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Ingrained Indeed

Here are our esteemed members or Congress on relying on the influence of unaccountable and entrenched ratings agencies:

Republican lawmakers have been less critical of S&P’s decision but agree that changes are needed. Rep. Randy Neugebauer (R., Texas) said banking regulators have so ingrained ratings into the financial system, they have “almost made it a given that you have to have these ratings. What we’re saying is we don’t want them totally relying on ratings in making those determinations.”

One could insert an observation about the FDA here, educational standards here, medical licensing here, occupational licensing here, and any number of similar problems we have in having people rely on an ingrained entity. Yet it is only the downgrade of US government debt by a government sanctioned oligopoly rating agency that gets bipartisan concern?

5 Responses to “Ingrained Indeed”

  1. Harry says:

    I know how you hate people getting off point, but I have tired of all this business over S&P ratings. Let me make the ad hominem argument that hardly anyone, including ninety nine percent of all of the stockbrokers and other people in the investment business I have known do not understand how Standard & Poor’s arrives at its ratings.

    This is not to demean anyone who might be a sibling of wintercow.

    Rather, all of the ratings companies follow specific rules, which you cannot teach a monkey to follow, but you can teach practically any vertebrate who can count to ten, which may include IQ’s of above 80, to plug into the computer.

    When a company misses an interest payment, it gets rated D, for default.

    When a company has vast resources to pay the interest and principal on its debt, it gets rated AAA, like ExxonMobil, and the guys with the green eyeshades at S&P are told not to pay the slightest attention to Senator Schumer, who wishes often to disgorge hundreds of billions from ExxonMobil.

    Actually, I think that since our country’s debt is denominated in dollars, and since the easy choice is to print more, S&P was wrong. S&P was behaving like the IMF and the World Bank, where the prescription for solvency has always been for balancing the books with a combination of higher taxes and money from other people. Think Brazil for the past seventy years.

    The present strategy is to rob us once again with inflation. Wintercow’s graph to the right tells the story.

  2. Harry says:

    Remember, the debt of Italy, Spain, Greece, France, and Germany are all denominated in Euros, run by accountants in Belgium. They sold all of their gold when it was $265 an ounce, and recently our own government took six billion of five- to ten-year treasurys off the hands of the banks at measly rates. Are these guys smart, or what?

  3. jb says:

    Credit agencies add value and help in price discovery in those markets where information is costly to obtain, such as obscure private debt or municipal bond markets. But there is little relevant information that has not been divulged regarding the probability or magnitude of a default on U.S. debt, so the impact of the downgrade on yields, not surprisingly, was non-existant. It represented just one more opinion regarding information already
    well-publicized.

  4. jb says:

    But Wintercow your point is well taken, and gets me thinking. I wonder whether there are private entities, for example, that rate schools, public and private. Is there a market out there, do you suppose, for this type of information? Parents perhaps? I for one would love to see public schools compared in western Mass., as well as private, to include per pupil expenditures.

  5. jb says:

    Check it out, now the SEC and Senate Banking Committee are investigating S&P following the downgrade!! Talk about Chutzpah!

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