentivised large numbers of market participants to act in
similar fashion. But, more widely, official sector uses of ratings that
encourage reliance on CRA ratings have reduced banks’, institutional
investors’ and other market participants’ own capacity for credit risk
assessment in an undesirable way (FSB 2010: 1).
This complacency and lack of reflexivity can prove disastrous; whether

the rating transition is warranted or not. For example, in the summer
of 2007, Moody’s and S&P began to slash abruptly into junk territory
what would become thousands of ‘residential mortgage backed secur-
ities’ (RMBS) and complex ‘collateralized debt obligations’ (CDO). On
an unprecedented, massive scale – S&P downgraded 75 per cent ‘AAA’
RMBS below investment-grade – it triggered a valuation crisis (Sinclair
2010), and the collapse of the secondary markets for these securities
(Ryan 2012).
Even the perception of a rating event can induce such panic-stricken
conduct. S&P’s erroneous announcement to its subscribers, in the late
afternoon of 10 November 2011, that it had downgraded France’s
‘AAA’ rating fuelled a sudden surge in French ten-year bond yields by
up to 28 basis points to 3.48 per cent in the final hours of trading;
while its spread with German ten-year Bunds widened to a euro-era
record of 170 basis points (Bloomberg 2011a).25 Both situations exem-
plify the dangers of readily adopting external ratings without perform-
ing appropriate due diligence. Government sanctioned certification
only works to magnify the performative capacity of ratings to consti-
tute speculators; as it serves to validate the risk-based, socio-technical
agencement in which investors are implicated.
At the same time, however, the general risk aversion bias of passive
management makes deference to external ratings as a ‘crutch’ more
perilous; especially with the recent string of erroneous scores and
abrupt/late downgrades. In the immediate aftermath of a crisis,
promises of reform are always abundant. The hybridization implicit in
these investment approaches allows for the incorporation of more
aggressive strategies and modeling that play yields. Banks seem most
adamant about rendering their own comparable ratings.26 Of course,
how much of this resolve will remain once a strong recovery in income
is on the upward trajectory is to be determined. While an emphasis on
practicing one’s own due diligence is welcomed, it often entails the
adoption of similar (dubious) analytics of ratings by investors, which
are currently employed by CRAs. Prone to the same distortions and
inconsistencies, these risk-based assessments of fiscal relations merely
reproduce the conditions which have hitherto helped to validate their
implicit assumptions about budgetary rectitude; in the process entan-
gling investors in their constitutive effects.
Active asset management

On the other side of the debate, active asset managers practice market-
based due diligence and repudiate the ratings issued by Moody’s and
S&P. Rejecting the EMH, they are convinced that informational asym-
metries, psychology, liquidity and discrepancies in calculating capa-
cities contribute to a variance between the ‘fair value’ of an asset class,
or the equilibrium price for a futures contract, and the current market
price; which can be exploited for profit if the fair value can be deter-
mined (Svetlova 2012: 424). Active managers, therefore, seek to outper-
form the market by designing their own internal credit assessments,
which can help them identify and buy undervalued assets (at a ‘dis-
count’) and sell overvalued ones (at a ‘premium’) – known as total
return investing – in order to maximize income/capital appreciation
from bonds. Their ambition is to read the pulse of market expectation.
For this purpose, fund managers like BlackRock (2012) ‘emphasise a
commitment to fundamental research and independent credit evalua-
tion’, which ‘follows a rigorous process’ in the assessment of key vari-
ables, such as the shape of sovereign yield curve, the composition of
bond auctions and the price of domestic and international debt rela-
tive to peers, in order to ascertain fair value, and thus anticipate future
price movements.27 By calculating what they consider to be better indi-
cators of credit risk than CRA ratings, this camp of investors engages in
more aggressive strategies that are often geared to chasing alpha/high-
yield funds.
Historically low interest rates in the post-crisis environment – the
ECB reduced its main refinancing rate to 0.25 per cent in November
2013, while the US Federal Reserve overnight funds rate has remained
between zero and 0.25 per cent since December 2008 – have only
incited greater income hunting and risk-taking. Bond traders closely
scrutinize changes in monetary policy, since they trade on expecta-
tions of fluctuating interest rates and expected movements in yield
curves. Yield curves illustrate the changing relationship between bonds
with various maturities; which assist active managers to adjust the
maturity structure of their portfolios. To this effect, Scott Mather
(2012: 3), a portfolio manager at PIMCO, believes that ‘as developed
nations suppress short-term interest rates, we generally see a steepen-
ing of the yield curve and that can create opportunities in carry and
roll down to add to bond returns’. Paying attention to such indicators,
apparently, is proving profitable. No other firm has capitalized on the
demand for fixed-income products as much as PIMCO.28 Notably ‘by
far the world’s largest actively managed strategy, with USD 442 billion
in assets (including institutional money)’, PIMCO surpassed the

US$1 billion mark of inflows in 2012 (Morningstar 2013: 5).29 Given
Bill Gross’ public disdain for Moody’s, and especially its ‘AAA’ grade for
the US, PIMCO does not rely on CRA ratings to generate its returns. In
short, while CRA ratings may be considered a source of information by
some, their marginal utility for active management is rather negligible.
With so many available alternatives to calculate sovereign creditwor-
thiness, and thus play the market, a common opinion amongst active
management is that CRAs (and regulators) have created an artificial
barrier by designating ‘BBB–’ as the investment-grade threshold.30
Potential arbitrage opportunities, however, exist because the variance
in sovereign creditworthiness that effects the direction of bond prices
fluctuates according to dynamic political economies, and is seldom
captured in a timely fashion by CRA ratings (Hull et al. 2004). As a case
in point, nobody doing their own homework has to wait for a rating
event to be informed that Argentina’s dysfunctional economy and
fiscal management, arguably, may be steering the country towards a
possible second default. An artificially overvalued currency and per-
sistently high inflation, amongst other factors, are troubling economic
warning signs. But its political manoeuvres and a new proposed debt
exchange are what could place Argentina in contempt of court; after a
US appeals court ruled in favor of a US$1.3 billion pay-out to holdouts
from its 2001 default (Financial Times, 16 September 2013). Those who
are capable of spotting and exploiting such red flags, without resorting
to CRA ratings, can often profit at the expense of those investors
obliged to wait for and adhere to external scores.
Thus, a key active strategy attempts to minimize costs while search-
ing for the catalysts upon which price movements depend (Beunza
et al. 2006; Partnoy 2006: 78). Irrespective of its more aggressive
approach, this band of asset managers is still burdened with the task of
devising some form of scoring mechanism capable of synchronically
connecting heterogeneous economies so that they become comparable.
Even if the capture of political variables and the ‘willingness’ to meet
obligations is admittedly problematic, they attempt to outperform
CRAs with similar risk methods but different models.31 More reactive
and discretionary, the synthesis of the quantitative and qualitative is
typically based on the consensus of one of a handful of individuals
who are employed to exercise their independent, professional judg-
ment; hence the higher fees.32 Reflective of the growing momentum to
capture socio-economic phenomena as a risk metric and quantitatively
calculate its propensities using evermore complex risk measures, what
often ends up happening is that principal decisions about sovereign

creditworthiness are increasingly being made by individuals who are
experts on a set of models rather than possessing in-depth knowledge
about the countries under study. Here data series are manipulated to
get a high density picture that is both rigorous and consistent over
time; even if it comes at the expense of qualitative factors. Once again,
accuracy may be sacrificed for the sake of comparability.33
Yet no matter how much back-testing is conducted or numbers
crunched, it is their sound and shrewd judgment which active port-
folio managers assert is the defining quality of their business.
Government through uncertainty grants them their entrepreneurial
freedom, while risk simultaneously parameterizes how such discretion
is exercised. The outcome of this process, however, is not a conven-
tional credit rating per se; as much as information and investment tools
that can be incorporated into asset selection and allocation. In part,
this may be attributed to the fact that they wish to avoid being regu-
lated as a CRA. Most often with in-house rating, the indicators pro-
duced are subsequently employed by other investment arms of the
corporation. For example, Country Insights – a research and consulting
company that specializes in country risk – calculates sovereign credit-
worthiness for Roubini Global Economics (RGE); which recently
acquired it.
Similar to their passive counterparts, risk ratings help to constitute
active managers as ‘speculators’ by equipping them with an arsenal of
tools with which to exploit the relative vulnerability of national gov-
ernments. Given that profits are made from exploiting arbitrage, the
precise accuracy of these ratings is really of secondary significance. In
fact, adjustments to these frequent fluctuations, in the form of more
research, new modeling and consequent trading, render sovereign
creditworthiness in a constant state of transformation, and are what
helps to subject active managers to the modulation implicit in their
own risk practices. After all, as Gilles Deleuze (1992: 6) contends,
‘control is short-term and of rapid rates of turnover, but also continu-
ous and without limit, while discipline was of long duration, infinite
and discontinuous’. Through these coded flows, risk ratings entangle
subjects in ‘ultra-rapid forms of free-floating control’ and governmen-
tality, as they are deployed in the attempt to establish some semblance
of stability and command over what are otherwise volatile and uncer-
tain fiscal relations (Deleuze 1992: 4).
At the same time, already convinced of their (relative) superior
merits, the supposed sense of control/authority that they derive from
the risk management of their financial portfolios, makes these

investors more prone to excessive risk-taking and hubris; which threat-
ens to transform them into ‘the arrogant breed who are our masters’
(Deleuze 1995: 181). Masters of risk assert their right to exert an
increasing amount of epistocratic leverage over the rest of society.
Claiming to possess superior and defendable methods, which justify
their speculative (mis)conduct, their ascendance often comes that at
the expense of broader publics and taxpayers around the globe, who
are left to internalize the costs and pay to clean up the mess. What
leaders around the world, but especially in Europe recently, have been
vociferously condemning, is the reckless speculation – for which, in
large part, they blame the CRAs – as it imposes severe negative exter-
nalities onto unsuspecting citizens.
Of particular concern during a sovereign debt crisis are the ‘bond vigi-
lantes’ who are ‘those speculators that make a short term profit out of
threatening governments that are highly vulnerable to the bond markets’
(Habbard 2012: 2). By selling bonds and driving up financing costs, their
objective is to punish governments for pursuing inflationary policies that
diminish asset value. Now how dangerous they are needs to be placed
into context. With all the hoopla surrounding the breaching of America’s
US$16.7 trillion debt ceiling on 17 October 2013 and the political para-
lysis in Washington, which often gives the impression that an American
default is imminent as it ‘kicks the can down the road’, Paul Krugman
(2012) reminds us that bond vigilantes are virtually impotent to attack a
country which retains its own monetary policy (read money supply) and
has debts denominated in its domestic currency; namely the US or UK.
Quantitative Easing programs also served to suppress interest rates by
injecting liquidity into the market through the massive purchase of gilts
and Treasuries; which, from a rate of US$85 billion a month in the US,
was likely to conclude by the end of 2014.
Europe, on the other hand, has not been immune from the assault of
the bond vigilantes. In addition to the studies confirming the conta-
gion effects from rating announcements emanating across national
borders and financial spaces (cf. Afonso et al. 2011; Arezki et al. 2011;
Gande and Parsley 2005), bond markets have also taken the lead in
coercing profligate countries into adopting programs of austerity (Hull
et al. 2004). Although an analysis of the driving forces behind these
movements in sovereign yields and CDS premia is beyond the scope of
this book, quite often they may be attributed to three main catalysts:
1) country-specific factors; 2) aggregate/systemic shocks that spillover;
3) unexplained idiosyncratic factors (Gärtner et al. 2011). In 2010,
punishing interest rates courtesy of the bond vigilantes drove Greece

and Ireland to seek refuge in the form of bailouts – Portugal would
follow the next year. By July 2011, rising investor aversion to Greek
and Irish debt was pushing the yield spreads on their benchmark ten-
year bonds to 1600 and 1200 basis points respectively (De Santis 2012:
6).34 Coincidental spikes in CDS premia paralleled these movement in
yield spreads not only for Greece and Ireland, but Portugal, Italy and
Spain as well – essentially all the periphery misfits (Battistini et al.
2013). Such pressures are indicative of bond markets anticipating the
deterioration in credit quality – in advance of rating downgrades – and
demanding higher compensation for holding periphery debt. Adding
to this upheaval, Pierre Habbard (2012: 17) contends that hedge funds
been engaged in highly speculative ‘naked’ shorting; which involves
short-selling the underlying sovereign bond while simultaneously
buying long on the sovereign CDS.
Extensive deleveraging of sovereign debt has spurred ‘redomestica-
tion’ and the retreat from the cross-border holding of government and
corporate debt by eurozone banks to levels not seen since the introduc-
tion of the euro in 1999 (European Commission 2013b). From 43 per
cent in 2010, foreigners have shed Italian and Spanish debt to hold
only 35 per cent by the fall of 2013 (The Economist, 12 October 2013).
As the case of the Italian bond auction above demonstrates, European
periphery banks have been compelled to purchase much of the do-
mestic sovereign debt which their countries issue. Between October 2008
and March 2012, banks on the periphery have witnessed a 131 per cent
growth in their domestic sovereign debt holdings from US$335 billion
to US$775 billion (Battistini et al. 2013: 7).35 In part, this has com-
pounded their ability to revitalize their balance-sheets, and thus regain
competitiveness. It has increased the available supply of government
bonds, which suppressed their prices; thereby allowing bond and
hedge funds to take advantage of discounts of up to 50 per cent on
Greek bonds in secondary markets (Habbard 2012: 20). Of course, how
lucrative these margins are is questionable given that historically active
managers often experience difficulty outpacing the index.36
Whether passive or active investment strategies dominate asset/
portfolio selection and allocation, the discourse of risk remains ubiqui-
tous in how investors come to define the problem of sovereign credit-
worthiness and, in the process, understand themselves as speculators.
Rather than simply informed opinions, which are casually exchanged
amongst individual agents whose ontological status is predetermined
as rational utility-maximizers, ratings are socio-technical devices of
control and governmentality that yield constitutive effects in the per-

formativity of investors. At once, they align freedom with creative
entrepreneurialism, while simultaneously parameterizing the exercise
of such discretion, to engender a network of calculating entities and
the further distribution of the very speculative activities of risk which
help constitute their subjectivities. Through the repetition of these risk
practices and the reiteration of sovereign creditworthiness as a calcula-
ble measure of variance around an expected value – represented as
‘AAA’ – a socio-technical agencement develops; with the authoritative
capacity to engineer these calculative objects/subjects of government
and normalize them in accordance with the neoliberal programmatic
embodied within it.
Entangled in these power relations, investors internalize this mental-
ity as it compliments their business ambitions and validates a
disinflationary notion of fiscal normality suited to protecting the value
of the very assets that they manage. They become convinced of their
ability to tame (socio-economic) uncertainty by transforming it into a
measurable propensity of (fiscal) deviance. Through the modality of
risk, a calculative space forms where ‘the actual behaviour of operators
implies a certain predictability of markets due to the way in which the
forecasts of experts, who are trying to find patterns and trends, affect
the movements of the markets’ (Esposito 2013: 7). Unfortunately, as
these assumptions about budgetary rectitude become embedded in the
formation of an austere politics of limits, they fuel an antagonistic rela-
tionship with democratic governments; who witness their capacity for
national self-determination diminish. It is these prohibitive effects of
ratings which the forthcoming section addresses.
Prohibitive effects for governments
Finance is riddled with numerous oddities and paradoxes; credit ratings

being a prime example. This book documents some of the most egre-
gious elements of sovereign ratings and the lackluster performance of
the CRAs responsible for them. Their (alleged) role in precipitating and
exacerbating the most severe financial crash since the Great Depression
is now universally known; as the legacy of these (alleged) abuses has
helped morph the credit crisis into a sovereign debt debacle. Even
more bewildering, however, is that governments must now earn the
confidence of these very rating agencies; which are commonly
regarded as some of the least credible entities in global finance.37 As
public finances remain strained, they impede the rehabilitation of the
creditworthiness of national governments. Confronted with specula-

