tatiyants.com Your Standards are Poor: S&P, please stop trying

On Friday, the ratings agency Standards and Poor’s downgraded US debt to AA+. So far, it is the only ratings agency to do so. Right afterwords, it came to light that S&P made a mathematical mistake in calculating future deficits. S&P was off in its projections by about 2 trillion dollars.

I should note that S&P is the same agency that didn’t notice the financial crisis of 2008, gave Lehman Brothers securities an A rating right before the company collapsed, and had the audacity to defend that rating. I quote:

“…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.”

Poor S&P. Here they were, using fundamental credit analysis on Lehman’s (you know, just doing their thing), and then reality came along and screwed them. How unfair. I mean, what where they supposed to do? Change their models based on what was actually happening in the economy all around them for months before Lehman’s failed? That’s crazy.

And now this. The thought that popped into my head was “Is S&P trying to become obsolete?“. The financial crisis thing was bad enough. Well, ok, it should’ve ended them the way Enron ended Arthur Andersen. Yet somehow that didn’t happen. But to make such a huge call with bad data? Do they not double check their math?
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This is all quite sad. S&P was once a respected organization. Their opinions mattered. Very large sums of money were tied to what S&P thought of your debt.

And now? There is a real chance that this downgrade will have no meaningful impact on anything. Yep, the once-in-a-lifetime, never-before-happened, world-economy-altering call to downgrade US debt could well be ignored. If that doesn’t scream obsolescence, I don’t know what does.

Well done, S&P. Now, please stop trying.

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