Let Me Get This Straight: The S&P Can't Do Math?
I woke up in the middle of the night, couldn't go back to sleep, checked the news, and saw that the US credit rating with Standard & Poor's is hanging in the balance over a mathematical error to the tune of two trillion--trillion!--dollars:
After two hours of analysis, Treasury officials discovered that S&P officials had miscalculated future deficit projections by close to $2 trillion. It immediately notified the company of the mistakes.
S&P officials later called administration officials back to say they agreed about the mistakes, though they didn't say whether it would affect the rating. White House officials remained waiting Friday evening to see what the company would do.
An S&P spokesman didn't return calls for comment.
And these bozos are running the world? S&P managed to misplace two trillion dollars in their spreadsheets and the world is supposed to take financial advice from them?
This is getting surreal.
- Comment (21)
- · Quote
- · UnfollowFollow (1)
- Pages:
- 1
- 2
- Pages:
- 1
- 2
Comments :
Feb '11
Re: Let Me Get This Straight: The S&P Can't Do Math?
What’s a few trillion dollars between friends, Claire?
Dec '10
Re: Let Me Get This Straight: The S&P Can't Do Math?
I thought former administration officials went to Freddie and Fannie, not S&P.
Jul '10
Re: Let Me Get This Straight: The S&P Can't Do Math?
Like the rating houses have any credibility left? All bundles are AAA? I wouldn't mortgage the house over their opinion.
Oct '10
Re: Let Me Get This Straight: The S&P Can't Do Math?
Quick, check under the couch cushions. This is so absurd on its face....
Jan '11
Re: Let Me Get This Straight: The S&P Can't Do Math?
The Peter principle is spreading quickly from Washington, it seems most of New York is infected as well.
Oct '10
Re: Let Me Get This Straight: The S&P Can't Do Math?
Keep in mind that this is the same bunch that thought Enron was AAA, right up to a week before it imploded.
As a software developer, unfortunately, I see this all the time. Organizations that can't do basic math to save their lives. Data "cleansed" (i.e. fudged to agree with the cleanser's preconceived notions) before going into analysis. Analytics that assume that all else is equal, i.e. ignores data pertinent to the calculations.
And yes, the occasional off-by-two-trillion bug.
It's getting to the point where I feel like there should be a legal requirement for these clowns to open-source their software, so it can be subject to independent peer-review from as many geeks as are interested.
May '10
Re: Let Me Get This Straight: The S&P Can't Do Math?
You guys have to understand that there are a blizzard of financial institutions that have to have AAA rated securities as collateral or investments. This is significant because there will be FORCED selling. The only question is how long they have to clear out US Treasuries. These entities never imagined that they couldn't simply park money in US treasuries to meet the requirement.
Over the next several months, those entities must either change their prospectuses or divest themselves of US Treasuries. It's one thing for the Japanese or Chinese to lay off our bonds...it's another for US mutual funds and pension funds to do so.
Obama has set off a world of hurt for this country. ON the bright side, SERIOUS US debt reductions will ensue as both sides will want to be more on the right side of debt reduction than the other. On the dark side, the media narrative has ensured that tax increases will have to be part of any deals and the economy will go further into the crapper.
Not pretty...but then, most of us knew this was coming someday. Obama poured gas on the coals.
Jan '11
Re: Let Me Get This Straight: The S&P Can't Do Math?
Aside from the mathmetical error, does anyone know what numbers, liabilities and revenue & growth projections these agencies use? I realize that the accounting standards that our govn't uses are highly skewed - liabilities that aren't included, assest that are "IOU's". Are they using similar 'we can only score what we're given type rules like the CBO?
Dec '10
Re: Let Me Get This Straight: The S&P Can't Do Math?
Oct '10
Re: Let Me Get This Straight: The S&P Can't Do Math?
OK, I have to follow up out of a perhaps misguided sense of fairness.
The truth is that financial analysis is a very complex domain, not least because the pricing models are somewhat open to interpretation, describing many kinds of instruments in human language is ambiguous, and that's not even taking into account the various regulatory regimes the instruments have to operate within. There's a good paper on a preliminary attempt to deal with the issue, How to Write a Financial Contract, from Microsoft Research. One of the co-authors is founder and CEO of LexiFi, which offers a commercial product based in part on the research described in the paper.
Edited on Aug 5, 2011 at 6:18pmJun '11
Re: Let Me Get This Straight: The S&P Can't Do Math?
