Saturday, August 13, 2011

Why Do We Need S&P? Is it “Too Big To Fail” ?

Standard and Poor’s (S&P) has explained that its downgrade of America’s credit rating was largely due to political instability.  It cited the recent mammoth battle between the President and certain intransigent House of Representative members who were unwilling to compromise, even at the urging of their own party leaders, to raise the debt ceiling.  Of course, after the protracted battle between the executive and legislative branches, the debt ceiling was ultimately raised.  Is our democratic system  inherently flawed when even the misguided minority gets to argue its views? No, of course not.  Does S&P have a problem with that?  Perhaps S&P views countries whose people cannot exercise free speech as more stable, and therefore entitled to an S&P upgrade.

S&P’s patently flawed conclusions demonstrate that they do not place a high value on  cash flow and the ability to pay, usually rated by competent risk evaluators as the first and most significant attribute for a strong credit rating.  The U.S. Treasury wrote the checks upon completion of the political debates and negotiations.  At no time did the U.S. lack funds to pay the pensioners, the military, and all Americans with access to social programs enacted by law.  Does S&P not see the irony of their downgrade’s consequences?   Investors  all over the world fled the stock markets and poured their cash into.... what? U.S. Treasury bills- the world’s safe harbor when global confidence erodes.  

S&P apparently hoped its version of current events would be perceived as hard nosed commentary about the potential for the state of politics to ruin the State. However, we have that sense of deja-vu- when have we heard these words before?   On September 24, 2008, when S&P issued these  its defense for not downgrading Lehman Brothers until after it collapsed on September 9, 2008.  Having failed to detect the intrinsic quality of Lehman’s debt was basically, junk, it wrote  "we believe the downfall of Lehman reflected escalating fears that led to a loss of confidence-–ultimately becoming a real threat to Lehman's viability in a way that fundamental credit analysis could not have anticipated”.  And what is S&P is doing right now? Leading the business community and  the public -indeed the world - right into the loss of confidence and fears which nearly toppled the economy in 2008. The demise of Lehman then, pursuing the S&P’s line of defense, was unnecessary if only the public had not lost its confidence.  Could they possibly have thought that given its financial condition, Lehman’s rating was supportable while America’s was not?  

Politics will always be fraught with excesses of partisanship and uncertainties.  If we look at European and Middle Eastern countries at this moment in time- if that is the primary benchmark for credit ratings, the US should still be rated head and shoulders above nearly every country in the world.  Standard & Poors is the proverbial one-eyed man who would be King, but fortunately, we are not blind.  We have a multitude of  eyes and ears that can correctly assess S&P’s shocking ineptitude. Let’s vote against this sham company doing business under the guise of a bona fide, responsible, rating agency and send its stock price southward. It has been monstrously mistaken in its ratings, and the public’s lack of confidence in S&P should erode until it collapses, in favor of new ratings companies striving for excellence.

"and the truth shall set us free..."
Written by Guest Host: SetUsFree of CNN ireport

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