<p>Indiaparent, I absolutely share your economic opinion, and the need for everyone to know econ (esp the politicians). But having worked closely with PhD economists for much of my career, I also know that different philosophical opinions among them continue to flourish, regardless of calibre of training and credentials (but very much regarding where they were trained). Such is the state of the science. </p>
<p>Sadly I can’t tell often if politicians are truly ignorant, or if they know better but just need to go with what their ignorant constituents want to hear. For most, they want re-elected more than they want to do the right but unpopular thing.</p>
<p>S&P said two weeks ago that yields could go up a quarter to a half percent on a downgrade to AA+. Worst case is that it brings us back to where we were a month ago.</p>
<p>S&P wants another $1.3 trillion. Next week should be interesting.</p>
<p>Central bankers will have the whole weekend to plan their market intervention strategy. I don’t eat popcorn much anymore because I’ve gone lower carb but please pop yourself a bowl and enjoy the show.</p>
<p>What short memories we have! S&P were the guys who rated the subprime debt offerings. Remember? Duh! (How are these guys even in business, rather than in prison?)</p>
<p>It is possible for a person or organization to be wrong about one
thing and right about another.</p>
<p>At the moment, Moody’s and Fitch have AAA ratings for the US. Moody’s
and Fitch both warned of possible downgrades with Moody’s stating that
the outlook is negative.</p>
<p>A review of comments by leaders and central bankers around the world
said that this wasn’t unexpected and it was telegraphed well. They
might be doing that to calm world markets or just making an
acknowledgment of fact that we don’t have our house in order.</p>
<p>My memory isn’t short in this area.</p>
<p>There were a lot of bad actors in the financial industry. There
probably still are. Enron and WorldCom were top-rated companies
too.</p>
<p>But S&P has a lot of power in their opinions and their downgrade
has material effects, even if you enjoy ad hominem comments about
their problems in the past.</p>
<p>There are a lot of bond funds that have to have a mix of certain grade of bonds. Unless they rely on other rating agencies, they will have to shift out of some US government or shift out of other debt. The effect will be upward pressure on US interest rates. It will likely reverse all or part of the Federal Reserve’s QE2 which was a failure for the most part.</p>
<p>I was reading about the effects of the downgrade and there will be impacts on financial and insurance companies. So, yes, some asset sales. Will it be a rout? Probably not - where else are debt-holders going to go?</p>
<p>Warren Buffett provided an interview to Fox Business News yesterday and he said that it would be business as usual for him. He holds $40+ billion in Treasuries and is staying put. He’s not a fan of S&P either but the reason that he gave is that they downgraded Berkshire. They just reported earnings of about $2K/share for the quarter. Berkshire is $107,500/share (quite a drop this year) - stock seems a little pricey for a big company unless I’m missing a hidden growth story somewhere. I haven’t followed Berkshire as closely as I did a few years ago.</p>
<p>Interesting that they had a bearish 50/200 SMA cross in late May - it was a very good predictor of later declines.</p>
<p>Mini I’m with you. My H. reminds me that Lehman’s rating was AAA two days before they went bankrupt. Okay then. We also recall that in the Carter years we had some bonds at 17%.</p>
<p>I generally follow the criminal activities of the banks (it’s easier because there’s a lot more to see). I haven’t followed the criminal accusations on the ratings agencies as they are not as visible to me from a trading perspective.</p>
<p>But, as an adjustment for your perspective, let’s say that one person that commits a crime in an organization does not imply that the entire organization is corrupt or that everyone in the organization is a criminal.</p>
<p>Let’s say an entire agency is filled with people doing ratings who are paid one-quarter of what they would make if they were working for the organization that needs the rating on their product. Let’s then say that a “normal” career path, known to all who work there, is to go from the rating agency to the organization that needs the rating on its products. Let’s then say that the people at the rating agency are handled a pile of what they know to be crap. Let’s further say that the folks who did the rating of the crap, DO end up working for the organization selling the crap.</p>
<p>Let’s say the people who own the ratings agency are quite well aware of what’s going on. Let’s say…</p>
<p>The general regulation problem with regulators retiring into industry.</p>
<p>It seems to me that the ratings companies would then tend to go easy on companies, countries, etc. So you are implying that the S&P was going easy on the US and that they should have downgraded sooner?</p>
<p>I do see bond downgrades by the ratings companies as something that is fairly routine so these companies that are downgraded don’t pay to play or you just can’t hide things at some point?</p>
<p>It seems that your arguments against the ratings companies is counter to you thinking that we shouldn’t have been downgraded.</p>
<p>Oh, I have no idea whether we should have been downgraded. I thought the S&P statement was hokum (disingenuous in the extreme). And perhaps the U.S. should have been downgraded in 2008, and with our current Herbert Hoover of a President, it might make sense (or might not) to downgrade now.</p>
<p>But I think the S&P owners and managers should be in prison, not making decisions for the rest of us.</p>
<p>Thank you Mini. We agree (H and I). And yes to the 2008 comment. Might there be a political agenda here? Hmm, will the S&P people be retiring to right leaning companies? Hmm.</p>
<p>Perhaps 2003 or 2004 - that’s when many of us were waiting for the mortgage bubble to pop and discussing the practices of the real estate industry, mortgage lending industry, banks and appraisers.</p>
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<p>As I said, I don’t follow what they do that closely, but I wouldn’t have a problem with that if they were found guilty.</p>
<p>I’ve been in the position where I had to clog up the revenue wheels of a large company before and we had to convince management to shut things down. One of the managers had a nervous breakdown. It was the right decision - fortunately I was too young to understand all of the ramifications of doing so. In the long run, it was the right decision - big companies/customers do appreciate it when you admit that you have problems and provide a remediation plan. It certainly costs in the short-run though.</p>
<p>The financial industry blamed almost all of the Wall St Internet Bubble excesses on Martha Stewart - she was apparently the only person that wasn’t connected and high-profile enough to satiate the masses (not really). That seems to happen over and over again.</p>
<p>Different kind. In India and Africa, there is nothing nearly as corrupt on the scale of the U.S. military complex, where there are seven military lobbyists for every member of Congress, and we spend $20 billion on an “extra” engine for a military jet. It is so corrupt, we don’t even call it corruption.</p>
<p>But every member of India’s Parliament is a millionaire, and they make a fortune in corruption, which seeps down to the local level. Still nothing nearly on the scale of S&P fraud related to the mortgage derivatives market. (But one recently arrested Minister of Communications made 20 billion rupees on the sale of the 2G network.)</p>
<p>Corruption appears to be ingrained in human nature and happens everywhere that I’ve looked at. Perhaps we believed that it didn’t happen in the United States because we are special but it’s always been here too.</p>
<p>As a friend of mine is fond of saying, “Business is gonna get done.”</p>
<p>I do think this situation might be unique in an entirely different way. Has there ever been a situation before where a fiat currency was the world’s reserve currency?</p>