Tuesday, August 9, 2011


          Back in the sixties I had a job with Retail Credit, a company based in Atlanta, Georgia with offices all over the Eastern United States. It was a primitive version of our consumer credit agencies rating individuals for employment, insurance and department store credit.
          Every morning I would show up for work and get a list of some 35 prospective applicants. It was piece work and you were paid for each completed investigation, $1.50 for auto insurance, $2.00 for store credit and $10.00 for life insurance. You would drive out to the applicant’s home, eyeball the neighborhood, gossip with the neighbors and speak to the applicant or the spouse. I had no training whatsoever. It beats the hell out me how I was supposed to assess risk or credit. Sometimes, when all information sources proved dry, you fudged and made up the information. In other words you lied. Not very scientific or fair, was it?
          This prehistoric method soon evolved into “sophisticated” information and credit driven models run by Equifax, Experian and TransUnion. Their credit reports now dominate and terrorize the consumer. The reporting models are based on the theory that the more facts you garner, no matter whether they are false, dated or inapplicable, when fed into a computer will generate a true and accurate consumer history and give an accurate forecast of the consumer’s future performance.
          You know that this is not true. Anyone who has requested a copy of a credit score or report knows it is are full of false and misleading information. You are confused with someone with a similar name. A misposted payment made in a due and timely manner is reported as late. A dispute with a car leasing company over an overcharge is reported as default and repossession. A lifetime of financial probity can easily be destroyed making you a deadbeat, to be avoided at all cost. I am paraphrasing, but these credit agencies are “idiot savants with less than a full command of math, and with no idea on how to apply it”.
          The government has done little to stem the abuses visited upon us by these yahoos of the information age. Sure there are rules and regulations in place to protect the consumers. But these are toothless paper tigers. The government agencies meant to protect the consumer engage in endless bureaucratic paper shuffles. Complain, engage in protracted correspondence, wait endlessly to speak to a human being, and ultimately you give up, in frustration. 
          After abandoning us, now it’s the Government’s turn to sing the credit rating blues. Last Friday, Standard & Poor’s, one of the sovereign credit rating firms, downgraded our credit rating from AAA to AA+. Moody’s and Fitch have stood, so far, by their triple “A” recommendations. But the report angered the Administration, prompting the President to deem the action ill advised and “ill informed”. On Monday President Obama proclaimed that “America will always be a triple-A country”. Treasury Secretary Timothy Geitner did him one better declaring that Standard & Poor’s showed “terrible judgment” showing “a stunning lack of knowledge about basic U. S. fiscal budget math”.
          Yet why in the world do we, and for that matter the world, give a fig or even lend credence to Standard & Poor’s opinion. Its public persona is John Chambers, a “chartered financial analyst” and Chairman of S&P’s “Sovereign Rating Committee”. These seemingly impressive credentials are tarnished by reality. Chambers graduated Grinnell College, a fine institution, with a bachelor of arts in literature and philosophy, not fields usually associated with sovereign debt. He also attended Columbia University, another supper place, leaving with a master’s degree in English literature. He does speak and write the English well, especially at press conferences defending the downgrade. But for a financial background he only has “chartering” in becoming a “financial analyst”, and that’s just three written exams, that’s it. Would you buy sovereign recommendations from this guy? Not me.
          S&P’s track record ain’t much better. Remember Enron, that multibillion dollar financial blood bath that left thousands of employees and investors destitute? On October 29, 2001, S&P’s idiot savants rated its bonds and commercial paper BBB+. That’s exactly one month before Enron filed for bankruptcy on November 29, 2001. S&P’s bad calls extend over decades. For years S&P gave Lehman Brothers an “A” rating, until a month before its collapse [with the help of Tim Geitner, see above] bringing on the financial mess that we find ourselves in. S&P actively assisted in the collapse by giving “AAA” ratings to mortgage backed derivatives [whatever those may be] so that Goldman Sachs, the banks and AIG could book insane profits.
By the way, the present downgrade was based on an error in math, a $2 trillion dollar error in the 10 year deficit projection. No matter, small potatoes, said John Chambers, the downgrade stands.
          You want to take advice from these bozoos? Not me. That is not to say that we are not in a mess made worse by the recent stupidity of Congress, a Congress that has an 82% disapproval rating. Before I forget, the disapproving 82% of the country voted for the very Congress they now disapprove of.
Do I have a solution? No, but I ain’t taking S&P’s flawed advice. As much as I hate to admit it, I agree with Obama, we are triple “A”, S&P notwithstanding.


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