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Why Listen to S&P on US Debt?
Posted By Barry Ritholtz On April 18, 2011 @ 11:10 am In Bailouts,Credit,Really, really bad calls | Comments Disabled
There is an old Wall Street joke about analysts: “You don’t need them in a Bull Market, and you don’t want them in a Bear Market.”
Which brings me to Standard & Poor’s. They put a “negative” outlook on the U.S. AAA credit rating, citing rising budget deficits and debt.
To which I say “Who Cares?”
Its not that I disagree with their assessment — I do not — but I pay it little heed. It was much more important to me as an investor that PIMCO’s Bill Gross was out of Treasuries a month ago (and indeed, is short) than what S&P says. That was all any bond investor needed to know — no ratings agency necessary.
If ever there was an organization more corrupt, incompetent, and less capable of issuing an intelligent analysis on debt than S&P, I am unaware of them. Why do I write this? A huge part of the reason the US is in its awful financial position is due to the fine work of S&P.
Consider what Nobel Laurelate Joseph Stiglitz, economics professor at Columbia University in New York observed:
“I view the ratings agencies as one of the key culprits. They were the party that performed that alchemy that converted the securities from F-rated to A-rated. The banks could not have done what they did without the complicity of the ratings agencies.”
Hence, the “negative outlook” of US debt has come about because the inability of Standard & Poor’s to have performed their jobs rating mortgage backed securities. Ultimately, this enabled the entire crisis, financial collapse, enormous budget deficit and now political over the debt ceiling.
Of course there is a negative future outlook. Its in large part the work product of S&P and Moody’s.
Why we even have Nationally Recognized Statistical Rating Organization (NRSRO) any longer following their payola =driven corruption, their gross incompetency and their inability to discharge their basic duties is beyond my understanding.
Click for larger table
Source: Bianco Research 
Ratings Agencies Abject Failure  (April 30th, 2009)
Long Awaited Fixes for Credit Ratings Agencies  (May 14th, 2010)
Regulation AB: Downgrading the Ratings Agencies  (September 5th, 2010)
Calpers: Rating Agencies to Blame for Huge Losses  (July 15th, 2009)
Time for Legal Liability for Rating Agencies  (June 18th, 2010)
Article printed from The Big Picture: http://www.ritholtz.com/blog
URL to article: http://www.ritholtz.com/blog/2011/04/why-listen-to-sp-on-us-debt/
URLs in this post:
 Image: http://www.ritholtz.com/blog/wp-content/uploads/2011/04/AAA041711.png
 Bianco Research: http://www.arborresearch.com/biancoresearch
 Ratings Agencies Abject Failure: http://www.ritholtz.com/blog/2009/04/ratings-agencies-abject-failure/
 Long Awaited Fixes for Credit Ratings Agencies: http://www.ritholtz.com/blog/2010/05/long-awaited-fixes-for-credit-ratings-agencies/
 Regulation AB: Downgrading the Ratings Agencies: http://www.ritholtz.com/blog/2010/09/regulation-ab-downgrading-the-ratings-agencies/
 Calpers: Rating Agencies to Blame for Huge Losses: http://www.ritholtz.com/blog/2009/07/calpers-rating-agencies-to-blame-for-huge-losses/
 Time for Legal Liability for Rating Agencies: http://www.ritholtz.com/blog/2010/06/time-for-legal-liability-for-rating-agencies/
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