Berlin—In March the bond-rating agency Moody’s issued a warning to the Berlin government: Should a proposal for housing expropriation become policy, it would downgrade the city’s rating. The threat made visible the power struggle between housing activists and an increasingly financialized real estate industry.

The expropriation campaign is led by the group Expropriate Deutsche Wohnen and Co, whose name references Berlin’s largest corporate landlord, Deutsche Wohnen, which owns more than 115,000 apartments in the city. The group is part of a much larger coalition of housing activists that wants the city to buy back more than 200,000 private rental units and turn them into affordable social housing. Specifically, the campaign is arguing that property ownership in Berlin should be capped at 3,000 units. Any entity owning more than 3,000 units, like Deutsche Wohnen, would be subject to expropriation.

The proposal is almost unimaginable in the United States, where homeownership is deeply entrenched and incentivized by government subsidies. Berlin, however, has a recent history of expansive social ownership. After reunification in 1991, the municipal government owned nearly 30 percent of the city’s housing stock. But around the turn of the century, the city sold around half of their apartments, more than 220,000 units, at a steep discount to raise short-term cash.

Furthermore, unlike the privatization process in the United Kingdom, Berlin did not sell homes to individual tenants; it sold entire apartment complexes to institutional investors. Goldman Sachs, for one, was in on a 2004 purchase of 60,000 units; Deutsche Wohnen later acquired that portfolio in 2013.

Moody’s and other opponents to expropriation argue that Berlin cannot afford to purchase and maintain so much housing, while proponents say it is the best way to cool an overheated housing market that’s pushing out poor and working-class renters.

The legality of expropriation is still awaiting a definitive interpretation of Article 15 of the 1949 German Constitution. The law states, “Land, natural resources and means of production may, for the purpose of nationalization, be transferred to public ownership or other forms of public enterprise by a law that determines the nature and extent of compensation.” The provision comes from an era when Germany was more hesitant of market capitalism.

The cost of expropriation, too, is highly contested. The Berlin government estimates a price tag north of €35 billion ($38 billion), but activists and scholars claim the city could legally pay a fraction of that to avoid footing the cost of rampant land speculation. Berlin, as of last year, is home to the fastest-growing real estate prices in the world.

On a sunny afternoon outside a café in the Kreuzberg neighborhood, Christoph Trautvetter told me about the dynamic: “If you pay these corporations their market price, then you would not be ‘expropriating’ anyone; you’d be paying out their speculation.” Kreuzberg sits at the crux of the housing movement: a historic center for migrants and leftists now facing rapid gentrification.

Trautvetter is a tax expert and coauthor of Responsible Landlord or Profit-Maximizer?—an exhaustive study of land ownership in Berlin. “The word expropriation implies you pay under market value—pay them the original purchase price, about 10 to 12 billion euros total,” he said. “If we pay too much, the city will be forced to make the rents too high to finance the purchase.”

Moody’s aired its opinion on expropriation before the legality and price were known. Nonetheless, with recent memories of recession, the prospect of a credit downgrade was felt across the city. Bond-rating agencies like Moody’s are widely noted in local and international papers, but their influence on urban policy is rarely discussed.

Moody’s began rating municipal bonds in the United States back in 1919, according to Destin Jenkins, whose book The Bonds of Inequality: Debt and the Making of the American City is scheduled for publication next year. He told me, “They start out of the gates with a bad track record; nearly 50 percent of their highest-rated bonds in the 1920s ended up going into default.” The Great Depression, Jenkins said, invited the first wave of scrutiny to the bond-rating industry.

“And since then, it has always taken a financial crisis of some degree to bring public attention to bond finance in general,” said Jenkins, a professor at the University of Chicago, where he studies the history of capitalism. “I believe we really need to consider our relationship, as citizens, to bond-rating agencies like Moody’s, and broadly start asking ourselves: Who are these analysts, and what are they really doing?”

Moody’s is one of the “big three” bond-rating agencies, alongside Standard & Poor’s (S&P) and the smaller Fitch. These agencies’ purported job is straightforward: They evaluate corporations, municipalities, and sovereign nations on their “ability and willingness” to repay debts. These ratings, which range from AAA to C, influence the interest rates on loans.

Municipalities often issue bonds to cover public transit, street maintenance, and infrastructure costs. A ratings downgrade from Moody’s, then, can attach millions of dollars in additional interest-rate payments to these projects. The baggage of inflated costs becomes the long-term burden of taxpayers.

With this power, built-in conflicts of interest have long stained Moody’s and other bond-rating agencies. On the one hand, Moody’s is a profit-seeking, publicly traded company that must compete with S&P for ratings fees. On the other, its legitimacy rests on trust in its ability to be objective and apolitical. Moody’s profit interest, though, does not always align with issuing accurate credit ratings.

In 2017, Moody’s settled for $864 million with 21 US states over charges of seeking excess profits through fees for giving inflated ratings to risky investments in the lead up to the Great Recession. Two years prior, in a similar suit, S&P settled for $1.37 billion. As the Financial Crisis Inquiry Commission concluded in 2011, “The crisis could not have happened without the rating agencies.”