tive pressures and such enormous – often unsustainable – borrowing
costs, appeasement of these credit masters, therefore, is seen as essen-
tial to retaining access to open bond markets, and performing the fun-
damental roles of democratic government. Although CRAs may be
principal protagonists in the evolution of this antagonistic relationship
between the programmatic/expertise and operational/politics dimen-
sions of fiscal governance, it is through the financial practice of rating
risk whereby an infrastructure of referentiality is constituted that serves
to embed this asymmetry. By creating the conditions and subjectivities
that help validate this neoliberal politics of limits, the deployment of
sovereign ratings has both prohibitive effects and unintended conse-
quences for governments. Hence, not only are governments vulnerable
to being exploited as ‘custodians-of-last-resort’, but, as the next chapter
documents, they themselves are pursuing regulatory approaches which
may serve to undermine their own fiscal sovereignty.
In the first instance, the constraining effects of a downgrade and a
poor credit score on a government’s ability to implement its programs
of national self-determination are quite obvious. Many of the
financing hardships associated with particular rating events have
already been discussed extensively above and do not need to be
repeated here. Unless bond yields surge above 7 per cent, escalating
costs have been painfully absorbed as governments slash budgets to
comply with the imperative of financial markets. Yields above 7 per
cent, however, are perceived as unsustainable in the long run and
rescue packages are usually required (e.g., Cyprus, Greece, Ireland,
Portugal). Thus, jitters shot through the markets when Italian ten-year
bonds breached that mark in November 2011, which cost Silvio
Berlusconi his prime ministership, and after Moody’s downgraded
Spain to just above junk status (from ‘A3’ to ‘Baa3’) in June 2012.
Bailing out the third and fourth largest eurozone economies, respec-
tively, would severely burden EU capacities; or even overwhelm them
if simultaneously demanded.
For governments, ambiguity is regarded as dangerous because it
hampers the capacity for transparent calculation and increases the per-
ception of ‘being at risk’. National politicians and leaders are perceived
as lacking the kind of credibility which is assigned to quantitative risk
calculus – occasionally for good reason. Credibility is an ‘imaginary’
constituted by discursive and technical practices that validate a par-
ticular vision of what is considered compelling and appropriate (Larner
and Le Heron 2002). Politicians are no match against a battery of
quantitative calculations which, most often, they do not even under-

stand. Reinforcing these dynamics is the promotion of a false
dichotomy between (quantitative) risk and (qualitative) uncertainty;
whereby discretionary/informal judgment is marginalized and cen-
sured, while a select epistocratic few exercise authority over the masses.
Quick judgments, however, should be avoided because, as repetitive
crises have demonstrated, it is ratings agencies (and investors) them-
selves who are frequently oblivious to the complex nature of their own
business and how to properly assess fluctuating propensities towards
failure (Dittrich 2007; Taylor 2008).
Nevertheless, governments submit to these kinds of rating measures
as they (reluctantly) welcome being evaluated for the sake of their
market credibility, and the better financing terms that it affords them.
Being open to and, in fact, favoring external scrutiny has itself become
a litmus test of good conduct; especially in economic affairs. Even
before succumbing to procedures of verification, simply the willingness
to undergo evaluation may enhance reputational capital and attract
investment (Lyon 2006). Re-encoded through the ratings scale, bud-
getary deviance is modulated ‘at-a-distance’ as governments enact poli-
cies to comply with the austere programmatic implicit in ratings. This
control is facilitated by the translation of heterogeneous fiscal sover-
eignties into mutually corresponding and globally universal problema-
tizations; which renders a supposedly all-encompassing budgetary
normality against which individual governments are judged. Doing so,
however, simply means that governments further implicate themselves
in power relations that steer them according to specific risk vectors and
depoliticize fiscal sovereignty.
Governments remain autonomous but embedded in calculative
spaces constructed to make them transparent and measurable as perfor-
mance indicators – subsequent instruments of speculation. Even the
problematization of their debt as ‘fixed income’ implies periodically
regular intervals at which payments are made. Relative to other secur-
ities, such as stocks or options, this may seem sensible. But there is
nothing inherently regular or definite about how these rates of return
or income are generated because budgetary affairs elude the pre-
dictability of risk logics. Neither is the obligation to pay really fixed
since, as Moody’s notes above, the absence of a superior judicial
authority removes this guarantee. If the sovereign debt crisis has
reminded us of anything, it is that there is no such thing as a ‘risk-free’
asset.
While incidents like Argentina’s November 2001 decision not to pay

the coupon on its bonds, which resulted in the restructuring of
US$82 billion of its debt in 2005, or the massive March 2012 Greek
managed default – the largest sovereign debt restructuring in history –
which wiped about US$130 billion from an outstanding balance of
US$430 billion, may not be frequent, they are extremely disruptive.
Without an elaborate benchmark analysis capable of compensating for
this limited population sample or accounting for the extreme (polit-
ical) heterogeneity present in available cases, the technical proxies cur-
rently employed, such as liquidity conditions, poorly capture the
correlations between fluctuating political economies. In order to com-
pensate for these distortions, in large part, sovereign ratings rely on the
ubiquity of risk as a managerial dispositif across most segments of
society. The subsequent socio-technical agencement which materializes
helps naturalize the notion that succumbing to such surveillance and
ranking, irrespective of their inconsistencies, is appropriate. All that
supposedly varies is scale.
One conclusion, however, that is becoming increasingly evident, as
the sovereign debt woes linger, is that the programmatic of austerity
embodied in ratings can actually jeopardize the economic health and
recovery of a country as it succumbs to procyclical pressures. Even S&P
(2012a) concedes that ‘a reform process based on a pillar of fiscal auster-
ity alone risks becoming self-defeating, as domestic demand falls in line
with consumers’ rising concerns about job security and disposable
incomes, eroding national tax revenues’. Striking that fine balance, of
course, is easier said than done and extremely contentious. Denied their
traditional countercyclical role, the negative feedback loop between
fiscal policy and economic growth has helped push economies back into
recession or stagnation. In the process, they only incurred more debt;
with the debt-to-GDP forecast to climb to 88 per cent for the EU and
96 per cent for the eurozone by 2014 (European Commission 2012a: 2).
Accordingly, traditional support for budgetary prudence cannot be taken
for granted. If rating performativity goes too far, however, it threatens to
precipitate its converse, or counterperformativity.
Potential performativity breakdown
Given the entrenched hegemony of risk discourse in almost all facets of

socio-economic existence (Power 2004), but especially its virtually sym-
biotic relationship with the self-systemic, and thereby self-regulating,
logics of (Anglo-American) capitalism and its models of profit genera-

tion, resistance is often ephemeral and extremely costly for those coun-
tries who choose to defy the expectations and demands of financial
markets. Quite often the onslaught that results is justified in terms of
complex theoretics and sophisticated (risk) models, which discount a
‘feasible’ alternative, but to capitulate and comply; as it is purported to
be the normal and rational course of events. Increasingly, however, there
are signs that protest movements – typically relegated to the fringes of
power politics – are now becoming more visible and politically popular;
as publics seek alternatives to the political and economic establish-
ments. Galvanized by the popular opinion that their conventional
parties have failed to introduce any meaningful reforms designed to
reign in the excesses and abuses of finance gone wild, electorates are
turning to nationalists (e.g., Marine Le Pen’s Front National, Italy’s
Tricolour Flame) who, as they become more politically organized and
mobilized, are progressively usurping power away from the traditional
political parties.
In large part, this is reflective of the growing antagonism this book
documents, which is fuelled by the harsh prohibitive effects of auster-
ity that have been imposed by financial markets looking to repay their
gratitude for being bailed out by these taxpayers. At the nascent stages
of a potentially larger political shift in priorities, the reconstructive
ethos of the book suggests how ratings themselves may, in fact, instill
enough turmoil to undermine their own programmatic ambitions.
Since the capacity for the prescient quantification of fiscal relations is
exactly what is being disputed here, it would be antithetical to propose
when such a critical breaking point is to occur – it is just too uncertain.
Moreover, what constitutes as that ‘intolerable’ burden varies between
national citizenries; as well as within those constituencies. Yet, both
the financial and sovereign debt crises have demonstrated just how
fragile these stabilizations based upon risk ratings actually are, and
thus how vulnerable they are to repoliticization.
The breakdown in the performative power – or counterperformativ-
ity – of risk ushers in crisis as excessive cuts are met by a vociferous,
even militant, backlash. Mass public protests and civil unrest across the
streets of Brazil, Greece, Spain, Italy and Ukraine – to name but a few –
heighten political uncertainty and disrupt the very continuity upon
which risk ratings depend to undermine their own empirical validity.
Budgetary politics is replete with numerous exigencies which simply
evade being captured through risk measures. While privileging a ficti-
tious bifurcation between politics and economics, or the distortion of
uncertainty as risk, may endow such models with more coherence,

they often find little accommodation in messy budgetary relations.
Arguably, the procyclical feedback effects of credit downgrades noted
above have exacerbated the depth and severity of the crisis for the
periphery countries by either hindering their access to or removing
them completely from liquid capital markets. Already less competitive
relative to their Northern neighbors prior to the crisis, their increasing
fragility points to where these ruptures may occur. With the IMF
(2013a) estimating that Spanish GDP levels will remain negative until
2015, while its unemployment rate set to hover around 25 per cent
until 2018, the conditions are ripe for serious change. Add to this
volatile mix all the disgruntled and unemployed youth walking around
Europe38 – commonly referred to as the ‘lost generation’ – plus an
ageing population who must now cope with massive cuts to their
social democratic programs (e.g., health care), and the stakes get even
higher. This growing contestation is at odds with the notion of the
self-systemic/self-regulating logics of neoliberal capitalism implicit in
sovereign ratings.
Extrapolated to the broader global context, the potential for friction
is magnified the greater the incongruity between the programmatic
and operational dimensions of fiscal governance. If, irrespective of its
longer history and closer affinity with this budgetary mentality, Europe
is experiencing severe troubles, how will emerging economies (i.e.,
BRICs) fare and what are their prospects for exercising their own
notions of fiscal sovereignty? For instance, by the fall of 2013, both
Brazil and India were positioned precariously close to speculative grade
– ‘Baa2’ and ‘Baa3’ respectively. Amongst other factors, their recurrent
bouts of inflation threatened to jeopardize their credit standings –
India’s rate was 7.18 per cent in December 2012 (The Economist,
19 January 2013). In its struggle to curb rising prices – with inflation
hovering just below 6 per cent – Brazil raised its interest rate to 10 per
cent in late November 2013. Hot money, fuelled by quantitative easing
programs, also compelled Brazil to reapply a financial transaction tax
(read capital controls) of 6 per cent on foreign capital inflows in
2010.39 But when the tide reversed and its currency, the real, depreci-
ated, as the US Federal Reserve mused about tapering its monetary
expansion, Brazil eliminated the tax in June 2013. Subject to such eco-
nomic fluctuations, while dealing with reoccurring, violent demonstra-
tions in protest against political corruption, rising income inequality,
failing health services, dismal education conditions and teachers’ com-
pensations, and excessive public expenditure on the 2014 World Cup
and 2016 Olympic Games, the explosive tensions are undeniable.

Looming conflicts with CRAs are foreseeable. With this in mind, the
current dilemmas facing the ‘Atlantic Rim’ may offer some lessons for
the foreseeable conflicts on the ‘Pacific Rim’.
Counterperformativity, of course, is also possible where one may
least expect it to materialize. Changing political temperaments may
even endanger traditional proponents of tight budgets. The
Netherlands are an example of an economy whose growing economic
struggles are testing the resiliency of its prudent fiscal culture which,
thus far, has helped facilitate its adherence to such policies; plus
promote them across Europe. At the beginning of the debt crisis, along
with Austria, it shared the eurozone’s lowest unemployment rate
(4.5 per cent). In recession for seven quarters by the summer of 2013,
however, its deteriorating unemployment rate (8.8 per cent in February
2014), missed 3 per cent deficit target and pressure from Brussels to
slash an additional €6 billion in 2014, have destroyed its April 2013
‘social accord’ (The Economist, 3 August 2013). A compromise reached
by the main stakeholders (i.e., unions, business, government) in
support of an austerity budget is now in tatters as its principal authors
splinter. As fading consumer confidence is exploited by far-right
nationalists (e.g., Geert Wilders’s Freedom Party, Alliance of European
National Movements (AENM)), Euro-skepticism is higher than ever
before and that popular will in favor of austerity is no longer as
staunch or certain as it used to be. Similar sentiments are being echoed
across the continent; but especially in the battered periphery.
Since governments must access liquid capital markets to finance
their programs of national self-determination, they freely submit to
being re-encoded as a risk metric through the ratings scale. But this
only entangles them further in the logics of risk as it strips them of
their alterity. Reduced to a few variables, heterogeneous political
economies can now be plotted on the same narrow grid, ranked, and
thus made susceptible to the imposition of an artificial fiscal normality.
Rather than granting them more freedom to operate according to the
imperatives of their publics, credit ratings exert the most prohibitive
effects on those polities least aligned with the disinflationary rational-
ity embodied in them. This helps elevate the imperatives of financial
markets over those of citizens; which only fuels the growing antago-
nism between a small, private elite and the massive publics who feel
exploited by them. Of course, as the next chapter discusses, govern-
ments may only be aggravating the circumstances facing them by
implementing misguided regulatory policies that serve to amplify this

asymmetry in favor of epistocracy.
Conclusion
One of the central contentions of this book argues that how economic
relations are problematized and framed affects how they are consti-
tuted. Expertise helps mediate this representational process by appro-
priating and deploying the modalities of risk and uncertainty; whereby
fiscal profligacy is made into a particular problem of government and
rendered intelligible in terms of its susceptibility to governmental
intervention. This calculation/classiflcation as control serves to nor-
malize an infrastructure of referentiality that helps to modulate fiscal
deviance in accordance with its neoliberal programmatic. As credit
ratings translate these calculative knowledges into material reality
through their performative effects, they create the conditions and sub-
jectivities that help to validate this neoliberal politics of limits, and
thus promote compliance through convergence – most of the time.
Reiterated and regenerated over and over again, a socio-technical
agencement develops which becomes revealed and institutionalized
through the performativity of credit ratings.
Contestation abounds as there is no single and intrinsically optimal
fiscal position or normality to unearth; from which to deviate.
Ultimate benchmarks, such as the ‘AAA’ designation, are social con-
structions that have come to monopolize the discourse surrounding
creditworthiness and our understanding of how it should be assessed
and articulated. But there is no causal necessity which demands the
synchronization with the disinflationary prescriptions enshrined in
sovereign ratings or promoted by financial markets. The protection of
asset values, above all else, is established as a priority through an align-
ment with the hegemonic discourse of risk; which grants it a sense of
scientific legitimacy and significance afforded to natural phenomena.
As tempting as it is to adhere to this epistocratic representation, it is
blind to the social facticity of this neoliberal programmatic. Credit
ratings are not brute facts. To better grasp how action and authority
combine to help constitute this calculative space, and its objects/
subjects of government, it is vital to analyze the performative effects
that ratings have on the principal entities implicated in the sovereign
debt crisis. Through this line of enquiry, we come to understand how
the socio-technical agencement that develops has self-validating/
self-generative effects on CRAs, constitutive effects on investors and

