The New Masters Of Capital: American Bond Rating Agencies And The Politics Of Creditworthiness (Cornell Studies in Political Economy)

Without bond rating agencies, there would be no standard means to compare risks in the global economy, and international investment would be problematic. Most observers assume that the agencies are neutral and scientific, and that they interpret their role in narrowly economic terms. But these agencies, by their nature, wield extraordinary power and exert massive influence over public policy. Sinclair offers a highly accessible account of these institutions, their origins, and the rating processes they use to judge creditworthiness. Illustrated with a wide range of cases, this book offers a fresh assessment of the role of an often-overlooked institution in the dynamics of modern global capitalism.

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A solid introduction to the power of bond rating agencies, 2007-04-30
Few writers have closely examined the work of bond rating agencies - even though their decisions can move markets, open or close the doors to capital, and even bring down governments. Timothy J. Sinclair manages to keep his prose relatively accessible, despite his many references to research that could only appeal to academics. Although his detailed analysis of various sociological characterizations of agency power may be of little interest to the general reader, we believe that his main point - rating agencies exercise power and influence well beyond the bond markets - deserves careful consideration by anyone interested in economics, finance, politics or the issue of globalization.


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An Important Read for Students of Political Economy!, 2006-07-16
It was exciting to see a book in political science about the bond markets, and even more interesting to see one attempting to fit into the constructivist international relations literature. At first glance, it seems ripe for such a theoretical exploration - analysis focuses on an ontological justification for focusing on the bond rating agencies and Sinclair offers theoretical tidbits from economic sociology to explain the political organization of markets in contrast with the Hayekian spontaneity view. Sinclair offers interesting arguments about bond rating agencies, the basis of their power, the structure of their authority, and the implications of their behavior for other actors including but not limited to sovereigns. The argument focuses on the social nature of finance which zeros the analyst on matters of uncertainty and risk. Interestingly, this provides a parallel to more recent rationalist approaches to economic life. Overall, the topic of the book intrigued me, particularly since the author discusses the process of disintermediation* - the larger structural economic change that opens up the space to be filled by bond rating behaviors in sovereign, municipal, and corporate fixed income markets.

Theoretically the author offers a discussion of what he considers "embedded knowledge networks" slightly similar to Haas-like epistemic communities but lacking the normative commitments to notions of the public good. Sinclair suggests that bond rating agencies need to construct their image as an "embedded knowledge network" and the growth of their role in financial markets as "endogenous" to integration of world markets. If these private authorities are not viewed by financial markets and debtors as legitimate, markets will not function in the manner typically desired - since what these social actors do according to Sinclair is socially embed the financial markets. Implicit in the argument is a Polayni double movement - however I did not find it easy to tease out from Sinclair's logic or language. As financial markets integrate across the world, there is some amount of disembedding of the market from its social base which can be reduced via the construction of private legitimated authority and the centralization of market processes by the bond rating agencies. The bond agencies utilize this legitimacy to structure the ground rules of the financial markets themselves. In a sense their is a coordination effect, which narrows the maneuvering room for current and potential market actors, and this "common understanding" of the norms within bond market practice stem from the rating standards and the very political decisions made by bond rating agencies. Therefore bond rating agencies survive on maintaining their reputation both for sound analysis and objectivity but legitmation crises sometimes occur and are particularly pronounced when their behavior expands into previously uncovered territory. This is all very interesting, but once we move beyond this basic argument Sinclair loses me a bit mainly because I think his case studies could be much tighter and directly intertwined with the arguments themselves. I wish the book spent more time cultivating and working with this side of the argument itself. I got the sense that Sinclair was rushed once he finished up the theoretical analysis.

My basic suggestion to those interested in the politics of bond markets is that you should take this to scrutinize the early theoretical arguments. The first three chapters are a treasure trove of interesting arguments that deserve to be taken in extension past where Sinclair goes, and possibly restated without some of the cumbersome post-modern jargon. Sinclair's detailed empirical research also will be a great starting point for anyone interested in following up in this research agenda. Some of the empirical findings support the arguments of the book, but fail Lakatosian notions of what makes good theory - there doesn't seem to be the focus on uncovering "new facts" the interesting type of dynamics that those familiar with the financial sector would not expect, particularly in regard to politics. The cases seem on occasion to be historical stand alones, and the methodology of "counter-factual" does not appear to be taken very seriously. On a number of occasions there are only short paragraphs at the end of sections posing the counter-factual, this is hardly rigorous in the manner we might expect if this is really a methodological approach. I would have been perfectly content without the almost silly homage paying to positivist concerns about lack of variation on the dependent variable, etc as long as the author is willing to express clearly what the implications of his methodological choices are. In fact the book would have probably been more convincing. As for the Lakotosian problem by way of example, it is not particularly enlightening to read the argument that short-term oriented thinking is spread by the bond-rating agencies in a process akin to market socialization. In fact it made me think of the Schumpeterian critique of capitalism and democracy as larger social processes so the argument could have been further tied into non-Sorel based literature bodies. While it is interesting in the context of the larger processes raised by Sinclair, alone it seems almost trivial. It might just be the case that I totally misunderstood Sinclair, especially since the language was more vague as this side of the argument cropped up. One other factor that disappointed me greatly was how little time was focused on the exclusive issue of sovereign bonds. This bias reflects my own research agenda, but for a piece on International Political Economy I expected more weight on the international side and less on say municipal government policy even though the arguments that Sinclair makes about state-market relations within the confines of so-called "state decline" and other globalization arguments were fascinating particularly at the sub-national level. Read it, but do not expect to be swept away by the empirical and theoretical conclusions. Nevertheless, Sinclair should be applauded for attempting a very difficult feet - applying sociological constructivist theory to financial markets. Surprisingly even though the logic of financial behavior begs for this kind of approach, especially given concerns about risk and reputation, I have not seen anyone come close to what Sinclair tried to do here, whether he was successful is a separate story, but at least we have a place to start. While logically the arguments seem to fit rather well, this is not something that scholars have been very willing to pay attention to, and the novelty of the project alone deservers credit.

* Disintermediation refers to the process by which the market has become increasingly saturated non bank oriented securities. For the case of sovereign debt, the most interesting phenomenon is the rise of the bond market and associated credit derivatives trade.

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