Reading risk: The practices, limits and politics of municipal bond rating

Abstract

This article contributes to the growing literature on the relationship between local governments and financial markets by demystifying the municipal bond rating process. Since the Great Recession, the dynamics of municipal debt have moved to the forefront of American urban politics and the pursuit of high bond ratings has become a key mechanism constraining local policy autonomy. However, we know little about the actual practices of the rating agencies. Drawing on interviews conducted within these organizations, the article examines the criteria, processes and organizational practices that produce ratings. In conversation with calls for bridging the divide between political economy and techno-cultural approaches to markets, the paper shows how bond rating is structured by an ever-present tension between the need to understand localized investment risk in all its place-specific complexity while striving to fit that risk within the standardized grid of the rating scale. Further, the analysis highlights the imperative of budget flexibility through which indebted local governments are pushed into self-disciplining of their finances. As such, the article unpacks a particularly opaque area of local politics and furthers ongoing conversations between financial geography and urban political economy.

Treating ecological deficit with debt: The practical and political concerns with green bonds

“…They may also serve to entrench the malign political power of financial actors. Credit rating agencies already discipline governments with the threat of downgrading their debt (Omstedt, 2019;Ross, 2017). Rating agencies and bond underwriters are accused of de-democratising politics for a class of creditors that aim to turn public goods into private income (Kirkpatrick, 2016;Ross, 2017).…”

Follow the money

“…As part of examining social and economic relations, the approach reveals the power and influence of credit rating agencies in the network identified above on IFFIm's design. Credit rating agencies, as gatekeepers to debt, are powerful financial actors (see for example Omstedt, 2019) and IFFIm is no exception. Their rating processes influenced several important technical design features of IFFIm's financial mechanism.…”

W.E.B. Du Bois and the urban political economy tradition in geography

“…Neoliberalism was thus born, and the Keynesianmanagerial local state was disappeared. The neoliberal or entrepreneurial city is a conception where the local state is a partner with, and facilitator for, rather than a regulator of capital (Doucet, 2013;Hackworth, 2007;Omstedt, 2020;Peck, 2017b;Ward, 2018). Resources from higher levels of government were removed, so that cities had to compete more with one another to attract firms.…”