prohibitive consequences for national governments.
Although credit ratings may give the impression that sovereign cred-
itworthiness can be fixed through its objectification as a risk metric,
the act of rating is a much more interpretative and interactive process
(read uncertain), through which subjects come to understand them-
selves as meaningful participants in a calculative space that renders
their actions permissible. Credit statements are illocutionary performa-
tives that communicate a range of judgments about proper fiscal
conduct. Based upon the success of this depiction denoting what
counts as fiscal normality/rectitude, ratings exercise perlocutionary
effects that help to dictate how fiscal sovereignty should be practiced,
by validating said disinflationary programmatic as it is translated into
reality. Through these processes of reiteration and circulation, Anglo-
American rationalities of capitalism, which play a dominant role in the
definition of the ensuing politics of limits, become embedded in
broader fields of risk-based financialization. It is this mutual constitu-
tion between the discursive and practical that reinforces the authorita-
tive capacity of risk ratings; which enables them to perform this
conceptualization of creditworthiness into existence.
4
Epistocracy versus Democracy
The previous chapters progressively introduced several of the core

themes which underpin this problematic and the book: authoritative
knowledge, risk/uncertainty and performativity. Acquainted with this
knowledge, and equipped with the necessary analytical tools to prob-
lematize credit ratings, we are in a better position to understand how
the problem of sovereign creditworthiness, and thus the ratings space,
is constituted through its (calculative) assessment and articulation.
Consequently, the misrepresentation of uncertainty as risk reinforces
the depoliticizing effects of ratings as a ‘qualculative’, socio-technical
device of control and governmentality; whereby informal (read polit-
ical) judgment in fiscal governance is marginalized and censured in
favor of normalizing mathematical/risk models. Rather than ontolo-
gically predetermined, however, it is through the discursive practice of
rating risk – and all the speculative investment activities which it
enables – that a neoliberal politics of limits materializes. Timothy
Mitchell (1998: 92) reminds us that:
The invention of the economy required a great work of imagination

on the part of economists and econometricians, to find methods of
representing every relationship constituting a nation’s economic life
and giving each one a value. At the same time the invention also
required a process of exclusion. To fix a self-contained sphere like
the economy requires not only methods of counting everything
within it, but also, and perhaps more importantly, some method of
excluding what does not belong. No whole or totality can be repre-
sented without somehow fixing its exterior. To create the economy
meant also to create the non-economy.
183
Ratings communicate a clear notion about what is antithetical to

proper fiscal management. Veiled in the language of economic
‘growth’, ‘competitiveness’ or ‘stability’, this often entails inflationary
policies that endanger asset value. It is the subsequent antagonistic
relationship between the programmatic/expertise and operational/pol-
itics dimensions of budgetary governance which now informs our dis-
cussion of the final main thematic: the politics of resistance/resilience.
Recognizing how much of this translation of heterogeneous,
national fiscal problematizations into mutually corresponding/rein-
forcing global ones relies on a positivistic, but artificial, bifurcation
between ‘politics’ and ‘economics’, it is not surprising that the
imposition of this notion of budgetary rectitude is met with res-
istance/resilience around the world. Performation generates tensions and
shocks that focus on its politics (Callon 2010). Lacking the appropriate
conditions of felicity grounded in national fiscal sovereignty – neces-
sary for the naturalization of this austere programmatic – the performa-
tivity of ratings begins to rupture. As the authoritative capacity of
ratings fails, it opens this space for further contestation and potential
repoliticization. Not only, therefore, does an analytics of government
reveal the serious inconsistencies upon which sovereign ratings rest,
but it also reminds us of the tenuous and discontinuous character of
any subsequent politics of limits that may stabilize.
Antagonistic as this socio-technical agencement may be, it is wise to
avoid a simplistic juxtaposition between a sinister cabal of CRAs and
innocent democracies; or power and resistance. Such binary opposi-
tions are what this book refutes. Apart from being fictitious, as their
mutual constitution rejects their a priori ontological independence, it is
an adherence to such dubious dichotomies which helps to promote the
asymmetry between epistocratic and democratic imperatives.
Unfortunately, in the struggle to define sovereign creditworthiness,
and perform the politics of limits, such false dualisms are readily
adopted by most parties; including the very governments/publics that
must bear the brunt as a consequence. By framing the debate as a
battle against the ‘rating agencies’, or rapacious ‘financial markets’,
leaders grant them more coherence and authority than they deserve.
Any opposition is then defined in negation to this singular center of
coercion, and thus stripped of its ‘specific, variously definite…array of
positivities’ – being essential building blocks for counterhegemonic
movements (Gibson-Graham 1996: 14). Moreover, excessive emphasis
on the agential or institutional dimension of the problematic neglects
how this epistocratic leverage stems from the deployment and com-
Epistocracy versus Democracy 185
mercialization of a technical apparatus legitimized by, and in turn rein-

forcing, the dominant discourse of risk. Neither does this help nation-
states reclaim diminishing fiscal sovereignty, nor does it improve the
actual quality of bond ratings.
Although hegemonic stabilizations are possible, there is no singular
and totalizing neoliberal centre to capitalism or uniform capitalo-
centricsm, as discussed by post-Marxists, to replace with a naturally
more benign and authentic credit regime. One needs to be constituted
into practice through the interplay of plural processes and mentalities
of rule designed to disturb the status quo, by making it pervious to
alternative assessments and articulations of creditworthiness. Even
‘regulation school’ theorists, such as Alain Lipietz (1987: 14–15),
submit that it is necessary for such a regime to be:
Materialized in the shape of norms, habits, laws and regulating net-

works which ensure the unity of the process and which guarantee
that its agents conform more or less to the schema of reproduction
in their day-to-day behaviour and struggles.
Risk discourse exercises such synchronizing effects to unite diverse sub-

jects/objects across dispersed calculative spaces and disciplines. As it is
deployed in all its forms over and over again, the regeneration and sed-
imentation of its depoliticizing effects occurs.
Conversely, there is no single locus of democratic resistance/
resilience from which to mount an opposition, but a multiplicity of
dissent disaggregated around the globe. Some voices, as in the case of
the European Union (EU), may be more unified and mobilized than
others. Yet, this struggle happens in any domain where (formal) calcu-
lative techniques seek to tame (uncertain) social phenomena by render-
ing it intelligible as a ‘risk’, to be quantified, ranked and compared;
whether for the purpose of differentiating quality and relative value or
for non-market activities. Risk’s ubiquity enhances its prominence so
as to give the impression that it is the universally correct approach to
managing all spheres of existence. The sheer complexity of these
models and financial instruments only works to shield risk manage-
ment from serious scrutiny by governments and ‘pedestrians’.
Whether it is in the networks of mortgage borrowing and lending
(Langley 2008a, 2010) or retail finance (Leyshon and Thrift 1999),
mutually reinforcing expert processes help amplify the authoritative
capacity of advanced liberal programs to shape conduct even as sub-
jects move across fields. Part of risk’s power to organize economic
relations is linked to its purported portability and universality; which

permits it to generate an intensity and momentum that its rival
(domestic) narratives frequently lack. A significant factor contributing
to this subjectification and objectification is the focus on individual
freedom in ensuring security of the self. Without a sovereign locus of
power or resistance, ‘societies are ordered in a de-centred way and
wherein society’s members play a particular active role in their own
self-governance’ (Dupont and Pearce 2001: 125). By ‘operating through
a multiplicity of “practices of freedom”, of ways of structuring,
shaping, predicting and making calculable, the operation of choice’,
the onus lies on the enterprising individual to secure and maintain
their own level of welfare and happiness (Dean 1999: 14). Nikolas Rose
(1996: 41) notes that ‘through the regulated choices of individual citi-
zens, now construed as subjects of choices and aspirations of self-
actualization and self-fulfillment’, advanced liberal rule deploys expertise
to ‘degovernmentalize the State and to de-statize practices of govern-
ment’. Resistance is strengthened by one’s allegiance to a particular com-
munity. However, as the cohesion of these groups is undermined by
societal splintering – an effect of the atomization implicit in these
neoliberal programs of government – new strategies of coping with the
imposition of its austere policies are developing. Although critical
scrutiny is still possible, the discontinuous and contestable capacity of
resistances makes ‘resilience’ a more pronounced strategy of insurrection.
With enormous obstacles to surmount on their path to economic
recovery and political stability, as the legacy of sovereign debt crisis
lingers on, it is quite surprising that governments would actually
undertake initiatives which threaten to undermine their authoritative
capacity to perform an alternative politics of limits. Granted that few
precedents exist in how to regulate judgment and the management
through uncertainty properly, regulators around the world need be
careful not to (inadvertently) sabotage their governmental ambitions
by amplifying the very discourse of risk which has had such restrictive
effects on their fiscal sovereignty. By focusing predominantly on the
quantitative (risk) elements of the ratings process, at the expense of its
endogenous (uncertainty) dimensions, regulatory responses, of which
there are but a couple, may help to entrench depoliticizing distortions.
As such, there are unintended consequences from the regulatory frame-
works designed to manage the ratings space (Paudyn 2013). Together
with the prohibitive effects discussed in Chapter 3, they serve to con-
strain government conduct by promoting convergence through com-
pliance with disinflationary prescriptions.
Despite all the rhetoric, allegations and ‘witch hunts’ (Sinclair 2010),
promises to remedy the most egregious elements of ratings have, thus
far, failed to translate into an effective regulatory framework. Whereas
no consequential legislation existed in the developing world prior to
the crisis, little has changed that would target credit ratings or curtail
their destabilizing effects. Headquartered in the heart of America’s
financial district (Manhattan), and charged with fraud (e.g.,
US$5 billion S&P lawsuit), it would seem reasonable that CRAs would
be in the crosshairs of US regulators keen on correcting and preventing
the abuses which brought it, and the global economy, to its knees.
Some reform has been embraced with the removal of statutory refer-
ences to or reliance upon ratings. Beginning in 2009 with the Financial
Reform Act (Subtitle C of Title IX), the US has initiated a campaign to
eliminate references to NRSRO ratings in certain statutes. The 2010
Dodd-Frank Act Wall Street Reform and Consumer Protection Act (Section
6009) continued this expungement; though it is mostly occupied with
striking out ‘Not of Investment Grade’ references. Nevertheless, the US
still remains ambiguous about how to address effectively the fallacious
analytics of rating or remedy the competition deficit.
In the sections that follow, this often conflictual dynamic between
epistocracy and democracy is embedded and discussed in the context
of some of its more visible and distressing episodes. Since the EU’s reg-
ulatory response is the most ambitious to date, it is an appropriate
place to start this analysis. Being the first serious CRA framework to
attempt to reign in the most egregious elements of credit rating, it will
serve as a model for the rest of the world. Although the economic
growth of the BRICs exceeds that of the traditional advanced markets,
as the summer of 2013 demonstrated, their upward trajectory is neither
linear nor guaranteed. More entwined with the economic policies of
their governments than either their European or North American com-
petitors, private corporations within these countries often have their
bonds relatively aligned with the ratings of their respective govern-
ments. This can be a source of tension. The final section reflects on the
difficulties in defining and depicting the problem of sovereign credit-
worthiness going forward.
Credit ratings and the European project
To claim that fiscal relations have been a tumultuous experience for the
EU would be an understatement. An asymmetric monetary union, with
a common currency but a fragmented collection of fiscal jurisdictions,
the Economic and Monetary Union (EMU) lacks a centralized budgetary

authority (of any relevant size) to adequately manage the externalities
stemming from such a configuration or emanating from abroad. In
order to address the resulting shocks, EMU officials began to understand
fiscal profligacy as a problem rooted in the language, ideas and methods
of commercial risk management (Paudyn 2011). Risk’s synchronizing
effects established the commonalities necessary to govern this vast
monetary space; while simultaneously aligning it with market expecta-
tions and operations.
Signs of this discursive shift towards providing a more favorable
environment for business are visible in documents such as the 1993
Commission White Paper on Growth, Competitiveness, and Employment
(European Commission 1993). It stressed the need for Member States
‘to apply market-oriented solutions and to encourage private-sector
participation and financing’ (ibid.: 76). Necessary initiatives should be
taken ‘to improve relations between financial institutions and SMEs,
paving the way for more generous allocation of private finance to SMEs
and broader use of the most appropriate financial instruments’ (ibid.:
73).1 As a new information technology, ratings would prove pivotal in
the construction of Europe as a competitive economic space. Their
utility and significance would be reinforced by the movement to a
common monetary union. Fixed exchange rates reduced currency risk
and focused attention on credit risk and the spreads between bond
yields. By the mid-1990s, it was standard practice to assign a rating to
Eurobond issues (Sinclair 2003: 148). So popular was this risk-based
approach that it began to displace other forms of understanding EMU
governance, such as through the lens of national economic security or
in terms of socio-economic classes (Walters and Haahr 2005).
Pressures mounted, however, as fiscal sovereignty made demands
which ultimately proved irreconcilable within the confines of the orig-
inal Stability and Growth Pact (SGP); thereby precipitating the severe
crisis of November 2003. Doomed to fail because of its overly rigid
structure, the SGP was perceived as artificially uniform. Punitive
measures were never seriously entertained, especially since most countries
failed to meet the convergence criteria upon adopting the euro (Arestis
and Sawyer 2006: 57). Defections resulting in Pareto-inferior equilibria
were neither overcome by the threat of sanctions nor the soft power
tactic of ‘naming and shaming’. Germany and France shredded the
Pact’s credibility as they shunned its rules at their own discretion,
while subjecting others like Portugal to the Excessive Deficit Procedure
(EDP) and austerity. Eventually, the architects of EMU, namely the
Council with the Commission, introduced a more flexible and discre-

tionary regulatory framework in March 2005. This marked a transition
to more uncertainty-centered modes of governance, such as the
Medium-Term Budgetary Review (MTBR), and signaled the repoliticiza-
tion of budgetary governance and expertise, as Europe devised ways to
accommodate the ensuing tensions (Paudyn 2011).
Unfortunately, fiscal management through uncertainty in a diverse
collective such as the EU all too often precipitates conflict and institu-
tional paralysis. Coupled with market pressures for transparency and
efficiency, the EU has reverted back to a more risk-dominant approach
– but at what cost? The recent Six-Pack (13 December 2011) or the
Treaty on Stability, Coordination and Governance in the Economic and
Monetary Union (Fiscal Compact), which came into effect on 1 January
2013, still adhere to a primarily quantitative definition of ‘significant
deviation’ from the ‘Medium-Term Budgetary Objective’ (MTO) or the
adjustment path necessary to respect the ‘balanced budget rule’ limit-
ing deficits; violation of which can trigger the ‘automatic correction
mechanism’. Nevertheless, with Member States like France already
announcing their deviation from their fiscal targets a few short months
after the Fiscal Compact came into force, once again, qualitative judg-
ments by fellow Council members, or government through uncer-
tainty, will be a deciding factor of how fiscal governance is actually
practiced. Aware of just how arduous such an uncertain governmental
process may be, given this shared regulatory history, and resolved to
not interfere in unfettered market operations, the EU is faced with
some serious conundrums as it experiments with regulating the ratings
space in order to shield its social democratic models from an increas-
ingly depoliticizing field of finance.
Regulating the ratings space

