A Philosopher's Blog

Welcome to AA+

Posted in Business, Politics by Michael LaBossiere on August 10, 2011
New York Stock Exchange on Wall Street in New ...

Image via Wikipedia

As most folks know, the USA was downgraded from a AAA credit rating to AA+. Based on our spending, debt and leadership, a strong case can be made that we deserve that rating. That said, the fact that Standard & Poor rated us is a point of concern.

Some folks will recall that Standard & Poor played a significant role in the economic collapse that contributed to America’s current plight.  As others have noted, it gave AAA ratings to some of the most crap filled Collateralized Debt Obligations. Misled by the AAA ratings, some investors bought these time bombs believing that they were quite safe. However, as history has shown, they turned out to be financial death traps. More recently it was revealed that S&P based its review on figures that turned out to include a $2 trillion error. While S&P claimed that these figures had no impact on their rating decision, that seems to be a rather absurd claim. After all, the financial figures would seem rather critical to bestowing a financial judgment.

In light of these facts, there seem to be good grounds to be concerned about S&P. One possibility is that the people working at S&P are incompetent and unable to discern good from bad or do calculations properly. If so, their rating (which has proven rather damaging) should be reconsidered. Another possibility worth considering is that the folks at S&P are not acting from incompetence, but have issued the lower rating because doing so is advantageous (directly or indirectly) to the company. While the lower rating does seem to be damaging, it also provides considerable financial opportunities for those in a position to take advantage of it. Given S&P’s role in the meltdown and its “error”, it might be suspected that they are up to something.

One general point of concern is that S&P is a private company that has great power over the world economy. However, its decisions are not subject to review and it is not answerable to the rest of us. Given its role in the meltdown and its current downgrading of the American credit rating, this seems to be a concern worth considering.

Enhanced by Zemanta

25 Responses

Subscribe to comments with RSS.

  1. WTP said, on August 10, 2011 at 11:59 am

    “One general point of concern is that S&P is a private company that has great power over the world economy. However, its decisions are not subject to review and it is not answerable to the rest of us. Given its role in the meltdown and its current downgrading of the American credit rating, this seems to be a concern worth considering.”

    My god, man. Are you now advocating restrictions on the freedom of speech? They are an independent organization. Their only sway is in their integrity. If they do a crappy job, then no one will pay attention to them. People have a right to make up their own minds about these things. If you like the sort of a government that reacts in this manner, move your sorry butt to China. If you truly stand by this, you are nothing but a socialist, a sophist, and a fraud who has no business getting a paycheck, subsidized or otherwise, from the taxpaying residents of Florida.

    • Michael LaBossiere said, on August 11, 2011 at 2:28 pm

      First, bestowing credit ratings is not a matter of freedom of speech. Certainly, people should be free to say what they wish about the creditworthiness of others, provided that it is not slander or defamation. To use an analogy, freedom of speech does not give me the right to assign whatever grade I wish to a student.

      Second, they did a crappy job-look at all the AAA ratings they handed out (in return for compensation) just before the meltdown. It is irrational to trust these people now, given their track record.

      Third, the “move to China” thing is just an appeal to nationalism (see Moore & Parker, Critical Thinking) and fallacious. The rest of what you say is just an ad homimem.

      • WTP said, on August 12, 2011 at 10:22 pm

        The “move to China” is not an appeal to nationalism, it’s advice. The kind of society that uses the power of the state to put pressure on those who express their perceptions is not the kind of society that our constitution supports. The freedom of expression, be it flag burning or any other form of dissent, is a fundamental right of free people. While I may disagree with those who express certain opinions, and I reserve the right to employ or not employ people who express those opinions, the right of an independent private organization or individual to express an opinion is the most fundamental, even sacred, freedom there is. It is a freedom that comes from simply being human. To infringe on that freedom because you don’t like the influence that the organization has is counter to the fundamental underpinnings of philosophy itself. Further explanation to more specific points you raise, below…

      • WTP said, on August 12, 2011 at 10:57 pm

        OK, forgot to address this part…”First, bestowing credit ratings is not a matter of freedom of speech.” Yes it is.

        Sure you give whatever grade you want to a student. There’s just no rating agency for the integrity of college professors, though I understand there are now websites for rating such. There’s just no wide, acknowledged standard possibly because the knowledge base hasn’t widened enough or any number of other reasons. Many a student has performed poorly in school, according to the professors, yet excelled in the real world. Fred Smith’s conception of the business that became Federal Express received a “C” grade from his Yale college professor. Is it irrational to trust such a professor? You are judging S&P’s track record based on one, admittedly glaring, error. Isn’t that a fallacy itself? Granted, I don’t trust them either, but that’s my choice.

