USA Downgraded

[thegreekdog]

I saw a video online (I think it was the Daily Show) where it was explained that private (i.e. non-government) companies actually pay S&P to give them a rating and what they pay S&P is based upon the rating. Insanity.

[Woodruff]

Good to see this. Not that I think anything was necessarily going on, but it seems prudent to look into it:
http://www.theatlanticwire.com/business ... ade/41249/

I am sure someone did this. Whether the S & P employees are guilty is another story.

There are always "rumors" on the street. It is an efficient market. You usually won't need to wait for an official announcement to know something or trade on it. Whoever placed that big bet did nothing illegal, they didn't need inside info. It had been discussed openly for some time.

We were even talking about it around here, are we're a bunch of clueless idgits (other than yourself being in the sector).

[Woodruff]

I saw a video online (I think it was the Daily Show) where it was explained that private (i.e. non-government) companies actually pay S&P to give them a rating and what they pay S&P is based upon the rating. Insanity.

It's like the old-school online university diploma-factories!

[thegreekdog]

I saw a video online (I think it was the Daily Show) where it was explained that private (i.e. non-government) companies actually pay S&P to give them a rating and what they pay S&P is based upon the rating. Insanity.

It's like the old-school online university diploma-factories!

The guy on The Daily Show (or perhaps Stewart) likened it to a baseball team paying the umpires and giving them bonuses based on whether the team liked the calls during the game. If this is true, it is troubling.

[Woodruff]

I saw a video online (I think it was the Daily Show) where it was explained that private (i.e. non-government) companies actually pay S&P to give them a rating and what they pay S&P is based upon the rating. Insanity.

It's like the old-school online university diploma-factories!

The guy on The Daily Show (or perhaps Stewart) likened it to a baseball team paying the umpires and giving them bonuses based on whether the team liked the calls during the game.

What, he doesn't like the Yankees?

[PLAYER57832]

I saw a video online (I think it was the Daily Show) where it was explained that private (i.e. non-government) companies actually pay S&P to give them a rating and what they pay S&P is based upon the rating. Insanity.

It's like the old-school online university diploma-factories!

The guy on The Daily Show (or perhaps Stewart) likened it to a baseball team paying the umpires and giving them bonuses based on whether the team liked the calls during the game. If this is true, it is troubling.

It is part of why we are in the mess we are in. Some changes were proposed earlier, but I think they were shot down.

[jbrettlip]

I saw a video online (I think it was the Daily Show) where it was explained that private (i.e. non-government) companies actually pay S&P to give them a rating and what they pay S&P is based upon the rating. Insanity.

It's like the old-school online university diploma-factories!

The guy on The Daily Show (or perhaps Stewart) likened it to a baseball team paying the umpires and giving them bonuses based on whether the team liked the calls during the game. If this is true, it is troubling.

It is part of why we are in the mess we are in. Some changes were proposed earlier, but I think they were shot down.

There are a few ratings agencies that are changing the model (not the big three). These get paid by the investor to rate possible investments.

Frank-Dodd tried to change ratings agencies by making them liable for their ratings. They immediately said that they would not allow their ratings to be used publicly and the SEC had to back down. This is because every investment policy refers to rated securities and if they charge say 100k to rate 10 mill in bonds, they open themselves up to extraordinary risks.

[Timminz]

Why, upon news of the USA being less credit-worthy, are people leaving private investments, and moving towards more government bonds? It seems rather counter-intuitive to me.

Because the United States didn't default? I'm not sure.

I'm going to ask my finance professor, this evening. I will report back, if he has any idea, and no one else has clarified for us yet.

Yeah, I totally dropped the ball on that one. I'll try to remember to ask him tomorrow.

Alright, I finally remembered to ask him. His answer was unsurprisingly simple. Investors in the market just aren't buying the downgrade (pun only mildly intended). They still believe that US T-Bills are safe money.

Now that I'm home again, I have a whole bunch of follow-up questions for him, but I only had a chance to speak with him briefly after class, and other people were waiting with far more pressing questions (you know, stuff about things that are actually going to be on the final, later this week).

[BigBallinStalin]

So, then the question becomes: does S&P really have the credentials to be believable?

I think it was Sackett, or Fruitcake, who railed against them earlier... I'd like to see what your professor thinks about rating agencies.

[jbrettlip]

So, then the question becomes: does S&P really have the credentials to be believable?

I think it was Sackett, or Fruitcake, who railed against them earlier... I'd like to see what your professor thinks about rating agencies.