Arguably, it is the EU CRA Framework – Regulation (EC) No 1060/
2009 (CRA Regulation v1); its second amendment Regulation (EU)
No 513/2011 (CRA Regulation v2); and the recent provisions of the latest
amendment Regulation (EU) No 462/2013 (CRA Regulation v3) – that is
the most comprehensive and ambitious attempt to manage the ratings
space to date. Given its sovereign debt woes, and America’s coziness with
its CRAs, it is easy to appreciate why the EU has been the most proactive
in its attempts to disturb the CRAs’ monopoly and correct negative
externalities. Amidst the crisis, the European Commission (2010a,
2011a) identified several deficiencies in both the operations and supervi-
sion of these financial firms blamed for escalating this turmoil.
Four outstanding factors are thought to exacerbate the sudden and

disruptive cliff effects and stoke fears of contagion, which can prove so
destabilizing to financial markets and governments alike (Dittrich
2007: 107; IMF 2010). Chief among these potential hazards is an over-
reliance on (often dubious) external ratings. Furthermore, concerned
about the lack of competition in the ratings space, the EU is convinced
that more actors and greater diversity would be advantageous. New
entrants can also enhance the transparency of the ratings process, and
thus improve the quality of sovereign ratings themselves. Of course,
identifying the obstacles jeopardizing the stability of the EU’s financial
system is only the first step. ‘Ensuring the integrity, transparency,
efficiency and orderly functioning of securities markets, as well as
enhancing investor protection’ is proving much more difficult (ESMA
2013).
In order to redress some of these problems, the High Level Group on
Financial Supervision (ESME 2008), chaired by Jacques de Larosière,
scrutinized CRAs and identified three key areas for oversight improve-
ment: registration, conduct of business and supervision. Similar invest-
igations where conducted in Germany (Issing Committee) and the UK
(Turner Review). Following the trajectory of financial regulatory con-
vergence accelerated by the Financial Services Action Plan (FSAP)
adopted at the 2000 ‘Lisbon European Council’ (Grossman and
Leblond 2011: 416), and the technical expert approach to capital
markets advocated by the ‘Lamfalussy Process’ (Mügge 2011: 60), the
EU regulatory response has assumed two principal forms: technocratic
centralization and restorative intervention.
Reflective of a broader managerial movement centered on the
financial governance of risk (Best 2010; Clark et al. 2009; Power 2007),
at first glance, it appears that the EU is undertaking what are credible
policy initiatives to correct some of the failures in financial supervision
exposed by both the credit and sovereign debt crises. Effective and cen-
tralized oversight of CRAs at the EU level and a more rigorous method-
ology are thought to increase transparency and competition in the
ratings space. From July 2011, the European Securities and Markets
Authority (ESMA) has replaced the Committee of European Securities
Regulators (CESR). Afforded new ‘delegated and implementing acts’ –
including launching investigations, conducting inspections, proposing
fines and prohibiting operations – ESMA is more than just a technical
advisory committee like its predecessor. Recommendations from the
2010 public consultation process are progressively being implemented;
including improving sovereign debt rating, civil liability claims and
conflicts of interest. A harmonized rating scale and a central repository

(CEREP) publishing statistics about rating activity and the performance
of CRAs are also functional.
Upon closer examination, however, not only do current CRA regula-
tory frameworks fail to tackle how sovereign ratings are produced by
misrepresenting uncertainties as risks, but by equating crisis manage-
ment as synonymous with risk management – similar to CRAs or the
conventional literature – the EU’s current reactionary approach is
plagued by a misguided preoccupation with governing this threat as a
primarily exogenous (risk) problem; without any serious consideration
of its endogenous (uncertainty) dimensions. ‘Reluctant to either regulate
the analytics of the rating process itself, or the business models of the
major rating agencies’ (Sinclair 2010: 103), however, officials on both
sides of the Atlantic may be helping cement the hegemony of the very
risk discourse used to control them. Taking the management of risk for
granted, and focusing primarily on the verification of (quantitative)
risk techniques, the EU is neglecting how perceptions of contingency
and normality – namely informal judgment and its consequent liabil-
ities – are mobilized by rating committees to help constitute the para-
meters of creditworthiness. Enhanced transparency seems like a noble
objective, but heighted formalization and quantification tend to drive
the discretionary elements of the ratings process deeper into obscurity;
while elevating the significance of risk calculus. By reinforcing the
dominance of risk in the constitution of sovereign creditworthiness,
governments may actually be helping to invalidate how competing
notions of budgetary normality/rectitude are ascertained and articu-
lated. Inadvertently, they may compromise their own authoritative
capacity to constitute an alternative politics of limits by succumbing to
the CRA ‘playbook’.
Such overarching doubts arise because of these two regulatory pillars
of technocratic centralization and restorative intervention. Since these
policies may quite easily form the basis for any other future framework,
it is vital to understand why such conventional approaches are inade-
quate when dealing with sovereign ratings. First, as welcomed as the
pan-European supervision of the ratings space is for its design to ensure
efficient oversight and mitigate conflicts over competences, by leaving
the development and resolution of this problematic primarily in the
hands of unelected experts (i.e., epistocratic rule), the EU may be jeop-
ardizing its own crisis response.2 Irrespective of all its outstanding
inconsistencies/externalities, the EU is quite reluctant to repoliticize the
rating process.3 ESMA is adamant about not interfering with either
rating content or methodologies (Article 23). Markets must be allowed

to operate effectively and efficiently without regulators determining
the analytical substance of ratings. Bureaucratic intrusion may distort
the qualitative dimensions of credit grades. Moreover, ESMA lacks the
democratic accountability necessary to rebalance this asymmetry.
In principle, the logic of a market-driven regulatory regime is under-
standable. Bureaucrats often lack the competence and resources to
appraise creditworthiness adequately. But in practice, political intru-
sion is foreseeable with scoring sovereign creditworthiness, and thus
the governance of such a process. As this book argues, given the
implicit uncertainty in framing fiscal relations, a rigid adherence to a
restorative technocratic approach intent on protecting the indepen-
dence of Moody’s or S&P may actually compel ESMA to, in fact,
repoliticize the process. There is a delicate balance that ESMA must
strike between the serious assessment of the sovereign ratings process
and how the discretionary conduct required for that very purpose
threatens to prejudice the responsiveness of said procedures/ratings to
changing market conditions. Unfortunately, the qualitative judgments
that ESMA will be forced to make are usually decided by a democrat-
ically accountable body who is authorized – through the electorate –
to choose which policies qualify as ‘legitimate’ for national self-
development. Relinquishing democratic oversight to technocrats is a
slippery slope; which can undermine the power of Member States
vis-à-vis private markets in the constitution of the politics of limits.
Crucial political judgments about fiscal affairs will increasingly be con-
sidered as the purview of unelected experts. Thus, ESMA is assuming
risks for which it is neither prepared nor mandated to manage.
Not only is the terrain of sovereign creditworthiness scattered with
numerous traps which can engulf ESMA into politicized debates that it
seeks to avoid, but the conflation of key elements simply compounds
potential headaches. Chapter 2 discusses how attentive regulators must
be to the different dimensions of rating production; so as to avoid con-
fusing methods, models and assumptions. In the first instance, the
verification of dubious (quantitative) methods is troubling in itself,
because it fails to actually deconstruct the analytics of ratings to reveal
how these grades are generated through a series of qualitative judg-
ments and distortions. Going through the motions, however, as if the
exercise were to open the black box to yield significant insights into
sovereign rating design, only has the effect of further validating risk
management in fiscal affairs at the expense of those governments con-
ducting the surveillance. Little, real informational value is obtained,
but substantial harm may be inflicted as the EU struggles to rebalance

this asymmetry.
Where ESMA is bound to experience even more difficulty is with the
models and assumptions which underpin sovereign ratings. Stress
scenarios implicit in this propriety models rely on informal and political
judgments to analyze the shock-absorbing capacity and resilience of a
sovereign. Expertise mediates this representational process but it is
deliberately obscured and secretive. S&P and Moody’s may concede the
subjective character of the ratings process but they prefer to focus
attention on its technical merits instead, since no CRA is eager to
explain exactly how those judgments are rendered. In the effort to
make such contingent liabilities explicit, any comprehensive review of
the appropriateness of these subjective estimations will entail some
degree of analytical intrusion on the part of ESMA. Although the new
Regulatory Technical Standards (RTS) allude to these categories indi-
vidually, methodologies, models and assumptions are never opera-
tionally defined – heightening the threat of confusion.
In the preceding CESR guidance – the foundational framework for
the RTS – these distinctions were also obscured. There rating
methodologies:
Refer to criteria, models, methodological principles for a particular

rating or practice; principles and fundamental elements used in ana-
lyzing credit risk; rating factors; qualitative or quantitative assump-
tions used to arrive at a rating opinion (e.g. analytical adjustments
to financial statement information, stress scenarios and loss curves
used for projecting future losses on asset pools) (CESR 2010: Ref.
10-945 CESR Guidance).
All encompassing classifications only blur the very categorical distinc-

tions necessary to instruct ESMA on how to identify ‘reliable, relevant
and quality’ models and assumptions (ESMA 2011 Art.4) – along with
the ‘objective’ justifications which sanction their revision – without
impinging on their analytical constitution. If these categories are so
broad and nebulous as to be superfluous, or even interchangeable, then
how can they help identify the specifics of the ratings process requiring
correction. Both excessive, yet unnecessary, overhauls and contradic-
tory instructions may result.
‘Objective reasons’ must be presented to justify either modification
or discontinuance of rating methodologies. Movements in ‘structural
macroeconomic or financial market conditions’ are considered to
satisfy this criterion. Subjective estimations, however, are necessary to

gauge the severity of any shock – especially socio-political risks – and
the suitability of proposed revisions to the rating methodology, models
and assumptions; many of which are inherently political. In the preser-
vation of procedural stability, the deconstruction of these categories
shows how ESMA may conflate them and place itself in the awkward
position of analytically assessing whether the proposed changes are
warranted and valid. Government through the modality of uncer-
tainty, apparently, seems to be an inevitable feature of the EU’s crisis
management of the ratings space. Unfortunately, its official strategy
fails to recognize and properly accommodate it; which leaves ESMA
vulnerable to additional supervisory conflicts and the unintended con-
sequences of repoliticization.
Second, the restorative fix targets the mechanics of the rating process
in the hope of improving their transparency and quality. Equipped
with a sophisticated technical apparatus, investors and officials may be
better able to ‘decrypt the rationale behind the sovereign rating event’
(European Commission 2011b: 16). Aligned with the hegemonic dis-
course of risk, deviance in the ratings process is conceived of as a (tem-
porary) malfunction of credit markets, which can be isolated through
formal calculations and restored through technical intervention
(Engelen et al. 2012). Better risk models and greater transparency are at
the core of this restorative approach (Best 2010). Of course, such an
emphasis on technical risk expertise, which privileges repeatable back-
testing, from which future loss curves are anticipated, presupposes that
fiscal relations are an objective and measurable reality – similar to corpo-
rates – that need only be unearthed with the right (quantitative) instru-
ments. As attention focuses on proving the integrity and predictive
power of methods, it has the effect of endorsing the notion that bud-
getary affairs are amenable to being re-encoded through such quantita-
tive techniques. But by assuming that there is an inherently correct
status to revert back to, the contested social facticity of creditworthi-
ness is neglected or skewed.
Here the RTS stresses that an improvement in the quality of sover-
eign ratings is connected to the integrity of their methodologies (ESMA
2011). To verify compliance, Article 8(3) stipulates that ‘a credit rating
agency should use rating methodologies that are rigorous, systematic,
continuous and subject to validation based on historical experience,
including back-testing’. One of the most significant provisions intro-
duced, this measure is also one of the most ambiguous and contested
sections of the new regulatory framework. Arguably, it threatens to
erect obstacles to the effective management of the ratings space by

assigning unwarranted relevance to quantitative analysis in the pursuit
of qualitative improvements. It is misleading because the CRA frame-
work demands that ESMA reconcile the qualitative deficiencies of
ratings through the very distortive practices which produce them. In
the end, this may simply amplify the performation of ratings as it
accelerates the shift away from human competencies and the critical
judgment of democratic rule towards the quantitative techniques of
epistocracy.
To begin with, deciphering whether Moody’s or S&P has ‘incorpo-
rated all driving factors deemed relevant in determining creditworthi-
ness’ necessitates that its credit analysis ‘shall be supported by
statistical, historical experience or evidence’ (ESMA 2011/462, Art.4
(1b); added italics). Already excessive emphasis is placed on the quanti-
tative calculation of what escapes being readily captured through such
techniques; namely the plethora of contingent and political factors
shaping sovereign creditworthiness. Even CRAs expressed their concern
that this would over-emphasize the quantitative dimension of rating.4
Regulatory compliance may be more easily demonstrated through risk,
but often at the cost of either the neglect or distortion of the discre-
tionary dimensions of rating creditworthiness. Nevertheless, potential
hurdles can plague this evaluation process. Each quantitative factor
must include a detailed account of its ‘key variables, data sources, key
assumptions, modelling and quantitative techniques’ (ESMA 2011/462,
Art.4 (2b); added italics). Because, as Chapter 2 argues, risk modes are
both interactive and reactive, ESMA may find it difficult to evade
addressing the informal dimensions of the models and assumptions
which inform these quantitative methods and constitute their defining
properties.
Given that subjective conduct is recognized as a central feature of the
ratings process, through which this collection of individual empirical
variables is synthesized into a single credit grade, CRAs must also prove
that their ‘key credit rating assumptions and criteria’ are ‘reliable, rele-
vant’ and of ‘sufficient quality’ (ESMA 2011/462, Art.4 (1d)). But ESMA
provides no guidance on how to determine the integrity of qualitative
judgments. How can it when their idiosyncrasies and variegation
prevent their easy standardization – especially in relation to such a con-
tentious topic as fiscal relations. In order to satisfy this requirement,
therefore, ESMA (2011/462, Art.4 (2a)) instructs CRAs simply to submit
‘the scope of qualitative judgment’ when more tangible evidence/data is
lacking. What this actually entails is quite ambiguous and threatens to
entangle ESMA in exactly the kind of analytical interference that it

seeks to avoid. Desperate to dodge such debates, ESMA may simply
accept risk calculus as the de facto evidence of compliance. A first step
towards regulatory cooption by the CRAs, this would make the EU com-
plicit in the promotion of a skewed analytics of ratings.
Many of these inconsistencies stem from the governmental rational-
ity adopted by the EU. By importing a corporate-based mentality of
crisis management – sovereigns are treated identically to corporates in
the CRA framework – ESMA’s methodological focus is primarily skewed
in favor of quantitative risk measures. Foremost, it seeks to ‘consider
whether a credit rating methodology has a demonstrable history of
consistency and accuracy in predicting creditworthiness’ (ESMA 2011:
22). No specific provisions for sovereigns, however, exist to make con-
tingent liabilities more explicit.5 Rather ‘key assumptions and quantita-
tive and qualitative criteria are validated (ex-ante) and reviewed
(ex-post) through appropriate forms of back-testing’ (ESMA 2012:
III.IIf). Continuity is an admirable objective but demanding ‘continu-
ous’ validation supported by statistical evidence – where actual defaults
are compared with the probabilities of default predicted in transition
matrices – the EU is asking for representative data samples of fiscal pol-
itics that just do not exist. Sovereigns rarely default at the rate that
businesses fail. Even the European Commission (2011b: 15; added
italics) admits that the ‘important degree of subjectivity of the sover-
eign rating process’ and ‘the lack of consistency of CRA’s behaviour over
time’ contribute to a ‘substantial increase of the “arbitrary component”
of sovereign ratings...and point at the existence of subjective biases in
favour or against rated nations’. Similar conclusions have been empir-
ically demonstrated by Gärtner et al. (2011).
Examining accuracy, however, may translate into an exercise mea-
suring how well ratings predict default probabilities; as opposed to
being an ordinal ranking of creditworthiness as the CRAs claim.
Searching for the kind of certainty equivalence is misleading. Again,
this threatens to assign greater scientific value to ratings than they
merit, and inadvertently elevates the significance of these quantitative
practices and logics relative to discretionary conduct. Regulating judg-
ment is difficult enough without granting ratings more legitimacy than
they deserve; thereby enhancing their performative authority.
In addition to the main CRAs, fund managers have also voiced their
disapproval of the potential dangers that the new EU oversight pre-
sents. Typical of contentions that treat ratings as a finalized product
and critique the CRA framework for failing to facilitate the business of
speculation, as opposed to concentrating on the mechanics that can