Former US Attorney General Eric Holder put it neatly at the time: S&P “declined to downgrade underperforming assets because it was worried that doing so would hurt the company’s business.” If S&P wouldn’t rubber-stamp the triple A rating, business would funnel to Moody’s for it and vice versa.

This history is not lost on activists in the Expropriate Deutsche Wohnen and Co campaign. “Moody’s credibility is, at best, questionable after it became known how central their ratings of acid debt was in causing the crash of 2008,” said Thomas McGath, a spokesperson for the expropriation campaign.

“We saw the threat from Moody’s as part of the machinations that would naturally occur,” McGath of the expropriation campaign said. He noted that two of Moody’s largest shareholders are tied to the private rental market in Berlin: BlackRock and Berkshire Hathaway. BlackRock also being the largest shareholder of Deutsche Wohnen.

For McGath and many other activists, this raises a question of converging interests.

“Renters around the city know that Berlin’s political economy is tightly bound to such power constellations,” McGath told me.

But it also means something more to the campaign according to McGath: “Our fight is not just at a municipal level, it is something that’s international.”

For the better part of the 20th century, Moody’s influence was confined to the United States. But as finance capital spread, especially throughout the 1970s and ’80s, Moody’s extended its business and, perhaps more importantly, its values overseas.

“With Moody’s, it’s about this ideology of revenues and expenditures,” Jenkins said. “The ideology is a lens, it’s a way that the actual human needs of communities, like affordable housing and social welfare more generally, get abstracted, evaluated, and reduced simply into terms of dollars and cents.”

Moody’s has long pushed municipalities toward privatization and austerity in the name of balancing budgets. For Moody’s, all revenue-generating schemes are positive, even when they’re regressive—increasing public transit fares, raising tuition to public universities, increasing sales tax.

David Jacobson, a Moody’s representative, said in an e-mail exchange, “Ratings have many internal and external variables, but we’re agnostic as to how cities achieve things like budget balance. Some raise taxes, some cut expenses, some do both, but we’re agnostic to how they do it as long as the budget is balanced.”

When presented with Jacobson’s quote, Jenkins told me, “That e-mail is part of this performance of neutrality. It’s the performativity of finance in general—you get away with saying everything is about what the market wants.”

“The very idea,” he added, “that Moody’s could say they are agnostic as to how budgets are balanced isn’t in the line with the actual historical facts.”

The credit crisis in New York City in the 1970s is a good example. Following civil rights–era demands, New York City increased expenditures on housing, education, hospitals, and other social programs. Then, deindustrialization ransacked the city’s tax base.

Moody’s issued two consecutive downgrades in 1975, which effectively locked the city out of the bond market. Pushed to the verge of bankruptcy, New York City fired thousands of public-school teachers, fire fighters, and other municipal employees. Credit-rating agencies deemed the extreme austerity measures progress; deep cuts quickly became the standard response to municipal debt crises across the country, most egregiously in Philadelphia, Cleveland, Milwaukee, and Detroit.

Today, politicians in Berlin are again compelled to pay heed to Moody’s ratings. “As their [Moody’s] opinions may be decisive for investment decisions, the City of Berlin considers them very relevant,” said Eva Henkel, spokesperson of the Berlin Senate Department for Finance.

Henkel continued, “At the same time, we are also aware of the fact that ratings may be erroneous, as has been the case with Moody’s in the past.” Henkel mentioned that Fitch has not issued any warning about expropriation yet. But, she said, “the positive ratings by Moody’s and the two other agencies play a crucial role as Berlin’s bond issuing strategy is long-term and risk averse.”

What Henkel’s quote reveals is that through downgrades, credit rating agencies can potentially veto ambitious plans for public investment. Samuel Stein, author of Capital City: Gentrification and the Real Estate State, told me that the rating agencies “would consider it fiscally irresponsible to have a large public sector.”

Stein writes in Capital City that Moody’s and its ilk “are not hands-off investigators or passive reporters of economic prospects. They are ideologically driven activists who meet regularly with municipal governments in the United States and around the world to ensure capital’s expansion and reproduction.”

In 1996, New York Times columnist Thomas Friedman wrote:

You could almost say that we live again in a two-superpower world. There is the US and there is Moody’s. The US can destroy a country by leveling it with bombs; Moody’s can destroy a country by downgrading its bonds.

Ever since, Moody’s and the other two rating agencies are regularly described as “masters of capital,” “gatekeepers of the market,” or “rulers of the world.”

Jenkins, however, disagrees: “Historically, dating back to the Great Depression, they have proven themselves extremely incompetent. So, I wonder what miles do we get out of describing them as these ‘masters of capital’?”

He said, “We have to be careful as to how we describe them—because at some point we end up reifying the powers they have. The more we describe the financial world as complicated, the more it allows them to say, ‘Well, it’s so complicated that you couldn’t regulate it or understand it.’”

“But guess what?” he added. “A lot of the times they don’t understand it either.”