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Roger’s Rules

How Do You Spell ‘Retaliation’?

February 5th, 2013 - 5:23 am

What do you think? Companies like S&P and Moody’s look at a variety of factors to try to determine the creditworthiness of a company or a country. Their assessments are festooned with warnings and cautions, just like those “past performance is no guarantee of future returns” slogans you see pasted at the bottom of every mutual fund you’ve ever plunked a dime into.  Investors certainly did “lose billions” in the financial crisis. But whose fault was that?

The hyenas, in the shape of various states’ attorneys general and other entities unhappy about the fact that they lost money investing in some of the most exotic and risky financial instruments ever devised by the mind of man, are gathering around the tasty carcass of these companies. But no one forced anyone into making these investments. Credit ratings are not predictions, they’re educated guesses about the future based on the past. Often — usually, in fact — the future looks a lot like the past. Sometimes it doesn’t.

Partly, I think, the move against S&P (the other rating agencies are also in the government’s crosshairs) is a an example of the time-honored practice of scapegoating. People are looking for someone to blame and the rating agencies seem like low-hanging fruit: “Hey, they told me this might be a great (though risky) investment, and I lost money! Whom can I blame?”

But I suspect this is not only about scapegoating. I suspect it is also about retaliation. We are living with the most fiscally incontinent administration in U.S. history, perhaps in world history. Both S&P and Moody’s took note of this incontinence and broadcast the news by downgrading U.S. debt in 2011. The result? A $1 billion lawsuit against S&P. Merely post hoc? Or do you discern a teensy bit of propter hoc there as well? I do.

Meanwhile, if you are really interested in who and what caused the financial meltdown of 2008, I have some reflections here.

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