enhance the actual quality and reliability of the credit scores,
BlackRock (2012) warns that subjecting rating methodologies to
ESMA’s scrutiny threatens to introduce simultaneously more rating
divergence and reduce diversity – seemingly contradictory results. First,
global comparability would be undermined because, ‘[absent] a
binding harmonised global approach to determination of ratings
methodologies by regulators, inconsistency of ratings would result’
(BlackRock 2012: 2–3; added italics). Next, right about the fact that
‘[investors] do not agree that there is a verifiably correct way of assess-
ing creditworthiness’, BlackRock (ibid.) then asserts that ‘investors fear
that the Commission’s proposal in respect of regulatory influence in
ratings could ultimately lead to more homogeneous methodologies
and therefore less diversity of views on European credit risk’.
Ostensibly converse outcomes, this is indicative of the critique that
prizes what the consistent comparability and transparency of ratings
has to offer financial speculation, while still wishing to inject as many
diverse ‘information points’ as possible in order to improve quality. As
it stands, rather than a balanced reconciliation of these objectives, if
one is indeed possible, it appears that the regulatory response has
adopted the misleading (market) mentality that enhanced technical
transparency will yield substantial qualitative gains. Yet, when it comes
to assessing sovereign ratings, ESMA cannot surrender its oversight
authority and blindly adhere to these prevailing market rationalities
with all their inadequacies in the hope of correcting their subsequent
negative externalities. Repetition simply validates risk-based distortions
and entrenches the asymmetry even further.
What ESMA seeks to avoid is what is essential to the performativity
of an alternative political economy of creditworthiness; or the con-
struction of authoritative knowledge which helps define sovereign debt
as a problem of government. This is very much a political-laden enter-
prise based on the kinds of models and assumptions which demand
ESMA govern through the modality of uncertainty rather than simply
just risk. Without a clear mandate and ill prepared to exercise such
political discretion, however, ESMA will find it very difficult to govern
the ratings space effectively. On the one hand, although the EU wishes
to avoid the repoliticization of the ratings process, given the contin-
gent social facticity of sovereign creditworthiness, political intrusion is
foreseeable in its surveillance. An odd regulatory response, however,
forces a technocratic and unelected ESMA to perform the roles that
should rest with a democratically accountable body. On the other
hand, lacking such a mandate and authority, ESMA has little real alter-
native but to focus predominantly on the quantitative dimensions of
the ratings process. Unfortunately, this merely helps to entrench the
discourse of risk, and thus the very distortions that serve to depoliticize
fiscal sovereignty. Such conflicts threaten to weaken the EU’s author-
itative capacity to change how creditworthiness is assessed and articu-
lated by subjecting it to the unintended consequences of its own
governmental framework.
Conclusion
Without an exact formula indicating how to connect the quantitative

(risk) and qualitative (uncertainty) variables together, S&P (2008: 2)
admits that how ‘the committee views one category depends upon
other categories and trends as much as upon the absolute level of
many measures’. Sovereign ratings are not brute facts to unearth but
intersubjective constructions of creditworthiness, which rely on a shift-
ing synthesis of formal calculations weaved together by informal judg-
ments. If business claims to treat them as ‘informed opinions’ then, at
the very least, governments should address how ratings are designed as
such; namely through the modality of uncertainty. Rather than
endowing the ratings process with more objectivity than it deserves, by
focusing predominantly on the verification of risk, governments
should take careful measures to repoliticize the debate about the credit-
worthiness of their own political economies; especially since it is
increasingly being orchestrated by global financial markets with little
or no real stake in the consequences of their decisions. The narrative
that the market is ultimately right has repeatedly been discredited.
Unfortunately, as the financial crisis morphed into the sovereign
debt debacle, along with the transfer of toxic financial liabilities, culpa-
bility was reassigned to governments; as ‘custodians-of-last-resort’. This
is not to claim that the excesses and even fraudulent activities (i.e.,
Greece) on the periphery did not need to be curtailed. What it does
mean is that, once again, the discourse was manipulated through
financial engineering and speculation in order to deny
governments/publics any real recourse apart from capitulating and
privileging the imperatives of financial markets over their own
national priorities. Furthermore, the restoration of their credibility –
necessary to lower financing cost – is conditional on the adoption by
governments of this neoliberal rationality and the very risk modality
used to suppress them. In this sense, they become the architects of

their own predicament.
But there is nothing inherently natural or automatic about this
neoliberal political economy of creditworthiness; which warrants the
depreciation and censorship of alternative assessments and articula-
tions of sovereign creditworthiness. The argument that this is the ‘best’
option available is often espoused by those with a vested interest in
preserving the status quo: where unbridled speculation facilitates profit
maximization without regulatory obstacles but a governmental cheque
book as free insurance. In fact, change is necessary because, as the
deconstructive ethic of this book shows, the prevailing analytics of
(sovereign) ratings is seriously flawed and in dire need of revision.
Consistent rating failures, and the crises that they help precipitate
and/or amplify, merely reaffirm that new approaches are required.
Especially imperative in relation to sovereigns, it is foolish to gloss
over such precariousness by simply concentrating on the corporate
dimension of ratings or to borrow legitimacy from statistical studies
that seem to validate their corporate veracity. By constantly reverting
to quantitative analysis to verify and establish the relevance of credit
ratings, whatever the results, the problem of sovereign creditworthi-
ness is increasingly perceived as amenable to being calculated and
framed through such methods. Although this is affinitive with the con-
ventional market orthodoxy, the thesis here is that these are not
neutral and objective (read unbiased) observations, but discursive prac-
tices whose performative effects work to sanction the dominance of a
fallacious analytics of ratings, and thus the subsequent imposition of
an artificial fiscal normality/rectitude derived from this practice. To a
great degree, the hegemony of this socio-technical agencement is consti-
tuted through its performative capacity to create the very conditions
and subjectivities which help to validate what actions are permissible
and what conduct deserves to be penalized. Embedded in a broader
period of risk-based financialization, the dismal performance and dis-
tortions of ratings are tolerated as the impetus for substantial reform,
on the part of market participants, loses its urgency. Cognizant of this
(market) inertia along the axis of risk, the catalyst for change will need
to be governmental in origin – there is no feasible alternative at
present.
One way to begin this process of redressing these deficits and
reclaiming diminishing fiscal sovereignty is through effective govern-
mental policies that target the fallacious analytics of ratings.
Obviously, regulating judgment is easier said than done, and I make no

pretentions about proposing a more suitable template to replace the
status quo. Apart from removing statutory references to credit ratings
in order to discourage a mechanistic over-reliance on them, officials
should avoid enhancing the status of the modality of risk; which serves
to undermine their contributions to the constitution of sovereign cred-
itworthiness. Although risk cannot be completely discounted because
of its significant role in the ratings process, at least regulators can
ensure that they mitigate the unintended consequences of their own
policies. Otherwise, as the salience of risk discourse grows, it makes it
more and more difficult to challenge epistocratic authority in the
definition of these terms and the subsequent fiscal parameters in accor-
dance with which their constituents must live.
For this purpose, governmental bodies must be prepared and sanc-
tioned to engage in surveillance that can possibly challenge the analyt-
ical substance of credit ratings. Acknowledging the hesitance towards
such a scheme, given the problems of a potentially ad hoc and arbitrary
system, a harmonized and binding global approach to the assessment
of ratings methodologies should be considered. Under the auspices of a
multilateral institution such as the Financial Stability Board (FSB),
sector-specific guidelines could be established for the CRAs officially
registered with ESMA; as well as the NRSRO designated CRAs in
America. The FSB (2013) may accommodate such an initiative since it
falls under its mandate of:
• [assessing] vulnerabilities affecting the financial system and identify

and oversee action needed to address them;
• [promoting] coordination and information exchange among author-
ities responsible for financial stability;
• [advising] on and monitor best practice in meeting regulatory
standards;
• [setting] guidelines for and support the establishment of supervisory
colleges; and
• [managing] contingency planning for cross-border crisis manage-
ment, particularly with respect to systemically important firms.
Given their relevance in the preservation of financial stability,

arguably, there may be sufficient cause to designate Moody’s, S&P
and Fitch as global ‘systematically important financial institutions’
(G-SIFIs); similar to the largest international banks. Once achieved,
they could be subject to special provisions and expected to ‘meet
higher supervisory expectations for risk management functions, data

aggregation capabilities, risk governance and internal controls’; as
specifically tailored for the rating industry (FSB 2013).
Of course labeling Moody’s and S&P as G-SIFIs also grants the insti-
tutional dimension of the problematic more significance than it may
deserve. While CRAs are relevant, this book argues it is the discursive
practice of rating credit risk which is central to the constitution of
authoritative knowledge and the ratings space. Although far from
perfect, such a proposal begins to address the lack of global oversight
and it repositions governments so that they are better able to compare
and regulate ratings methodologies. Equipped with this broader per-
spective and comparative normality, they may table new regulations
more suited to balancing the needs of all parties involved. Eventually,
rather than pitted against each other in an antagonistic relationship,
CRAs and governments may be able to compromise and together
develop a regulatory framework.
No doubt, private markets will cry foul if regulators begin to challenge
them to account for their business practices by probing beyond the
safety of risk analysis. Stripped of the immunity afforded by defendable
risk calculus, the onus grows for subjects to justify their informal deci-
sion-making. This heightened endogeneity exposes them to a greater
chance of failure and the costs (e.g., reputational, monetary penalties,
etc…) associated with its liability. Hence, it is easy to understand the
private sector’s reluctance to disturb risk’s franchise as the hegemonic
generator of what counts as authoritative knowledge. After all, why
relinquish your monopoly over the production of ‘truth’ and acquiesce
to what could be a precedent setting regulatory mode that subsequently
targets the government through uncertainty in other economic domains
(i.e., banking, insurance). For this very reason, private firms have a
vested interest in promoting the sophistication and primacy of quantit-
ative risk in direct opposition to qualitative uncertainty.
It is through this false dichotomy that political/public judgment is
relegated as inferior, and thus marginalized, while expert/private judg-
ment is disguised as scientifically superior and championed. Such a
gross misrepresentation needs to be corrected if the widening asym-
metry between the imperatives of democratic publics and financial
markets is to be remedied. If and how that exactly happens still
remains to be determined, but identifying the problem is the first step
towards any resolution. That entails being careful not to neglect how
the social facticity of sovereign creditworthiness is constructed and
legitimized through discursive practices, such as risk and uncertainty.
Otherwise, rather than rectify the growing asymmetry between the

programmatic/expertise and operational/politics dimensions of fiscal
governance, the problematization of both the analytics of ratings and
the regulatory response reveals that recourse to the kind of epistocratic
fragmentation and quantification implied in risk management may
only exacerbate it.
Conclusion: Problematizing the
Ratings Space
The pursuit of security and profit has become inextricably intertwined

with the constant quest for control. Unless we are able to calculate and
plot an indeterminate future, then we cannot actively manipulate and
master Fortuna to avoid succumbing to the forces of fate. In order to
transform all the uncertainties with which we are confronted to our
advantage, such an ambition has become equated with the mitigation
of risk. So strong is this appetite for control that it has elevated the dis-
course of risk to a hegemonic status in the organization of virtually
every dimension of existence (Power 2004). In fact, risk management
has even come to connote the fulfillment of moral responsibility
(Baker 2000; de Goede 2005; Ewald 1991). As the ubiquity of risk dis-
course penetrates an ever expanding myriad of spaces, risk calculus
becomes prized and promoted; thereby reaffirming the (Keynesian)
view that ‘individuals, organizations, and societies have no choice but
to organize in the face of uncertainty, to act “as if” they know the risks
they face’ (Power 2007: 203). This sentiment echoes Ian Hacking’s
(1990) observation that the (supposed) taming of uncertainty as a cal-
culable risk has been pivotal in making the world appear ‘less capri-
cious’ by granting a greater semblance of control over what would
otherwise be considered chaotic and potentially dangerous.
Nowhere else, arguably, is this managerial dispositif more pro-
nounced and dominant than in the economic domain; and especially
in the ratings space. Armed with an arsenal of quantitative risk calcu-
lus/models, market participants, such as the rating agencies, patrol the
margins of indeterminacy to problematize a vast array of socio-
economic phenomena and translate it into the ‘rational language of
probability’, and thus profitability (Power 2007: 124). Ratings are the
medium through which creditworthiness is created, captured and
203
communicated. Alignment with the infallibility of a rationalist-

empirical epistemology gives the impression that social inquiry can
indeed be ‘refurbished’ through the prescriptive positivism of the
natural sciences. Here the economic domain is conceptualized as a
coherent and self-perpetuating metaphysical reality, which only needs
to be unearthed with the appropriate (quantitative) methods.
Utilitarian risk calculus offers to transform the measurement and
verification of indeterminacy into a defendable exercise. Authority is
granted to those with the proper expertise to do so; or at least appear
to mitigate uncertainty through risk.
Of course, this attempt to divorce technoscientific epistemology
from the messy socio-political context in which it is embedded merely
provides an illusion of control; rather than an unequivocal and infal-
lible command over contingency. Only by being framed in binary oppo-
sition to each other, as ontological totalities, can the displacement of
uncertainty by risk occur. Adherence to this relationship of mutual
exclusion has proven quite attractive, not only because of its supposed
calculative properties, but, as this book documents, for the authority it
endows epistocratic forms of rule to establish the parameters of ‘truth’,
and thus relegate competing claims to falsity and redundancy.
Empowering as it may be, such a conceptualization distorts their
dialectical relationship, as neither risk nor uncertainty is inherently
more or less abundant during a sovereign debt crisis; or at any other
time for that matter. Searching for certainty equivalence that just does
not exist merely saddles one with the painstaking burden of attempt-
ing to calculate the exact propensity of fluid fiscal relations towards
failure at any one point in time. But risk is in a constant state of virtu-
ality and how ‘capable’ and ‘willing’ politicians are to subject their
constituents to harsh austerity measures in order to service their debt
obligations fluctuates with the changing socio-political climate.
Although the promise of comparability and a remote calculative capa-
city offers to facilitate systematic application and reign in fiscal
‘deviance’, devoid of its cultural, historical and discursive expressions –
in other words, its intersubjective performativity – the ensuing fiscal
normality and rectitude promoted are artificial and antagonizing. Any
stabilization that materializes is only ephemeral because based of this
misrepresentation of uncertainty as risk, it is vulnerable to breakdown
and crisis.
No matter how dubious this conversion of uncertainty as risk is in
regards to fluid socio-political relations, however, the sophisticated,
technical apparatus deployed for this purpose helps to constitute an

infrastructure of referentiality – via the ratings scale – according to
which economic problematizations are rendered intelligible in these
very terms and speculative financial activities become available and
permissible. Rather than brute facts predicated on some innate abun-
dance or scarcity, however, a better understanding informing this
study is how the constructs of uncertainty and risk are appropriated
and mobilized as modalities of rule in the discursive constitution and
legitimation of sovereign debt as a problem of government. Extensively
repeated over time and across fields, calculative techniques like ratings
are how expertise mediates the construction of specific notions of
social facticity, or what is understood as the ‘truth’, in the formation of
a political economy of creditworthiness. It is through these discursive
practices that control as calculation/classification becomes revealed
and institutionalized. Together they exert an authoritative capacity to
normalize conduct and enact a (neoliberal) politics of limits. Credit
ratings, therefore, are the internal forms of governmentality underpin-
ning budgetary governance; whereby action and authority combine to
govern-at-a-distance by re-encoding fiscal relations in accordance with
a self-systemic, and thereby self-regulating, logic of Anglo-American
versions of capitalism.
Surprisingly, given the central role that ratings play in finance, little
serious attention has been donated to unpacking this black box in
order to come to terms with the egregious inconsistencies implicit in
the analytics of ratings. At the heart of numerous profit-generating
market models and methodologies, it is understandable why such an
‘uncomfortable complacency’ with risk ratings persists amongst the
business community. Implicated in some of the most severe economic
crises in recent memory, the glaring deficit of credit ratings, and their
main institutional agency (i.e., CRAs), in the IPE literature is much
more astonishing. Monopolized by legal and finance-based scholarship
– some of which is even written by the chief credit officers of the main
CRAs – the debate frequently neglects rating design in favor of running
selective back-tests on CRA performance during some specific time
period. Once again, risk is treated as self-evident and taken for granted.
Unfortunately, this omission is the starkest in regards to what is,
arguably, the most significant area of rating; namely sovereign credit-
worthiness. Corporate failures are regular and, if isolated, easily
managed and contained. Sovereign defaults, however, or even the
possible expectation of one, can trigger systemic shocks that spillover
to disrupt severely global markets and jeopardize welfare levels in

