Tuesday, April 19, 2011

S&P: Degraded Downgrader

The Standard&Poor's warning on U. S. debt is being treated as Holy Writ, driving markets down and inspiring Chicken Little clucking in the financial world, but few are questioning the source.

We are not talking about the Vatican here but a for-profit company, owned by McGraw-Hill publishers, that has taken a public beating for over-rating the mortgage derivatives that led to an economic meltdown and is currently being investigated by the European Commission for "monopoly abuse" in its charges for debt data.

A skeptic might be tempted to think that S&P's bold stance has as much to do with its own rehabilitation as with macroeconomics. One equity-firm head puts it baldly:

"I have stopped paying any attention to anything that S&P says or does. Its performance over the past decade has revealed it to be incompetent and corrupt--it sold its AAA ratings to the highest bidder. It is the broker who lost all your money, the girlfriend who cheated on you, the partner who stole from you."

That said, the political world, including the White House, is welcoming the flawed messenger's message--that partisan jockeying over U. S. debt can spook lenders, including China, who are underwriting our deficits.

On the day of Pulitzer Prize announcements, the S&P flap is yet another reminder of how information flows in the 24/7 era of facts, factoids and fake news. For the first time, the national reporting award goes to journalism that did not appear in print--ProPublica's online series, "The Wall Street Money Machine."

Meanwhile, David Brooks, while keeping him at arm's length, deconstructs Donald Trump's appeal to "voters who believe that America could reverse its decline if only a straight-talking, obnoxious blowhard would take control."

To understand the world we live in, are these are only choices--a self-interested ratings service, non-profit investigative journalism or a self-promoting blowhard?

If they are, we are in trouble that goes deeper than debt.

Update: For reality-based reactions to the S&P spooking, one of journalism's sane voices, James Fallows, cites antidotes to the "(Needless) Hysteria."

1 comment:

Fuzzy Slippers said...

It's astonishing that you are so dismissive, even disdainful, of America's economic standing. While you don't think it matters, oddly enough the stock market does, as do our foreign lenders. We know this because we have tangible evidence over a century that both the stock market and our lenders react to the S & P rating (be it favorable or not), so it also matters to the Treasury.

So according to you, the fact that the stock market reacted and the dollar immediately dropped against both the Yen and the Euro and the that the Treasury will find it more difficult to find anyone to finance your president's grandiose fantasies is meaningless because you think the source is suspect? Suddenly. After over 150 years? Really? Global markets don't matter, our own dollar doesn't matter, the Treasury's ability to borrow money at lower interest rates (or at all) doesn't matter? Wow. Just wow.