        • Michael LaBossiere said, on August 15, 2011 at 6:21 pm

          Actually, I cannot just give whatever grade I want to a student, unless I would like to participate in a grade dispute and spend some time with the chair and the dean. Universities do have systems for dealing with professors who grade unjustly. They are not perfect systems, but most schools do take the matter seriously.

          S&P has more than one error. Look at their AAA ratings of the junk that helped tank the economy. That is either a sign of repeated bad judgment or a sign of something more malign.

          • WTP said, on August 15, 2011 at 8:43 pm

            You ever had a grade dispute over the difference between AAA and AA+? Again, the issue is freedom of speech. They have every right to be wrong. They are a private company. And you want to have them investigated based on their opinion? Ratings are an OPINION. Like something else I could name, everybody has one. Get it?

  2. magus71 said, on August 10, 2011 at 12:55 pm

    Obama inherited a AAA rating and a 5.7% unemployment rate from Bush. Where was the conspiracy under Bush?

    WTP: Yes–everyone can ignore credit ratings.

    Mike–is anything bad that’s happening this president’s fault? Is it all over an illusion that he may very well lose his presidency in the next election?

    History shows that one-termers have something in common: They don’t understand the US economy. Carter, Bush Sr. and now Obama.

    Now sit back and watch the fireworks in Europe over the next year. It’s about to get a lot uglier when Italy defaults. 50% of American business is in Europe. There’s no free lunch and the Piper’s about to collect.

    • Michael LaBossiere said, on August 11, 2011 at 2:31 pm

      He also inherited two wars, massive debt and an imminent financial collapse. Every president starts out either in the hole dug or the hill made by his predecessor. Of course, what he does in the hole or on the hill is his fault.

      Bush senior got the economy, I think. He raised taxes when they needed to be raised and paid for it. Carter, well…he is another matter.

  3. magus71 said, on August 10, 2011 at 1:43 pm

    Not entirely appropriate to this post, but this article says something profound and important:


    “What we have on the streets of London and elsewhere are welfare-state mobs. The youth who are shattering their own communities represent a generation that has been suckled by the state more than any generation before it. They live in urban territories where the sharp-elbowed intrusion of the welfare state during the past 30 years has pushed aside older ideals of self-reliance and community spirit.”

    See Mike, I think this is what you don’t understand: That socialism doesn’t make you or anyone else more charitable. It’s usually a way to make yourself feel better while pushing off the responsibility of really doing anything to help people off on the government. The last two words in the quote above: Community spirit. Socialist types think that socialism is about community. It’s not for the most part. It’s about making someone else do the hard part. The government. It’s not about helping your neighbor, it’s about the government helping your neighbor. Which it doesn’t do very well.

    It’s about seeing the town drunk on the bench and quoting Marx.

  4. T. J. Babson said, on August 10, 2011 at 2:52 pm

    Hard to believe, but this is a MoveOn.org ad:

    • magus71 said, on August 10, 2011 at 3:14 pm

      Hard to believe.

      Bush’s evil War on Terror. Still here, plus some more. Bush’s spending. Still here, plus some more. Bush’s tax cuts. Still here. Hope and change, baby.

      Hey, at least we have gays in the military–but we lost in Afghanistan.

    • WTP said, on August 11, 2011 at 6:22 am

      Why is it hard to believe? It’s just more Blame-Bush strategy. Perhaps the message at the end could be “Who is going to pay off Obama’s $2-3 trillion dollar debt”? Or in the interest of so-called bipartisanship that is all the rage amongst the partisan crowd, “Who is going to pay off Bush and Obama’s $3-4 trillion dollar debt”? But to be really accurate, try “”All of you people sucking at the government teats, this is who is going to be paying off your $14 trillion dollar debt”

      • magus71 said, on August 11, 2011 at 8:31 am

        I was being very sarcastic through my whole post. The libs and Obama ranted about the War on terror for 8 years, but now: not a peep.

        • WTP said, on August 11, 2011 at 8:38 am

          Yeah, got that from yours. While I’m pretty sure T.J. was also being sarcastic, it wasn’t so clear when he said it.

          Not too far off the subject, but since you seem to have known him long, was Mike always this obtuse or is some form of “education” behind his reality blind spot?

          • T. J. Babson said, on August 11, 2011 at 8:54 am

            I was mainly surprised that the MoveOn.org types understand that you actually have to pay back money that you borrow.

            • magus71 said, on August 11, 2011 at 8:59 am

              Only if Bush borrowed the money.

            • Michael LaBossiere said, on August 11, 2011 at 2:39 pm

              Didn’t he? We’ve been borrowing heavily for quite some time. That has been a bad idea that has been passed on from Republican to Democrat and Democrat to Republican. They are bi-partisan borrowers.