multiple countries.
Nevertheless, the allure of risk ratings is like the irresistible song of the
mythical Greek Sirens – it tempts market navigators, who are bewitched
by their purported scientific proficiency, into ‘perilous waters’. Over and
over again, galvanized by a broader movement towards increasingly risk-
based financialization, credit risk ratings are deployed in the effort to
objectify and commodify the very budgetary relations whose high degree
of exigency precludes them from being readily captured through such
utilitarian risk calculus. On the high seas, such incongruity between
human action and present circumstances would surely signal one’s
demise, as nature does not conform to expectations.
Social reality, however, is much more amenable to being engineered
through the performative effects of calculative techniques, which help
to compensate for outstanding discrepancies; or at least temporarily.
Rather than merely ‘informed opinions’ describing a pregiven state of
affairs, issued by a historical cabal of monopolists, ratings create the
conditions and subjectivities which serve to validate this epistemic/
discursive framework, and in the process their utility and leverage. As
socio-technical devices of control and governmentality, they exert an
authoritative capacity to produce self-validating/self-generative effects
on CRAs, constitutive effects on investors and prohibitive (unintended)
consequences for beleaguered national governments. Together they
help to normalize compliance through convergence around the fiscal
normality/rectitude projected through the ratings scale. But lacking a
felicitous set of conditions anchored in the realities of national bud-
getary sovereignty, this performation is tenuous and vulnerable to
breakdown. The result has been a history riddled with rating failures
and financial/fiscal crises. Repeatedly we have been reminded by an
ever more catastrophic series of events, such as the recent 2007–08
financial crash, just how grossly inadequate these navigational instru-
ments can be in calculating creditworthiness.
Irrespective of such grave inconsistencies and dismal performance,
however, ratings continue to play a principal role in the constitution
of a (disinflationary) political economy of creditworthiness. It is the
ensuing politics of limits, based on this paradox of consistent, yet tol-
erated failures, which this book diagnoses. In this struggle to define
what counts as authoritative knowledge underpinning the problem of
sovereign debt, the modality of risk (and uncertainty) is deployed to
segregate and compartmentalize heterogeneous fiscal relations into a
few quantifiable categories, before reaggregating and distilling them
into a ‘narrow rating range’; so as to synchronically connect, rank and

compare what are otherwise unique and diverse political economies.
Recodified as the ‘risk of default’, the problem of fiscal profligacy
assumes a predominantly quantitative character through which hetero-
geneous, national fiscal problematizations are translated into mutually
corresponding/reinforcing global ones, and thus commodifiable for
speculative market purposes. Accuracy and reliability are trumped by
comparability. Since political economy often overflows such narrow
parameters, however, the coherence of this enterprise is preserved
through this misrepresentation of uncertainty as risk.
As the calculation of sovereign creditworthiness gets skewed in favor
of risk calculus, however, it engenders a series of false dichotomies that
only further distort the process: economics/politics; object/subject; and
discursive/material. Amongst the most problematic is the dualism
between (quantitative) risk and (qualitative) uncertainty. Apart from
treating risk and uncertainty as brute facts, this book elucidates how
such a dubious approach works to depoliticize budgetary governance
by invalidating how competing notions of fiscal normality/rectitude
are assessed and articulated. As alternative approaches more accom-
modative of human discretion (read government through uncertainty)
become increasingly censured and marginalized, however, this falla-
cious analytics of ratings becomes entrenched as the de facto course of
calculating creditworthiness. A politics of limits materializes that
privileges the imperatives of private markets over that of national
citizenries. With the imposition of this disinflationary fiscal normal-
ity/rectitude, an antagonistic relationship develops between the pro-
grammatic/expertise and operational/politics dimensions of budgetary
governance. This analysis casts light on the tensions and shocks gener-
ated by rating performation and the ensuing politics of
resistance/resilience which this fuels. How this persists and the explo-
sive effects associated with the unfolding socio-technical agencement
are what this book documents.
Repoliticization of creditworthiness
In the discussion about the potential repoliticization of the political

economy of creditworthiness, one caution should be exercised. To
apply the deconstructive analytic in an effort to reveal the contestable
constitution of subjectivity within a domain of discursive materiality,
and thus deprive it of its false universality and inevitability, as it
‘dispels the chimeras of the origin’, is itself a normative position
(Foucault 1984a: 80). Mitchell Dean (2007: 50) acknowledges that

while:
An analytical framework seeks to describe second-order statements

about governing which comprise ‘rationalities of government’ and
the techniques and technologies to which they are linked. It also
enjoins us in a normative sense to problematize or call into question
and to make strange the rationalities by which we make these first-
order statements.
To critique conventional ways of thinking for their inability to com-

prehend adequately the exercise of power/resistance or for hiding
behind a rigid positivism could be interpreted as a provocation. Not
surprisingly, a normative challenge may be extracted from statements
designed to antagonize in an effort to produce a dialogue. After all,
they imply that a better alternative to misguided mainstream accounts
does, in fact, exist.
Whether or not this disposition actually detracts from the value-
added of this study, and governmentality more broadly speaking, is
probably superfluous. Questions such as this yield little because I am
not proposing an alternative ‘theory’ espousing a unified position in
the explanation of fiscal relations or a credit rating ‘methodology’ that
should replace existing approaches; as much as one is greatly wel-
comed. Any normative prescriptions should be interpreted as analytical
in character. There is no policy agenda that is being pushed in these
chapters. In the end, this book directs our attention to some of the
most egregious elements of sovereign ratings which help magnify the
conflict between private financial markets and sovereign democratic
governments. Greater political debate about an issue as relevant to
fiscal sovereignty and a healthy democracy is considered constructive.
Acknowledging and understanding how this happens, however, should
not be conflated with proposing a ‘better way’ forward.
With this in mind, rather than attributing the crystallization of this
neoliberal political economy of creditworthiness to some nebulous his-
torical forces or abstract ideas, this book unpacks the black box of
credit ratings to document its constitution, regeneration and sedimen-
tation. It is through the deployment of such discursive practices, and
the governmental rationalities which they embody, that the struggle to
perform this politics of limits is waged. Eschewing the economism of
mainstream accounts, this study disputes their assertion that this cal-
culative space and its subjectivities can naturally materialize ‘outside of
[their] discursive condition of emergence’ (Laclau and Mouffe 1985:

107–8). Power and discourse are mutually constitutive. Anchorage in
the risk rating apparatus endows the neoliberal programmatic with
materiality and longevity. These routine micro-processes monitor a
vast array of components contributing to the national fiscal position in
the effort to determine and control budgetary deviance; in accordance
with a predefined set of priorities. Authority is exercised through con-
stant surveillance in the struggle for representation.
Despite the fact that ‘states have an irreducible measure of cultural
particularity’ (Hindess 2005: 1396), which frustrates the comparability
of sovereign creditworthiness and the synchronizing effects of risk to
compress and standardize national political economies, it is through
the performativity of ratings that their alterity seems to diminish. Once
governments begin to comply with the normative disinflationary pre-
scriptions advanced through ratings, and are bolstered by financial
markets, their budgetary profiles start to converge as they prioritize
similar (austerity) programs/policies. However, the compulsion towards
this artificial normality is primarily driven by serious inconsistencies
and distortions in the sovereign ratings process. These help to translate
heterogeneous, national problematizations into universally reinforcing
ones that grant ratings their authoritative capacity to perform a neolib-
eral political economy of creditworthiness. In order to redress the
ensuing (and growing) asymmetry between the imperatives of episto-
cracy and democracy, which diminishing fiscal sovereignty underpins,
a sound understanding of the very mechanics at the core of this
depoliticizing field of finance is essential. Otherwise, the integrity of
this dubious ratings process remains relatively undisturbed; which
serves to facilitate the regeneration and sedimentation of the distor-
tions that privilege epistocratic risk discourse at the expense of
national fiscal sovereignty, and thus often social democratic politics.
If sufficiently disseminated and embedded in the discourse about
sovereign creditworthiness, the fallaciousness of the analytics of ratings
may help to strip the calculative process of the (unwarranted) immu-
nity afforded to it by excessive attention to and promotion of risk cal-
culus; which is a step to opening the ratings space to more political
contestation. Although there is no genuine or ideal ratings regime to
replace the status quo – in the hope of substituting a naturally more
benign framework for a malign one – repoliticization is possible along
the entire power/resistance axis. As a consequence, its form will always
be variable, asymmetric and uncertain. But this is understandable
since the dialectical relationship between the risk and uncertainty is
heteromorphic and contestable. Of course, a principal obstacle towards

a different political economy of creditworthiness is the threat of regu-
latory unintended consequences (inadvertently) sabotaging govern-
mental ambitions; by amplifying the very discourse of risk which
exerts such restrictive effects on fiscal sovereignty.
Almost as frequent as CRA incompetence is the promise by officials
finally to correct the most egregious elements of ratings responsible for
not only helping to precipitate, but also often exacerbate, all these
crises. With a similar rate of failure as the ratings that they target, these
governmental convictions have seldom translated into a substantive
policy framework that could effectively remedy outstanding deficits. By
decrying any regulatory response as an infringement on their right to
the freedom of expression (protected by the First Amendment of the
US Constitution), the traditional tactic of the CRAs has been to reframe
the debate as one primarily about ideas and free speech (Kruck 2011:
20; Sinclair 2005: 159). As opposed to just ‘negligence’, therefore, US
courts would demand evidence of ‘recklessness’; which is much more
difficult to prove (Kerwer 2005: 469). In the ensuing brouhaha, the
alleged CRA abuses and the urgency to redress them, lose their imme-
diate poignancy as governments assume a defensive position; given the
effectiveness of this strategy to distract from the core issues by refocus-
ing on the narrative of liberties.
If this problematic were only a matter of linguistics and the issuance
of opinions, however, then it could be more easily dismissed. But as
this book contends, for regulation to be effective, governments must
address rating construction and be prepared for the possibility of
repoliticizing the process when necessary; since political intrusion is
foreseeable with sovereign scores. Thus, can Europe seize this oppor-
tunity and introduce a proper governmental model for the rest of the
world to emulate and refine to suit individual circumstances? While
there are signs that ESMA may move in that direction, at present, it is
neither prepared nor mandated to manage sufficiently through uncer-
tainty so as to remedy existing deficits. Until that happens, if it does at
all, ESMA must avoid erecting regulatory hurdles that will only com-
promise its objectives, by subjecting European political economies to
unintended consequences which further undermine fiscal sovereignty.
More appropriate would be an international regime capable of mon-
itoring global credit markets and ensuring that credit ratings are not
abused or regulatory arbitrage exploited. Even if the EU devises a strict
framework which effectively banishes Moody’s, S&P and Fitch from
conducting business on the continent, nothing precludes them from
issuing ratings from their headquarters in New York. Since ‘unsolicited’

sovereign ratings – where a rating agreement with the issuer is absent –
are quite common and much of the economic information is publi-
cally available, the CRAs would still be capable of issuing credit grades.
Their oligopoly, which accounts for 95–97 per cent of all outstanding
ratings across all categories, attests to how firmly established their fran-
chise is and their relative popularity with the business community.
Properly monitoring global credit markets entails having an interna-
tional supervisory body with the reach and capability to assess rating
compliance with global standards; as opposed to a patchwork of lack-
luster regional schemes. Whether under the auspices of the Financial
Stability Board (FSB) or some other organization, a harmonized and
binding global approach to the assessment of credit ratings methodolo-
gies warrants consideration. Once again, however, it is the assessment
of sovereign creditworthiness that may prove most problematic and
contentious. Government through uncertainty is central to this process
but it defies being easily standardized in the form of a regulation to
which CRAs must adhere or in the verification of this scope of qualita-
tive judgment. Regulators in the Anglo-American world may be more
sympathetic to rating rationalizations that advocate free market prior-
ities than their continental European or Asian counterparts.
Determining which values should take precedence can bog any regula-
tory endeavour in long and heated debates. In the end, a certain degree
of discretionary conduct appears unavoidable. Now the dialogue
should begin on what that means.
A fixation primarily on methodological rigor and systematicity,
however, threatens to dilute governance to a few quantitative variables
and neglects how the modality of uncertainty is operationalized in the
production of a rating. Regulatory cooption by the CRAs could result if
defendable risk calculus is elevated as the defining feature of the
ratings process. Complicity in the skewed enterprise which helps to
erode their fiscal sovereignty would also be counterproductive. As
arduous as it may be to design a regulatory regime that includes the
assessment of judgment and the modality of uncertainty, unless gov-
ernments tackle the analytics of ratings, they will be drawn into the
same constitutional dilemmas as in the past and/or be compelled to
conduct superficial assessments that mainly serve to legitimize the
current ratings process.
Unfortunately, the impetus for reform will not originate from the
‘market’; which itself privileges the very quantitative risk management
and distortions that must be reconsidered. It will have to come from
the governments which are subject to the negative consequences of

these modulating effects. Not only are they obliged to clean up the
mess after these severe crises, as custodians-of-last-resort, but adhering
to the programmatic that ratings advance is also proving perilous.
Either compliance or defiance can be detrimental. Rash and late,
amongst the chief blights against the CRAs is their poor prescience in
estimating how much austerity is healthy and when to turn the stim-
ulus taps back on. Admitting that expenditure cuts alone are self-
defeating, CRAs have a horrible record in identifying the proper
balance between austerity and the fiscal injections necessary to stim-
ulate growth and aid in the recovery.
After years of pounding the austerity drum as a measure to correct
what were deemed ‘unsustainable’ current account deficits, with the
intent of curbing inflationary pressures, many advanced economies,
and in particular the eurozone, are now experiencing disinflation –
ultra-low falling prices. From 2.5 per cent in October 2012, EMU head-
line inflation (HICP) had fallen to 0.5 per cent by March 2014
(European Commission 2013c).1 Across the G7, inflation has been
falling (1.3 per cent). Declining prices can impede the recovery, and
even slip into deflation, which increases the real debt burden and
aggravates recessionary pressures to make a bad situation worse. One
only has to be reminded of the decade and a half deflationary struggle
Japan experienced after its bubble burst in the early 1990s.2 Europe can
ill afford to succumb to such a deteriorating spiral of events; especially
when monetary policy (i.e., interest rates) cannot go much lower
(at 0.25 per cent). As such, because the guidance provided by ratings is
questionable, the onus is on those countries most affected to modify
the political economy of creditworthiness in order to introduce alter-
native notions of fiscal normality/rectitude. Closer scrutiny of the ana-
lytics of ratings may be one option.
In the struggle to define the social facticity of creditworthiness, the
EU must devise effective ways of managing the problem of sovereign
debt through risk and uncertainty; without succumbing to the
influence of the hegemonic risk discourse, which has hitherto dimin-
ished its relative authoritative capacity vis-à-vis private markets to
retain a significant degree of autonomy in the delivery of social demo-
cracy. Two opposing movements only compound the difficulty of
arriving at any tenable resolution. On the one hand, the modulation of
budgetary conduct through ratings is intended to induce the internal-
ization of self-regulation as governments are envisioned as enterprising
subjects entrusted with the responsibility of prudently managing their
fiscal books. This is the dominant market rationality and one that gov-
ernments are instructed to adopt if they wish to (im)prove their cred-
ibility and retain access to liquid capital markets at reasonable costs.
On the other hand, compliance with this mentality entails submitting
to the very procedures that strip away national fiscal sovereignty.
Inaction is also detrimental to the preservation and strengthening of
national self-determination.
Particularly troubling is the fact that the largest economies are also
some of the most unequal societies, such as America, Brazil or China,
which makes them more vulnerable to the disruption ignited by the
socio-economic costs of this conflict. As labor’s share of national
income recedes across the world over the past two decades, productiv-
ity gains are increasingly being captured by the owners of capital (The
Economist, 2 November 2013).3 This uneven concentration of wealth is
accelerating, which is producing a massive underclass and a global elite
who are benefiting disproportionately from economic growth. Add to
this volatile mix all the unemployed/underemployed youth across
Europe and the Middle East, and the conditions are ripe for strife. The
longer that governments delay in taking concrete steps to alter the pol-
itics of limits, however, the more onerous the task of managing the
explosive effects of ratings and reconciling the imperatives of private
financial markets with those of their citizenries.
Notes
Introduction: Credit Rating Crisis