I posted a few comments here earlier in the week when the "best-we-could-do" bill passed pointing out that the markets started selling off when CC&B was tabled by Harry Reid and the Senate Democrats. It was the last best hope and traders knew that any subsequent bill would not meet the parameters that the S&P had clearly required. It wasn't a secret. While DC was trying to place credit or blame the markets were screaming to anybody tuned to the correct frequency.
When the House passed the bill that the POTUS ultimately signed selling picked up because the S&P had all the data they needed. Many believed it could come as early as when the US markets closed for the week. And it has.
They only thing that could've kept US debt at AAA would've been political pressure. There's no reason to blame S&P for being correct.
Aug '10
Re: Let Me Get This Straight: The S&P Can't Do Math?
Here in junk-standard Ireland we would hardly dare to dream of AA+.Speaking from bitter experience and begging pardon for the cliche I say: the first cut is the deepest.
Sep '10
Re: Let Me Get This Straight: The S&P Can't Do Math?
When Japan was downgraded neither their equity nor their debt markets suffered. Even when they are right they are late, to say nothing of the fact that everything is priced off the risk free rate which US Treasuries and nothing about that has changed, to say nothing of the fact that these are the same morons who said the Abacus MBS was AAA. Please, have they no shame?
Jun '11
Re: Let Me Get This Straight: The S&P Can't Do Math?
By the way, the Federal Resereve has already stated that they aren't adjusting the risk of the debt they issue-- no matter what S&P says.
Sep '10
Re: Let Me Get This Straight: The S&P Can't Do Math?
And also keep in mind that it's the Obama admin that's telling us of an S&P error. They're truthful.
May '10
Re: Let Me Get This Straight: The S&P Can't Do Math?
Excellent point.
Point 1: As rotten a job as the rating agencies have done, the fact that they are ACTUALLY DOWNGRADING says a lot more than you think. If you assume they've been sugar-coating their ratings, then AA+ really means-- well, much less than AA+.
Point 2: $2 trillion doesn't make much of a difference in the grand scheme of things, when you're talking about adding $10 trillion to the debt in the next decade. Either way, we can't pay it back.
Point 3: Washington always has special accounting rules and statistical gimmicks to make things look rosier. (Corporate accountants/CFOs would go to jail for using those rules.) I wouldn't be surprised to find that the $2 trillion is due to these gimmicks. The S&P may have been using real-world rules, and were "corrected" by the government to use government rules, thus admitting their "mistake."
Edited on Aug 6, 2011 at 12:06amJan '11
Re: Let Me Get This Straight: The S&P Can't Do Math?
My uncle was a fireman, and he rose through the ranks and became a fairly big deal. One night, there was a HAZMAT accident on I-95, not far from Philadelphia. There was an emergency call that went out, and rescue workers, firemen, public safety guys, cops (and every service under the sun) rushed to the scene.
At some point, a few officials came up to my uncle. They said that my uncle was the ranking official, and he had to make the call. What call? my uncle asked.
To shut down the road.
My uncle smiled. He said, "Do you mean to tell me that I have the power to shut down I-95? The most important road on the East Coast?"
Yeah.
"Well ... shut it down."
---------------
The moral of the story: S&P has the power to affect the rise and fall of nations. Do you imagine that they don't know that? Don't you imagine that merely having the power is enough reason to exercise it?
S&P wants the world to come to them on bended knee. This will magnify their importance. Don't think they don't know that.
May '11
Re: Let Me Get This Straight: The S&P Can't Do Math?
Claire Berlinski, Ed.:
And these bozos are running the world? S&P managed to misplace two trillion dollars in their spreadsheets and the world is supposed to take financial advice from them?
S&P didn't misplace anything. That was the administration "very nicely" giving S&P a way to save face and do a turn about. I'm sure S&P is under HUGE pressure from the gov't and the financial world to keep the US rating high for exactly the reasons Keith mentioned above.
And no, S&P's reputation isn't going to be hurt any more than it was in 2008 when this all began.
Jul '10
Re: Let Me Get This Straight: The S&P Can't Do Math?
As it turns out, the ugly debt ceiling deal was Washington calling the rating houses' bluff. Oops. This may actual improve the S&P's standing down the road, since the financial press has been dubious of the AAA for some time now and they were the first to cross the line.
Oct '10
Re: Let Me Get This Straight: The S&P Can't Do Math?
Unfortunately, I think the $2 trillion is insignificant given the scale of the numbers we're talking about. We see tens of trillions of dollars looking at revenues, entitlement liabilities, and debt. Trillion used to be a big number but now it's the new billion.