Monday, August 8, 2011
The outrage that has been expressed at the very idea that S&P lowered the financial rating of the United States down a notch to AA+ is completely understandable. We have never been so insulted by a private business like that before. And they did this dastardly deed to us at a time we were vulnerable. S&P kicked us while we were down.
What were they trying to prove? We didn't default on our debt. We have the resources to pay all our investors. No body who even bought a T-Bill lost even a cent by buying those bonds. So how does S&P figure that the US of A should be downgraded and removed from the coveted AAA club of the world? Look at what they did by doing it. The DOW dropped over 630 points the next trading session. The NASDAQ dropped 174 points and the S&P 500 by 79 points. Stocks and mutual funds lost billions in value on the very word that the downgrade meant something.
Was this action one that caused the selloff in the markets or merely preceded it? Did they make the conditions or just report them? Were they accurate in the assessment or did they lie or just get it wrong? The Principle of Imminent Collapse has a connection via the Undiscovered Lie wherein a seemingly upstanding person or company is suddenly shown to be a fraud or not the pillar of society that he, she or it was supposed to be. Our politics are filled with men who were great men one day and lying cheating misogynists the next. The history of the financial sector is filled with companies who were riding high and making wealth for its investors until the CEO and/or a cadre of managers were shown to have been cooking the books. The one day difference is the discovery of the Undiscovered Lie. Jim Bakker fell from grace, as did Jimmy Swaggart. Enron died an early death and likes of Michael Milkin saw the world from the inside of a Federal prison cell. John Kerry became a bum over night over marital infidelity. Bernie Maddoff made off with billions of dollars in his fraud scheme. He was a great fund manager one day and an arch criminal the next. The only way for him to operate was because of the Undiscovered Lie.
A variation of the Undiscovered Lie is the intentional misrepresentation. Some portion of the mortgage meltdown that destroyed trillions of dollars of wealth came from intentional misrepresentations. Real estate appraisers reverse engineered house appraised values by starting with the loan amount and backing into saying the value was high enough to cover the loan. Mortgage loan agents started with what the old mortgage was and added all the cash out and fees to arrive at the new loan figure. Everybody was making money with mortgages at inflated balances. S&P rated the USA as AAA rating and left it there without much re-evaluation for decades. Nobody wanted it to be anything else. Nobody was arguing about massive budget cuts, no revenue increases, debt ceilings of any of the deadlocked issues now plaguing the American political scene.
Either S&P is now misrepresenting the health of US finances or it was misrepresenting it before. The rating of AA+ as opposed to AAA is more a indicator of our financial health from this day forward not this day backward. The rating we have is an indicator of our ability to manage the debt we have, the revenue streams and the expenses of our company. Any company with a CEO who is being defied openly by the Board of Directors would not have a AAA rating. Any company with a Board of Directors who is ideologically divided as is the US Congress would not get a AAA rating. Any company that is failing to manufacture goods and provide services to generate wealth and value would not have a S&P AAA rating. The United States of American cannot claim to be on the good side of any of those rating factors. I am surprised that S&P still rates us AA+ and not far lower.