1 The typical rating scale ranges from ‘AAA’ (the best) to ‘D’ (the worst).
2 At the time of writing.
3 Criteria clarifying the NRSRO designation were introduced with the Rating
Agency Reform Act of 2006; only to witness the SEC begin a campaign to
remove the NRSRO reference from statutes in 2009.
4 Between 1980 and 2012, the Brazilian inflation rate averaged 417 per cent.
5 Senior Officer at ESMA CRA Unit, Paris, interviewed July 2011.
Chapter 1 Crisis and Control

1 In order to establish minimum capital requirements for brokers, in 1975,
the US SEC introduced the rather vaguely defined ‘nationally recognized
statistical rating organization’ (NRSRO) designation. Bonds must receive an
investment-grade from at least two CRAs to satisfy regulatory statutes. It
also served as a barrier to entry into the ratings space as the SEC did not
admit any new CRA to the NRSRO from 1991–2003.
2 About three quarters of all outstanding LDC debt (US$176 billion) was
owed by Argentina, Brazil, Mexico and Venezuela.
3 David H. Levey, Managing Director (Retired) of Sovereign Ratings (Moody’s
Investors Service), New York, interviewed 2 November 2012.
4 Fixed-income and emerging market bond managers, London and Toronto,
interviewed March–November 2012.
5 S&P would downgrade Thailand in September 1997 from ‘A’ to ‘A–’.
6 Malaysia also imposed capital controls to help weather the storm.
7 Senior Asian markets analyst at HSBC, London, interviewed 12 July 2011.
8 Fixed-income analyst at Dominion Bond Rating Service, interviewed
20 September 2012.
9 David H. Levey, Managing Director (Retired) of Sovereign Ratings
(Moody’s), New York, interviewed 2 November 2012.
10 Senior Director, Canadian Bank, Toronto, interviewed 30 October 2012.
11 These very same financial institutions would then bet against these ques-
tionable securities through credit default swaps.
12 TARP was reduced to US$475 billion by the Dodd-Frank Act.
13 Dispersed funds were to inject liquidity of the secondary mortgage markets
by purchasing the illiquid mortgage-backed securities (MBS). Nevertheless,
banker pay remained virtually immune from reform and the extent of the
Federal Reserve’s programs remained hidden. This included US$17.6 billion
of non-TARP AIG funds collected.
214
Notes 215
15 It would be further revised to 15.4 per cent of GDP in 2010 due to the
reclassiflcation of public expenditures.
16 For example, a week before the June 2011 EU summit, S&P slashed Greek
debt. In March, Moody’s cut Greece four days before a special EMU summit
and Irish debt during a December meeting.
18 Apart from the post-Marxists, the positivist-inspired methodologies of
Liberal Intergovernmentalism or Neofunctionalism also seek to explain
cause and effect relationships in a manner that stresses the intentionality of
the actor.
20 Portfolio managers at major Canadian banks and wealth management
firms, Toronto, interviewed September–November 2012.
21 Ibid.
22 Hedge fund manager, London, interviewed 29 August 2012.
23 Please remember that there is no strict binary object/subject dichotomy.
24 At the time of writing. From 10.6 per cent in November 2011. However, the
aggregate number fails to account for stark differences across Member States
with the lowest rate in Austria (4.5%) and the highest rate in Spain (26.6%)
and Greece (27.6%).
25 I wish to caution the reader about adopting all of Laclau and Mouffe’s
propositions. Not all of their ideas are conceptually sound. Yes, they may
shed light on the articulation and embedding of governmental rationalities
through nonessentialist forms of power. However, their conflation of ideas
and discourses as well as material and nonmaterial power detracts from the
thrust of their thesis.
26 This is compounded by the essentialist assumption that hegemony may
only be exercised by fundamental classes. However, economic class is but
one matrix of differentiation. To endorse it as a privileged category of
analysis simply constrains any explanation of the multifarious processes
involved in the production of hegemony.
Chapter 2 The Rise of Risk and Uncertainty

1 Beck also recognizes the social construction of risk by those who define
them and propose solutions to mitigate them.
2 Even when an 1824 decree opened the underwriting of maritime insurance
to others, Lloyd’s remained dominant as its competitors opted to focus on
fire, floods and life instead.
3 The daily average foreign exchange market turnover jumped by 20 per cent
from 2007 to 2010 to about US$4 trillion. This increase was attributed to
the trading activity of ‘other financial institutions’; which includes high-
frequency traders, the major banks and online retail investors.
5 Slovenia looked like another domino about to fall at the time of writing.
216 Notes
6 Articulated in the 1993 publication entitled Risk Metrics. Value-at-Risk is

considered a hybrid with various operational definitions. However, the
primary objective is to measure the potential adverse financial costs to a
portfolio of assets stemming from market fluctuations.
7 The first disbursement was in December 2012 for the sum of €39.468 billion
and the second was in February 2013 for €1.865 billion in order to recapital-
ize Banco Mare Nostrum, Banco Ceiss, Caja 3 and Liberbank.
8 Moody’s cut Bankia’s debt and deposit rating by two notches to B1, and
Catalunya Banc and NCG Banco to B3; all negative outlook.
9 Caixa’s loan-to-deposit ratio has ballooned from 49 per cent to 113 per cent
since 2008.
10 ‘Pillar 2’ addressed supervisory oversight of the control environment.
11 Examples of external factors would include market price movements or a
change in a borrower’s condition.
12 In August 2013, the US Department of Justice indicted two former
J. P. Morgan traders (Javier Martin-Artajo and Julien Grout) with wire fraud
and conspiracy to falsify books/records related to the losses executed by
Bruno Iksil.
13 Minimum total capital (including Tier 2) increased from 8 per cent to
10.5 per cent (with buffer). A countercyclical buffer of up to 2.5 per cent of
common equity or other fully loss absorbing capital is being developed.
14 Eventually, on 12 April 2013, their EMU partners decided to grant both
Portugal and Ireland an extension of seven years to repay their bailout
loans. Ireland exited its bailout in December 2013.
16 Senior Officer at ESMA CRA Unit, Paris, interviewed July 2011; Senior Asian
markets analyst at HSBC, London, interviewed 12 July 2011.
17 See S&P’s ‘Sovereign Government Rating Methodology and Assumptions’.
20 Expected loss is a function of the probability of default and expected recov-
ery rate afterwards.
21 Sinclair (2005: 30–40) provides a good description of the various stages of
the ratings process.
20 September 2012.
25 S&P’s (2008) Rating Analysis Methodology Profile employed a one (the best)
to six (the least) scale that seeks to capture: (1) political risks; (2) economic
structure; (3) economic growth prospects; (4) fiscal flexibility; (5) general
government debt burden; (6) offshore and continent liabilities; (7) mone-
tary flexibility; (8) external liquidity; and (9) external debt burden.
Notes 217
26 Sovereign local-currency ratings are determined by applying up to two

notches of uplift over the foreign-currency rating.
27 A score of ‘6’ precludes a sovereign from obtaining a higher rating than
‘BB+’ – irrespective of its net asset position – or ‘B+’ if such an institutional
and governance effectiveness score is combined with a similarly dismal debt
score of ‘5’ or ‘6’.
28 The verification of an ‘AAA’ rating relies on scenarios of extreme macroeco-
nomic stress, such as the Great Depression of the 1930s.
29 At the time of writing, Moody’s was collecting feedback on a set of pro-
posed refinements tabled in December 2012, which would supersede the
2008 ‘Sovereign Bond Ratings’ version.
31 Each follows a maximum function.
32 Previously Factor 4 was combined with Factor 3: Government Financial
Strength to yield Government Financial Robustness.
Chapter 3 Rating Performativity

2 This is a concept which she borrows from Mikes (2009).
20 September 2012; David H. Levey, Managing Director (Retired) of
Sovereign Ratings (Moody’s), New York, interviewed 2 November 2012.
5 Only 15 sovereign defaults on foreign currency debt have occurred since
1975. Furthermore, S&P and Moody’s have issued sovereign ratings only in
recent decades.
6 Former Managing Director of Country Insights for Roubini Global
Economics.
7 Positive rating events have a smaller, less significant, price or spread effect
than negative rating announcements.
8 As part of the Cypriot bailout, those above the insured limit of €100,000
faced a 47.5 per cent haircut.
11 CRAs often simply adopted the models with which the issuer provided
them; without completely understanding their mechanics or rationalities
before assigning a rating.
12 A movement over 1.25 notches is necessary to trigger a rating migration.
13 Central banks face a similar dilemma in formulating monetary policy.
218 Notes
14 This is a governmental account and should not be misconstrued as asserting

that uncertainty is displacing risk.
15 In September 2013.
19 Securities always trade at their fair value since information asymmetries are
quickly eliminated as prices incorporate and reflect all relevant information.
20 A growing number of ETFs are actively managed.
21 Although active fixed income funds performed better than their equity
counterparts, they still lagged the benchmark indices in virtually all the
categories.
25 Citing a ‘technical error’, S&P affirmed its ‘AAA’ rating for France.
28 PIMCO was acquired by the German insurance group Allianz in 2000.
29 As of 31 March 2013, PIMCO reported US$2.04 trillion in assets under man-
agement; which now includes the assets managed on behalf of its parent’s
affiliated companies.
31 Hedge fund manager, London, interviewed 29 August 2012.
32 Hedge fund managers, London and Toronto, interviewed 29 August 2012
and 1 October 2012 respectively.
33 Former Managing Director of Country Insights for Roubini Global
Economics.
34 Short-term debt spreads, such as two-year bonds, were substantially higher.
35 At the same time, the holdings of core European banks only grew by
43 per cent, from €352 to €505 billion.
38 In Italy and Spain, more than half are unemployed with dismal prospects
unless they decide to emigrate.
39 It was originally set at 2 per cent in 2009.
Notes 219
Chapter 4 Epistocracy versus Democracy

1 SME is small and medium enterprises.
2 Up to now, the division of labor has been national since a supranational
entity did not yet exist to manage this space. With the creation of the new
European supervisory body – the European Securities and Markets Authority
– the EU will have direct and exclusive oversight over CRAs registered in
Europe as well as over the subsidiaries of three major agencies based in
New York.
4 ESMA consulted on its draft RTS by means of a consultation paper that was
published on 19 September 2011.
Conclusion: Problematizing the Ratings Space

1 Below the ECB’s inflation target of ‘below but close to 2%’.
2 Abenomics is having some success in raising prices.
3 From 66 per cent in the 1990s to 62 per cent in the 2000s, labor’s share of
income is in decline.
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Index
agencement: socio-technical, 23, 47, Bretton Woods monetary system,

94, 111, 136, 137, 144, 161, 174, 36–7, 93
181 BRIC (Brazil, Russia, India, China),
analytics of ratings see sovereign 16, 29, 39, 55, 115–16, 179, 187
ratings business risk, 105–6
Argentina, 170, 177 Butler, Judith, 68, 141, 143
Asian financial crisis, 1, 39–42, 101, 156
assemblages, 13, 22, 23, 60, 271 calculative practices, 17, 62, 85, 87–8,
asset backed securities (ABS), 1, 48 118
residential mortgage backed quantitative techniques, 18, 45, 72,
securities (RMBS), 107, 168 86, 195, 199
asset management/investors, 70, calculative spaces, 34, 47, 58, 64, 108,
71–3, 160–74 137, 161
active management, 72–3, 98, 131, Callon, Michel, 23–4, 27, 138
161, 163, 166, 169–74 capital, 63, 68–9, 76
passive management, 39, 52–3, capitalism, 16, 75–8, 80, 185
71–3, 165–8 Anglo-American, 4, 15, 28, 60, 76,
price bubbles, 39, 46, 100, 212 136, 146
see also performativity causality: rating, 137, 152
assumptions, 119–20 see also positivism
austerity programmatic see sovereign cliff effects see procyclicality of
ratings ratings
Austin, J. L., 141, 145 Cochoy, Franck, 65
authoritative knowledge, 6, 58, 61–8, collateralized debt obligations (CDO),
79, 83, 112–13, 201 48, 108, 168
commercialization of, 66, 108, 113 constructivism, 10, 66–7
infrastructure of referentiality, 5, contagion risk, 51–3, 96, 151–4
12, 22, 31, 59, 137, 145, 205 control, 5, 11, 14, 17, 57, 63, 87, 100,
technoscientific epistemology, 5, 102, 140, 171, 203
13, 61, 82, 149, 204 as calculation/classification, 12, 57,
83, 109, 139, 161
back-testing see methodology counterperformativity see
bank financing, 37 performativity
Basel Committee on Banking country risk see risk
Supervision (BCBS), 101–4 credit rating agencies (CRAs), 3, 7, 8,
Basel Capital Accord II, 102, 103 39, 41, 43, 50, 52, 187, 201
Basel Capital Accord III, 104 as gatekeepers, 45–6, 66, 163–4
Beck, Ulrich see risk society thesis reputation of, 18, 41–2, 66, 120,
Black-Scholes-Merton model, 31, 126, 156
147 see also performativity
BlackRock, 160, 163, 169, 197 credit ratings
Brazil, 8, 43, 100, 179 as black-boxes, 6, 25, 43, 63, 79,
Collor Plan, 38 114, 129
240
Index 241
as regulatory license, 7, 163 European Union (EU), 51–4, 95, 100,

