If Standard & Poor’s can have a super voice, why can’t any citizen

Standard & Poor’s U.S. Downgrade Response on 9-17-2012

As stated in the Standard & Poor's U.S. Downgrade response on 8-6-2012, Standard & Poor's has downgraded U.S. based on its political views. If Standard & Poor's can have a super voice in the political system, why can't any citizen? What if the writer has a credit rating agency? The writer imagines the below.

The writer went to a used car parking lot and hired a bundle of salesmen and founded the Extremely Poor Standard Company (EPSC) which evaluated the credit rating of countries. (The writer uses the words of used car salesmen in this discussion because of the general perception of this group. This general perception may or may not be accurate. Certainly many used car salesmen's behaviors are contrary to this general perception.)

One day after Standard & Poor's One-Bill-Political-Views U.S. Downgrade, on 8/6/2011, EPSC lowered U.S credit rating from AAA to AA+. Having faced criticisms, EPSC said its credit rating standards were strengthened just before the EPSC U.S. Downgrade on 8/6/2011 and EPSC simply followed its criteria for rating government debt. An economist looked at the EPSC U.S. Downgrade Report and questioned the AAA credit rating of U.K. The economist asked where the theory that 80% public debt to GDP ratio and that debt burden would begin to decline before or by 2015 as was U.K. should be awarded AAA credit rating came from. EPSC post a Making Apple Pie Instruction on its web site and suggested that anyone who had questions about the Downgrade should read it.

The economist scratched his head and he couldn't figure out the relevancy of the EPSC Making Apple Pie Instruction. The economist didn't know why such theory applied to U.K. didn't apply to U.S. Compared with U.K., U.S currency was a key reserve currency. It meant the demand for U.S currency was higher than U.K. currency. Market would always be driven by supply and demand. If demand was higher, it would bring down the borrowing rate. By deduction, the credit rating of U.S. should go up if the credit rating was a true reflection of the borrowing rate. It didn't make sense that U.K. had a better credit rating than U.S even if both countries had the same economic conditions. If one looked at the Downgrade Report, one would find U.S economic conditions were better than U.K. The Downgrade Report said, ".the role of the U.S. dollar as the key reserve currency confers a government funding advantage..." It sounded like EPSC had considered this important factor. Did EPSC put some weight of the currency factor to the U.S. credit rating? Obviously not. It was just used car salesman sales talks.

EPSC said if you couldn't find the relevancy of EPSC Making Apple Pie Instruction, you weren't smart enough. How to apply the EPSC Making Apple Pie Instruction was a trade secret to EPSC. If the competitor knew EPSC's trade secret, it would put EPSC in a competitive disadvantage position. EPSC didn't answer the economist's questions.

The secret wasn't how to apply the EPSC Making Apple Pie Instruction. The secret was that the EPSC Making Apple Pie Instruction had no relevancy to its credit rating evaluation. The economist asked EPSC for something and EPSC gave the economist something but it didn't mean what EPSC gave the economist had anything to do with what the economist asked for. In fact, EPSC didn't like that the Republicans outnumbered Democrats in the House. Obviously, if it was one party political system, there would be no political brinksmanship and the 2001 and 2003 tax cuts could easily expired or letting 2001 and 2003 tax for high earners lapse from 2013 wouldn't be a problem. EPSC felt that the more number of Democrats, the better. EPSC felt a majority of the Republicans in the House wasn't consistent with the AAA rating. It was EPSC's credit rating based on its own opinions. EPSC felt it could downgrade U.S. as it saw fit. The economic data provided was simply to rationalize the Downgrade. First, EPSC found the "dislike" and downgraded U.S. Then EPSC rationalized the Downgrade. The problem of rationalization was that, sometimes, it came with inconsistencies. In this case the credit rating evaluation of U.K. was inconsistent with U.S. Nevertheless, EPSC successfully cooked the Extremely Poor Standard U.S. Downgrade. What did it mean? It meant as the words described. (Here, the writer is talking about EPSC, not Standard & Poor's. Whether or not Standard & Poor's adopts the same practices or approaches regarding its credit rating evaluation, the reader will have to ask Standard & Poor's.)

The purpose of bond's credit rating was to reflect the probability of going into default. On NBC television's "Meet the Press", Former Fed Chairman Alan Greenspan said, "This is not an issue of credit rating. The United States can pay any debt it has because it can always print money to do that. There's zero probability of default."

U.S. currency was a key reserve currency and U.S. could print money. The economist felt pretty good about those arguments, and he went to EPSC office and confronted those ex-used car salesmen who downgraded U.S. He brought a letter stated that unlimited printing of money with him, and the letter was certified by Federal Reserve. The economist felt the letter was much stronger than the EPSC Making Apple Pie Instruction. The key reserve currency and the ability of printing money were a lot stronger arguments than those ex-used car salesman's sales talks. Inside the EPSC office, all the ex-used car salesmen used sign language and their fingers pointed at their ears. They were all deaf. The economist was not sure if they were really deaf or pretending to be deaf. One of the ex-used car salesmen even tried to use his head to drill a hole on the ground and hide his head inside. The ex-used car salesman probably borrowed the idea from an ostrich. The ex-used car salesman didn't realize that the ground was concrete, not sand, and therefore he failed to do so. The economist yelled out loud but communication didn't go through. He spent the whole day and found all the arguments were useless toward those deaf ex-used car salesmen. The economist was very frustrated and he came back with empty hands.

The economist thought the other alternative would be to ask the law makers to introduce a bill. The idea was something like U.S. would be the last downgrade. Because U.S. dollar was a key reserve currency, if there was one country whose government debt to GDP ratio was worse than U.S. and had a particular credit rating, U.S should be protected from downgrade for that particular credit rating. What if U.S. had the worst government debt to GDP ratio? U.S. would have to look at the EPSC's views toward Former Fed Chairman Alan Greenspan's argument. It was an interesting argument. EPSC had to have something solid. Making Apple Pie Instruction or Chicken Pie Instruction or Mushroom Pie Instruction would not do any good. If people wanted any pies, they could go to bakeries. No more used car salesman's sales talks. Rationalization of the "dislike" would be prohibited. (If there is a law, it should required the credit rating agency to put its email address on the report incase the citizens want to contest the downgrade. Currently, only Standard & Poor's has put its email addresses on the report. The writer wasn't able to find Moody's email address.)

The above is only story about an imaginary company, EPSC. As for Standard & Poor's U.S. Downgrade, the writer is not sure what else the writer can do. Maybe the facebook cause page can help. If a lot of people click on the Like button, it may put some pressure on Standard & Poor's. It will need a very big number though. Yet, the responses of the writer will not help the reputation of Standard & Poor's. If Standard & Poor's wants to blame anyone for the not helping of it company's reputation, it should blame itself. The writer made ample communication with Standard & Poor's, although it was one way communication. The responses of the writer are consistent with the spirit of First Amendment.

Many European countries' sovereign credit ratings have been downgraded by Standard & Poor’s. The writer hasn't read any of those reports because it was not the objective. Having spent a lot of time in studying the Standard & Poor's U.S. Downgrade, the writer wonders how many of those ratings were measures of the "dislike" and how many of those ratings were actually to reflect the probability of going into default. By looking the credit rating alone, can an investor be able to tell that the particular credit rating actually reflects the probability of going into default? Regardless what those credit ratings are, they will affect the people's lives in those countries.

Sources:

No Chance of Default, US Can Print Money: Greenspan

Standard & Poor’s U.S. Downgrade Response on 8-6-2012

Response on 9-17-2012