Ratings are simply a tool for the market. Many securities are traded that carry no rating whatsoever. With the downgrade, the treasury market still performed well. Most investment policies that require a AAA rating (or otherwise) typically don't mention a rating on US government securities. It has always been assumed to be top quality.

Timminz, just mail your tuition to me.

[Timminz]

Timminz, just mail your tuition to me.

Sure thing. You mail me my designation, and we've got a deal.

[BigBallinStalin]

So, then the question becomes: does S&P really have the credentials to be believable?

I think it was Sackett, or Fruitcake, who railed against them earlier... I'd like to see what your professor thinks about rating agencies.

Ratings are simply a tool for the market. Many securities are traded that carry no rating whatsoever. With the downgrade, the treasury market still performed well. Most investment policies that require a AAA rating (or otherwise) typically don't mention a rating on US government securities. It has always been assumed to be top quality.

Timminz, just mail your tuition to me.

I understand that, but why do people continue to care about S&P's messages?

Or maybe most traders really don't care about S&P, so is all this fuss about S&P just more sensationalist crap from mainstream media?

[jbrettlip]

Yes, it is more of the headlines. The fallout is when states' credit ratings fall because the federal's has. But it is possible to see a migration from S&P. Remember the issuers PAY for the ratings, so if they are assured AAA CAN'T happen, why buy an S&P rating. Buy Fitch or Moody's, who have conveniently reaffirmed the US at AAA.

[Phatscotty]

perhaps we stopped buying SnP ratings before they downgraded us? downgrade could be a reaction

[jbrettlip]

If no one paid for the rating, they wouldn't waste time rating it. The announcement would have been "dropped" ratings.

[jbrettlip]

Anyone think it is a coincidence that S&P is being investigated for its ratings of mortgage securities and its CEO is stepping down in a few months?

[Phatscotty]

Anyone think it is a coincidence that S&P is being investigated for its ratings of mortgage securities and its CEO is stepping down in a few months?

business as usual. It's the same thing as what happened to Keller Zable in WS2 MNSleeps. The gov't is all like "how you gonna dowgrade us, when you don't downgrade other entities who play the same game we do?"

To move back a bit tho JBR, what was the big deal about using stops on precious metal ETF's? I still think it's the best way to go.

[jbrettlip]

Anyone think it is a coincidence that S&P is being investigated for its ratings of mortgage securities and its CEO is stepping down in a few months?

business as usual. It's the same thing as what happened to Keller Zable in WS2 MNSleeps. The gov't is all like "how you gonna dowgrade us, when you don't downgrade other entities who play the same game we do?"

To move back a bit tho JBR, what was the big deal about using stops on precious metal ETF's? I still think it's the best way to go.

The only thing I said about precious metals, was I prefer to own actual metal rather than mining stocks or ETF's which are basically more integrated paper assets. Those rely on a system to transact, and the only benefit taken from a good trade is paper dollars. If the dollar collapses, you would be better off with actual gold, that you could use to buy whatever currency were to replace the dollar (or euro, yuan etc).

[Phatscotty]

Anyone think it is a coincidence that S&P is being investigated for its ratings of mortgage securities and its CEO is stepping down in a few months?

business as usual. It's the same thing as what happened to Keller Zable in WS2 MNSleeps. The gov't is all like "how you gonna dowgrade us, when you don't downgrade other entities who play the same game we do?"

To move back a bit tho JBR, what was the big deal about using stops on precious metal ETF's? I still think it's the best way to go.

The only thing I said about precious metals, was I prefer to own actual metal rather than mining stocks or ETF's which are basically more integrated paper assets. Those rely on a system to transact, and the only benefit taken from a good trade is paper dollars. If the dollar collapses, you would be better off with actual gold, that you could use to buy whatever currency were to replace the dollar (or euro, yuan etc).

What point would you expect the breakdown of the dollar to happen? Gold 2K? 5K? 20k?

[jbrettlip]

I would say more like QE4, or when the debt starts to hit 18T.... there simply isn't enough money to tax in order to pay off our debt, nor is there a way to reign in the spending in order to pay it off. It is a sinking ship. I believe that more and more.

However, I have 4/5's of my assets still in conventional investments. I am not a bomb shelter hoarder. Things could change tomorrow. Hell a plague might wipe out the older population. You never know. But I am looking at enough gold and silver on my desk to buy a pretty nice car at today's prices.