certification role of, 71, 108, 163 152–3, 172–3, 178–80, 188, 210,
history of, 36–41 212
see also sovereign ratings CRA Framework, 15, 73, 189–98
credit risk see risk Fiscal Compact, 189
crisis, 38, 50, 60, 100, 121, 168, 198 exchange-traded funds (ETF), 71,
endogeneity, 53, 191, 201 165–6
exogeneity, 45, 50, 191 Expected Default Frequency (EDF),
financial (2007–08), 1–2, 47–8, 107, 126, 149, 152, 155
168
sovereign debt (2009–2013), 1, feedback loops, 52, 54, 71, 148–9,
51–2, 96–7, 100, 109–10, 161, 177
152–4, 156–7, 172–3, 180 see also performativity and
Cyprus, 100, 152 procyclicality
Financial Crisis (2007–08) see crisis
deconstruction see governmentality financial markets, 6, 14, 29, 45, 76,
de Goede, Marieke, 32, 45, 92, 97 97, 120, 141, 162, 178, 192, 194,
Deleuze, Gilles, 11, 63, 171 201
and Felix Guattari, 57, 77 Financial Stability Board (FSB), 200
democracy, 16, 74, 78, 184, 212 financialization, 44–5, 90–9, 161, 167,
see also epistocracy/expertise 199
depoliticization see political economy fiscal relations/governance, 8, 9, 20,
of creditworthiness 24–5, 112, 206
dichotomies fiscal normality/rectitude, 5, 13, 16,
economy/politics, 5, 32, 33, 59, 82, 24, 57, 70, 84, 112, 132, 138,
184, 207 140, 176, 207
quantitative (risk)/qualitative fiscal sovereignty, 16, 21, 29, 55,
(uncertainty), 19–20, 21, 33, 129, 132, 142, 184, 188, 209
55, 90, 130, 131, 163, 176, 207 Fortuna, 45, 83–4, 203
Foucault, Michel, 12, 34, 58, 63, 78,
Economic and Monetary Union 79, 87
(EMU), 26, 46, 96, 188–9, 153, France, 97, 142, 168, 188–9
172–3, 187–9 freedom, 12, 63, 95, 144, 186
efficient market hypothesis (EMH), entrepreneurial, 17, 70, 98, 171,
72, 165, 169 174
epistocracy/expertise, 2, 3, 18, 24, 29,
44, 46, 57, 65, 83, 88, 92, 114, game theory, 30, 87
135, 136, 161, 191, 201 Gibson-Graham, J. K., 77, 80, 184
asymmetry with democracy/politics, Giddens, Anthony, 57, 92
4, 16, 29, 82, 55, 65, 85, 172, Gill, Stephen, 63, 76
184, 192, 200, 209 also see Marxist approaches
paradox of, 51, 162, 206, 174 govern-at-a-distance, 10, 34, 65, 61,
ergodicity, 18, 87, 150–1, 176 65, 137, 176
European Securities and Markets governmentality, 10, 12, 32, 57, 60,
Authority (ESMA), 190–8, 210 62–4, 70, 122, 132, 136, 208
European Securities Markets Experts deconstruction, 28, 58–9, 143, 194,
Group (ESME), 49, 190 199, 207
European Security Mechanism (ESM), reconstruction, 28, 59–60, 142, 178
96–7, 100, 153 Great Depression, 36
242 Index
Greece, 4, 53, 54, 96, 100, 109, 124, modality of government see risk and
142, 156, 157, 173, 178 uncertainty
modeling, 18, 30–1, 72, 87, 99, 101,
Hacking, Ian, 5, 83, 90, 102, 140, 149, 107, 108, 118–19, 144, 147, 170
203 Pareto-efficient equilibrium, 19, 88,
90, 188
inflation stress tests, 111–12, 118, 123, 137,
price, 4, 14, 27, 38, 54, 170, 172, 149, 150, 158, 159, 193
179, 212 Moody’s Investors Service (Moody’s),
rating, 154–5 1, 3, 9, 16, 35–6, 39, 41, 42, 48,
infrastructure of referentiality see 71, 72, 75, 97, 100, 112, 114, 118,
authoritative knowledge 149, 150, 152–3, 167, 192, 193,
insurance, 17, 92–5 200
international political economy (IPE), Steps rating methodology, 125–9
7, 10, 26, 32, 68–9, 141, 205
conventional orthodoxy, 12, 19, Nationally Recognized Statistical
30, 61, 65, 81 Rating Organizations (NRSRO), 7,
investment-grade statutes, 17, 42, 48, 15, 163–4, 187, 200
167, 170 neoliberalism, 4, 11, 14, 16, 34, 35,
investors see asset managers/investors 68, 75–8, 81, 93, 94, 98, 133,
Ireland, 54, 96, 156, 157, 173 185–6
isomorphism, 6, 21, 41–2, 57, 101, politics of limits, 2, 3, 17, 22, 23,
103, 159 24–5, 28, 55, 59, 67, 74, 80,
Italy, 53, 97, 142, 153–4, 173, 178 133, 175, 181, 184, 191, 207
Netherlands, 52, 180
J. P. Morgan Chase, 48, 99, 103–4
object/subject of government see
Keynes, John Maynard, 89 subjectivity
Kerviel, Jerome, 103 objectivity, 8, 18, 34, 46, 56, 83, 87,
Knight, Frank, 88–9 112, 113, 147, 151, 194, 198
operational risk see risk
Laclau, Ernesto and Chantal Mouffe, Organization for Economic Co-
75, 77 operation and Development
Langley, Paul, 56, 64, 75, 107, 108 (OECD), 49, 50, 127
Lépinay, Vincent Antonin, 31, 88 Organization of the Petroleum
liquidity, 38, 42, 48, 51, 100, 123, 172 Exporting Countries (OPEC), 37
liquidity coverage ratio (LCR), 104 outsourced due diligence, 39, 40, 59,
71, 73, 116, 166–8
Machiavelli, Niccolò, 83 see also asset management/investors
MacKenzie, Donald, 31, 101, 143, 146
Marxist approaches, 68–9, 76, 185 Partnoy, Frank, 7, 45, 66, 156, 163
Maurer, Bill, 8, 32, 63 performativity, 5, 10–11, 14, 21–5, 35,
means-variance analysis, 108 47, 56, 59, 68–74, 78, 84, 91, 103,
methodology: rating, 113–31, 193, 135–44, 181–2, 196, 199, 206,
197 209
back-testing, 115, 149, 194, 196 constitutive effects for investors,
through a crisis, 158–9 71–3, 131, 160–74
through-the-cycle (through a crisis), counterperformativity, 24, 59–60,
117, 157–9 106, 133, 142, 143, 177–81, 184
Index 243
illocutionary effects of, 23, 116, regulation, 7, 15, 42, 55–6, 66, 71, 73,
144–5 101, 102, 108, 152, 163, 167,
perlocutionary effects of, 23–4, 188–98, 200–2, 210, 211
146–8, 184, 193 restorative fix, 45, 190, 191–2, 194
prohibitive effects for governments, technocratic centralization, 190–1
73, 174–7 see also European Union
self-generative effects for CRAs, 71, Reinhart, Carmen and Kenneth
122, 148–59 Rogoff, 37, 164
PIMCO, 73, 169–70 Report on Observance of Standards
Bill Gross, 48 and Codes (ROSC), 44
political economy of risk, 13–14, 18, 19–21, 25, 27, 32, 46,
creditworthiness, 2, 6, 9, 10, 17, 47, 57, 63, 64, 72, 79, 80, 85–8,
22, 23, 56, 62, 87, 130, 139, 140, 92–3, 200
143, 145, 162, 199, 205, 208 as boundary object, 17, 62
depoliticization of, 12, 27, 29, 33, as modality of government, 11, 17,
79, 55, 84, 142, 176, 183, 185, 20, 33, 35, 59, 65, 70, 78, 86,
186, 207, 209 90, 131–3, 138–9, 159, 161,
moral dimension of, 37, 64, 94 171, 174, 181
repoliticization of, 24, 25, 29, 35, conditionality of, 150
61, 67, 74, 79, 81, 207 contagion, 51–3
political risk see risk country, 115–16
politics of limits see neoliberalism credit risk, 40, 42, 45, 56, 106–13,
politics of resilience/resistance, 15, 117, 126, 131, 146, 167–8,
24, 35, 74–81, 184–6 188
Portugal, 52, 54, 105, 109–10, 152, defendability of, 5, 14, 43, 56, 81–2,
156, 173 113, 132–3, 204
positivism: predictive/prescriptive, 9, interactivity of, 151
19, 32, 34, 43, 56, 82, 112, 131, market risk, 132–5
149, 204 of default, 9, 71, 107, 112, 117, 118,
power,11, 57, 63–4, 67, 69, 74, 75, 77, 121, 125–6, 150, 207
80, 138–9, 144, 147, 159, 174, operational risk, 101–6
184, 186, 194 political risk, 5, 71, 122–3, 126,
as governmentality, 12–13, 205, 127–8, 153–4
209 reactivity of, 150, 159
knowledge nexus, 12, 34, 61 utilitarian calculus of, 8, 12, 14, 21,
Power, Michael, 19, 57, 83, 94, 102, 33, 39, 56, 88, 107, 112, 119,
203 147, 149, 196, 203
procyclicality of ratings, 41, 71, 110, risk discourse, 17, 21, 26, 33, 47, 55,
117–18, 154–9, 179 59–60, 64, 66, 73, 82, 91, 120,
Pryke, Michael and John Allen, 35, 86 136, 161, 165, 181, 185, 186
risk management, 16, 18, 19, 26, 35,
qualculation, 65, 112, 138, 147, 183 43, 46, 56, 66, 83, 97, 181
quantitative (risk)/qualitative enterprise risk management (ERM),
(uncertainty) dichotomy see 98–9
dichotomies risk society: thesis, 19, 85, 91, 140
Rating Analysis Methodology Profile Simmel, Georg, 86–7

(RAMP) see Standard & Poor’s Sinclair, Timothy, 9, 18, 21, 34, 36,
redomestication of debt, 173 50, 67, 106, 144
244 Index
social facticity see sovereign Standard & Poor’s, 1, 3, 34, 35, 41,
debt/creditworthiness 48, 59, 72, 75, 97, 109, 110,
social studies of finance, 10, 32, 135, 113–14, 118–19, 120, 153–4,
140–1, 148 155, 158–9, 166, 167, 168, 193,
socio-technical devices of control and 201
governmentality see sovereign Australian court verdict, 50
ratings Rating Analysis Methodology
sovereign debt/creditworthiness, 1, 8, Profile (RAMP), 119, 121–5, 130
11, 28, 71, 123–5, 131–2, 147, US civil court battle, 50, 107, 113,
166, 170–1, 173, 177, 184, 192 187
as a problem of government, 6–7, subjectivity, 14, 20, 67, 68, 82, 84, 91,
10, 14, 20, 22, 25, 47, 61–2, 65, 128, 161, 185, 208
91, 139, 143–4, 145, 197, 203, object/subject of government, 11,
209 12, 17, 34–5, 60, 62–4, 69–70,
crisis see crisis 73, 80, 93, 95, 148–9, 162,
social facticity of, 2, 4, 6, 7, 9, 10, 165–8, 171, 174, 186
16, 19, 24, 56, 58, 106, 109, surveillance, 5, 12, 17, 35–6, 43–4, 63,
113, 136, 138, 143, 162, 198 110, 132, 177, 200, 211
sovereign ratings, 2, 6, 9, 13, 17,
22–4, 31, 41, 43, 51, 61, 63, 66, technoscientific epistemology see
82, 106–9, 113–15, 130, 136–7, authoritative knowledge
145, 154, 162–3, 168, 175–7, 198 through-the-cycle (TTC) method see
analytics of, 7, 35, 42, 47, 99, 112, methodology
113–19, 120–31, 140, 184, 191, transitional matrices, 129–30
205, 211 transparency, 18, 43–6, 49, 56, 109,
as internal forms of 112, 113–15, 120, 124, 159,
governmentality, 7, 33, 68, 175–6, 190–1, 194, 197
131, 165 Public Expenditure and Financial
as socio-technical devices of control Accountability (PEFA), 44
and governmentality, 5, 11, 14, Troubled Asset Relief Program (TARP),
19, 21, 34, 55, 65, 70, 98, 121, 48, 50
138, 143, 159, 173–4, 183, 206 truth, 14, 18, 57, 58, 61, 63, 67, 83,
depoliticizing effects of, 5, 12, 16, 106, 140, 201, 204–5
18, 27, 79, 142, 176, 183, 185, techniques of, 10, 13, 64, 76, 143
186, 207
disinflationary uncertainty, 18–21, 23, 25, 52, 71, 80,
rationality/programmatic of, 4, 83–5, 87, 97–8, 102, 105, 110–11,
14, 24, 52, 55, 60, 65, 68, 78, 122, 158, 186, 191, 203
146, 151, 174, 177, 180, 209 as boundary object, 17, 62–3
sovereignty see fiscal as modality of government, 20, 27,
relations/governance 53, 58, 59, 62, 64–5, 66, 73, 78,
Spain, 53, 54, 94–5, 97, 100, 156, 173, 82, 85–6, 123–4, 126, 128–9,
175, 178 130, 132, 136, 139, 147–8,
speculation/profit, 1, 2, 37, 46, 47, 72, 156–7, 159, 167, 171, 181, 189,
91–2, 97–8, 104, 112, 131, 143, 194, 198
167, 175, 176, 197, 199 dialectical relationship with risk,
bond vigilantes, 172–3 19–20, 33, 55, 59, 64–5, 88–90,
Stability and Growth Pact (SGP), 96, 109, 112, 119, 130–2, 138, 140,
188 149, 151, 176, 185
Index 245
uncertainty as risk: misrepresentation Value-at-Risk (VaR), 99, 101, 103

of, 20, 21, 27, 83, 119, 122, 130,
131, 138, 140, 163, 185, 191 welfare: social, 16, 29, 75
unemployment, 54, 75, 179, 180, 213 moral hazard, 95
United States, 3, 26, 50, 172, 187, 189 programs, 48, 95

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International Political Economy Series

International Political Economy Series

Preface and Acknowledgements vii

Introduction: Credit Rating Crisis 1

Chapter 1 Crisis and Control 30

Chapter 2 The Rise of Risk and Uncertainty 83

Credit rating methodologies 113

Chapter 3 Rating Performativity 135

Chapter 4 Epistocracy versus Democracy 183

Conclusion: Problematizing the Ratings Space 203

The impression that the sophistication and complexity of ﬁnancial

problematizing the growing antagonistic relationship between the pro-

ABS Asset backed securities

IPE International political economy

subsequent sovereign downgrades helped the credit crisis mutate into

– risk ratings promote disinﬂationary logics aligned with what has

bifurcation between the ‘economy’ and ‘politics’ in the constitution of

culable and administrable’ problem of government (Miller and Rose

New analytics of sovereign ratings

notion of reality or power – similar to rating agencies themselves –

Excessive preoccupation with certainty equivalence, however, is mis-

Epistemic authority (Blyth 2002; Cutler et al. 1999; Porter 2005;

the ratings process form spaces of calculability and apparatuses of

Socio-technical devices of control

A central theme running through this book is how the ‘opinions’ of a

the infrastructure of referentiality that ratings construct, which con-

mistic conception of power’ as a commodity (Campbell 1996: 18), an

degree of contingency implicit in sovereign ratings fortiﬁes its bulwark.

2007: 56). Bolstered by this (questionable) reading of the ‘economy’ as

plagued by a misguided preoccupation with governing this threat as a

Government through risk and uncertainty

Grounded in the discourse of risk, this book argues that sovereign

calculus of risk. More tractable to rational choice modeling, to a great

placement of one thing called ‘uncertainty’ by the other labeled ‘risk’.

ﬁctitious dichotomy between (quantitative) risk and (qualitative)

2005: 138); which is a synthesis of quantitative and qualitative calcula-

Performative political economy of creditworthiness

In large part, as this book argues, what is problematic about the

were negligible, and ratings were only ‘informed opinions’ devoid of

of the neoliberal logics implied in and promoted by said ratings.

How much this growing austerity fatigue will be tolerated before

of control, ratings are the internal forms of governmentality instru-

does provide an appearance of objectivity which helps reinforce the

force, which has penetrated virtually every socio-economic space, this

Elite academic departments are now expected to include game theo-

Irrespective of their accuracy, it is the consistency, comparability and

part of a broader movement within modern ﬁnance which subscribes

models, which help constitute and reinforce this (fallacious) binary

produce the “effect” of the knowable and uniﬁed economy’ (Butler

internalization of self-regulation as ratings serve to facilitate the ‘trans-

Emerging sovereign bond markets

Without doubt, Moody’s and S&P’s entrenched historical position is a

in the mid-nineteenth century. In his analysis, Sinclair (2005: 23) docu-

feared. Randall Germain (1997: 151) notes how reserve requirements

Most sovereign debt was held in the form of medium- to long-term

Where necessary, the US government exerted pressure on the banks for

ballooning deﬁcits, emerging economies became increasingly depen-

circulation; which prompted more ratings. Subsequently, a preference

Asian Flu hits ratings

The process of securitisation continually exceeded institutional

on intersubjective perception. Efforts to make such indeterminacies

Coaxed into a false sense of complacency by relatively sound public

Apart from Moody’s 8 April 1997 decision to downgrade Thailand

refers to as ‘conformity bias’, ‘is a constraining process that forces one