By JOHNATHON RODGERS

IN 2008, at the peak of the credit crunch, Hank Paulson, secretary to the Treasury and a former chief executive of Goldman Sachs, coerced the US Congress to bail out the big banks, including his previous employer. Paulson claimed that the entire financial system was on the verge of collapse, because access to bank credit (and 'shadow bank' credit), had come to a virtual standstill.

Consumers, businesses and corporations are all dependent on credit, as is all economic activity. The $750 billion bail-out package was intended to recapitalise the big banks, so that they would start lending (providing credit) again and, in so doing, stimulate economic activity. The problem, however, was that the banks did not comply. They used the money to recapitalise their balance sheets, buy safe Treasury bills and bonds (and in the process earn a good risk-free return), and continue to pay themselves huge bonuses. The bank bail-out was necessary because of the bank losses associated with the sub-prime mortgage debacle.

The sub-prime mortgage debacle was the cause of the great recession and the ensuing financial crisis. The crisis caused a severe dislocation of the US economy and, eventually, resulted in an increase in its debt ceiling and a downgrade in the credit rating of the US Government some three years after the beginning of the housing crisis.

Integral to the whole sub-prime problem was the fact that the credit rating agencies (Moody's included) had given a 'triple A' rating to the sub-prime mortgages that the big investment banks had sold to global investors. Credit rating agencies (CRAS) are paid by banks to rate a variety of investment products, which the banks, in turn, sell to investors. They are thus in a conflicted position, as the pressure is always on them to over-rate the banks' financial products, many of which are complex financial derivatives that would challenge PhDs in finance. Because of this, in the opinion of many, the credit rating agencies lost any semblance of credibility they once enjoyed.

Now one of the same CRAS, Moody's, is threatening to downgrade the sovereign credit of the Bahamas, which is now facing its own housing crisis - and potential small cap banking crisis - if the housing crisis continues. Why has Moody's reacted so unusually quickly, and negatively, to Prime Minister Christie's intended foreclosure plan when it took them three years, after the bank bail out plan, to downgrade the credit rating of the US?

The PLP's plan is yet to be implemented, and probably will be amended. Also, arguably, some of the current economic indicators, like Debt-to-GDP ratio, are better in the Bahamas (50 per cent) than in the US (80 per cent). Perhaps it is because Prime Minister Christie's $250 million bailout package is geared towards helping struggling homeowners, as opposed to solely bailing out the banks. I therefore ask the question: Was the Moody's comment an attempt to try and throw the Government of the Bahamas off its plan, in order to maintain bank profit margins?

For many years, the Canadian banks have had a virtual monopoly on banking in the Bahamas and enjoyed enormous profits. They have sucked millions of dollars out of the Bahaman economy during this period. For the past two to three years, because of the recession, they have seen a decline in their bottom lines, and have attempted to offset this by quietly increasing banking fees, across the board. Yet the Bahamas is in a recession, and in a recession we must all suffer some pain, even the banks. The mindset of the banks is that they always want to be in a position where they can privatise their gains and socialise their losses.

My advice to Prime Minister Christie is to modify his plan so that the financial burden is shared by all parties (the Government, NIB, pension funds, the private sector, banks and mortgagees).

Second, the Prime Minister needs to address the primary problem , which is the abnormally high interest rates (Central Bank Discount Rate and Prime Rate). These rates must be reduced immediately, as not only will this offer some immediate debt (mortgage) relief, but also reduce the interest payments on Government debt and, generally, stimulate a stagnant economy.

Third, the Government must introduce anti-trust and truth in lending laws, which will increase competition in the banking sector (which will reduce interest rates) and provide more consumer protection.

Fourth, and most importantly, the Government must take the necessary steps to become fiscally prudent and reduce the national debt, so that the credit rating agencies will be more inclined to upgrade rather than downgrade our sovereign debt.

Yes, Prime Minister, this is your time to demonstrate to all those who elected you that the power of the people, is greater than the power of the banking cartel. It is your time to be bold and decisive! But, a word of warning: the banking cartel will jealously guard their bottom line when it is threatened. So be cautious.