            • Michael LaBossiere said, on August 11, 2011 at 2:38 pm

              Most people get that, but some prefer not to think about it. If only finances were like physics-we’d probably have less problems.

            • magus71 said, on August 13, 2011 at 4:16 am

              I’ve always said Bush spent too much. But an analysis by CATO shows it wasn’t on defense. While he did increase defense spending, it wasn’t out of proportion historically. He spent more on entitlements than everyone besides Johnson if memory serves me. So both conservatives and liberals have it mostly wrong in their assumptions about Bush.

              But…and this is a big but…Obama has crushed Bush in every spending respect. And if you weren’t partisan, you’d point that out. And Obama’s immoral presidential campaign set the cancer of cynicism in this country, then he did exactly what Bush did, plus some far less intelligent military operations. He’s failed as a leader. He’s done. I hope he writes a few more book and appears on Oprah a few more times and just goes away.

              Also, your argument assumes that all of the bad things that’ve happened with this administration were inevitable because of what was handed to Obama. Any president could say that. And Germany faced the same economic issues, but did things very differently than Obama and got very different results: Germany’s economy is now better than America’s.

            • Michael LaBossiere said, on August 15, 2011 at 6:26 pm

              I don’t think Obama is done yet.

              No, I don’t infer that all the bad things were inevitable. While Obama did inherit two wars and a broken economy, he also had numerous opportunities in new situations.

              Germany is doing well, but there are underlying problems they still need to address. The United States should, however, follow the austerity path a bit more closely. We could also increase revenues without increasing taxes in various ways, such as charging companies for the use of public lands at a more reasonable rate.

          • Michael LaBossiere said, on August 11, 2011 at 2:37 pm

            Repeatedly calling me obtuse proves nothing. The mere fact that you disagree with me hardly shows I am in error or engaged in poor reasoning.

            • WTP said, on August 11, 2011 at 3:19 pm

              Repeated demonstrating your obtusitude with statements such as this:

              “One general point of concern is that S&P is a private company that has great power over the world economy. However, its decisions are not subject to review and it is not answerable to the rest of us.”

              S&P has “great power over the world economy”. You state that as a fact, yet barring any complex conspiracy theory (which would be a whole other topic) you have no evidence of this in the context of this discussion. S&P is reporting what it THINKS the US financial viability is relative to its (S&P’s) own standards. S&P can’t tell anyone what they MUST do. As a private company it has no obligation to change either its standards or its perceptions of reality relative to those standards. People and institutions value their perceptions for their own reasons and are not REQUIRED to abide by S&P’s rules if they choose not to. If they perceive S&P to be an inaccurate standard, they can chose Moody’s or any other rating agency as their benchmark. They are a private company. You, however, as an employee of a publicly funded educational system are answerable to the rest of us, or at least those of us paying taxes in the state of Florida.

              Repeatedly denying your obtuseness proves nothing either.

            • Michael LaBossiere said, on August 12, 2011 at 10:47 am

              Again, the mere fact that you disagree with me does not entail that I am obtuse.

              As far as S&P having great power, the evidence would seem to be rather clear: after the credit downgrade, the stock market declined. The main cause put forth by the experts was the downgrade. True, they could be wrong about this (after all, it could be mere coincidence and the experts could have their causal reasoning wrong). The downgrading also impacts the US economy in other ways, such as interest rates. This seems like great power.

              True, people can decide to ignore S&P, just like car deals and mortgage companies could chose to ignore the credit reporting companies. People can also ignore pundits, the media, advertising, and so on. However, the mere fact that people could ignore them does not seem to show that they do not have significant power. They cannot, of course, roll an army or a police force onto people who dissent-but there are other kinds of power.

              Even assuming I am in error, the claim that S&P has great power does not seem to be an obtuse claim. However, perhaps I should ask what you mean by the term. In general, you seem to just apply it when you think I am in error. But, it doesn’t mean that.

            • WTP said, on August 12, 2011 at 10:31 pm

              Mike, you confuse power with influence. Government using not-so-veiled threats to a private organization for expressing it’s opinion is a reminder to that organization of who really holds the power. S&P has influence based on it’s past observations/perceptions. Yes they were wrong recently, but perhaps once-bitten-twice-shy applies here. Perhaps not. I agree with you that S&P are highly suspect in their perceptions. I don’t agree with them, but I respect what they have to say on the matter. People and organizations have a right to be wrong in their opinions. Sometimes ideas that are wrong in the present have been found to be right in the future. To use the POWER of the state to silence those who disagree is philosophically wrong and dangerous in practice.

        • Michael LaBossiere said, on August 11, 2011 at 2:36 pm

          No one ever complains about their own war. Such is human psychology.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: