Welcome to Late Capitalism. Please check your morality and sanity at the door.

A must-read from Robert Fishman on the New York Times op-ed page (paywall) on the bailout of Portugal. The lesson: Portugal was a stable economy with a responsible government, good levels of growth and low unemployment. So what went wrong?

Market contagion and rating downgrades, starting when the magnitude of Greece’s difficulties surfaced in early 2010, have become a self-fulfilling prophecy: by raising Portugal’s borrowing costs to unsustainable levels, the rating agencies forced it to seek a bailout. The bailout has empowered those “rescuing” Portugal to push for unpopular austerity policies affecting recipients of student loans, retirement pensions, poverty relief and public salaries of all kinds.

And why would they want to do that?

One [possible explanation] is ideological skepticism of Portugal’s mixed-economy model, with its publicly supported loans to small businesses, alongside a few big state-owned companies and a robust welfare state. Market fundamentalists detest the Keynesian-style interventions in areas from Portugal’s housing policy — which averted a bubble and preserved the availability of low-cost urban rentals — to its income assistance for the poor.

And the rest of the world just stood by:

Could Europe have averted this bailout? The European Central Bank could have bought Portuguese bonds aggressively and headed off the latest panic. Regulation by the European Union and the United States of the process used by credit rating agencies to assess the creditworthiness of a country’s debt is also essential. By distorting market perceptions of Portugal’s stability, the rating agencies — whose role in fostering the subprime mortgage crisis in the United States has been amply documented — have undermined both its economic recovery and its political freedom.
In Portugal’s fate there lies a clear warning for other countries, the United States included. Portugal’s 1974 revolution inaugurated a wave of democratization that swept the globe. It is quite possible that 2011 will mark the start of a wave of encroachment on democracy by unregulated markets, with Spain, Italy or Belgium as the next potential victims.

We have handed over tremendous amounts of power to credit rating agencies - which, let us not forget, are for-profit companies in the business of selling high credit ratings.  The danger, as Fishman correctly points out, is that we have unleashed market forces so powerful that they can hold a gun to a country's head - any country's head - and dictate terms. Anyone else scared?