S&P strips Spain of its AAA credit rating

[Doctor Cynic]

Source: Bloomberg

MADRID: Spain's AAA sovereign credit rating was downgraded Monday by Standard & Poor's, the agency, as the country's first recession in 15 years swelled the budget deficit.

The rating was lowered one step to AA+, S&P said in a statement from London, assigning the grade a "stable" outlook.

It was S&P's first reduction in Spain's rating.

"Current economic and financial market conditions have highlighted structural weaknesses in the Spanish economy that are inconsistent with a AAA rating," a team of analysts at S&P led by Trevor Cullinan in London wrote in the statement.

Spain's economy, which outpaced the euro region for more than a decade, entered a recession in the second half of last year as the credit crisis fueled the collapse of a debt-fueled domestic housing boom, sending the unemployment rate to the highest in Europe.

Read more: http://www.iht.com/articles/2009/01/19/business/19peseta-410975.php

[Wapsie B]

1. Well shoot, what must ours be?

With all the mess in this country ours can't be all that great. Or don't they give the U.S. a credit rating?

[Selatius]

3. US Treasury bills get AAA rating, despite the fact the US ran up a 1.2 trillion annual deficit.

I guess S&P assumes the federal government will always pay off its debt.

[JackRiddler]

15. No, S&P mafia isn't going to fuck with the only gangsters who can fuck them worse.

[Lucky Luciano]

7. We are AAA - the fact that we have no foreign currency debt

makes it easier for us to maintain AAA since we can print money as a worst case scenario. Spain cannot, on the other hand, decide to print Euros to pay their debt.

[Horse with no Name]

2. So is this what they are going to do?

Degrade everyone else down to artificially inflate ours?

[AngryAmish]

4. Spain is in bad, bad shape

They are lucky they are in the Eurozone.

[CountAllVotes]

6. Ireland is probably worse off

or close. It happened too damn fast for them and they got suckered in just like the rest of the world.

The problem with both of these places is that they are small countries, not large, hence they have limited powers and influence throughout the world.

I am very sad to read about Spain being downgraded. :(

:dem: :kick:

[Psephos]

5. "They" are Standard and Poor's, a private company with extreme interest in preserving reputation

There's nothing in it for them to do what you suggested...quite the opposite, actually.

[SOS]

9. Wouldn't you think that S&Ps reputation is already ruined

by giving AAA ratings to CDOs stuffed with B mortgages?

[Psephos]

10. The glib answer is yes, the thoughtful answer is no

It's easier to see the causes of the credit crunch in retrospect, just as it was easier to see the roots of 9/11 in retrospect. By definition, though, unforeseen catastrophic events are, well, unforeseen. In this specific example, S&P applied the best metrics available. The problem was not with S&P but with the risk probability models. Those are not proprietary. Most of them come from university-based theorists. Of course, now, those are being modified.

Arrogance and ignorance in equal proportions underlie the myth that somehow human intelligence is always sufficiently perceptive and experienced enough to read the future reliably, especially when dealing with complex, nonlinear ("chaotic") systems.

This is true of economics, climate, politics, and other networked systems where "Black Swan" events become turning points in history.

Take a look here for a brief introduction.

http://en.wikipedia.org/wiki/Black_swan_theory

If you want a satisfying and penetrating read, get Nicholas Nassim Taleb's The Black Swan. It's easily the smartest book I've read in the past few years, the kind that will change and deepen your understanding of how the world actually works.

[Lucky Luciano]

11. Let's not forget that those statistical models

used to rate the CDOs probably had one of the most incredible flaws ever - namely they assumed that underwriting standards were constant rather than cyclical (with loose standards during booms and tight standards during busts).

[Psephos]

12. Quite insightful

Dynamic models are hard to grasp for those lulled into belief in static "snapshot" models. We see this all the time in tax policy, too.

[SOS]

13. New SEC chief Shapiro: S&P ratings not worth the paper they are printed on.

NYT, 1/25/09, Page One:

"Officials said they want rules to eliminate conflicts of interest at credit rating agencies that gave top investment grades to the exotic and ultimately shaky financial instruments that have been a source of market turmoil. The core problem, they said, is that the agencies are paid by companies to help them structure financial instruments, which the agencies then grade.

“Until we deal with the compensation model, we’re not going to deal with the conflict of interest, and people are not going to have confidence that the ratings are worth relying on, worth the paper they’re printed on,” Mary L. Schapiro said in testimony earlier this month before being confirmed by the Senate to head the Securities and Exchange Commission.

Timothy F. Geithner, the nominee for Treasury secretary, made similar comments in written and oral testimony before the Senate Finance Committee."

http://www.nytimes.com/2009/01/25/us/politics/25regulate.html

[JackRiddler]

16. The big problem in what you say is that everyone with half a brain foresaw

what was coming. How did I know the crash was coming four years ago, and for the very reasons that it's happened? Anyone can understand how bubbles work. It's been 290 years since John Law's France and the South Sea crash, man, and little in the basic scheme was different in the latest, greatest round. Many know they're in a bubble market, in the hope of cashing out before it crashes.

Having read some of Taleb's take on the crisis, I can say he to a minor extent and you to a greater extent are misusing complexity theory in a fashion that exonerates the predatory and largely criminal practices of the financial sector -- just as the perpetrators deployed sophisticated mathematics to utterly mystify the reality that they were engaging in scams, and knew exactly what the inevitable results would be, years before 2008.

Come on, Madoff and Thain aren't black swans - they were the chairmen of the equities markets! They were not abberrations or surprise events: they were the paradigm of the modern financial sector. This is a Ponzi economy. All of the executives at the biggest financials, not to mention the ratings agencies, the central bank, the Treasury and the supposed government overseers of the SEC, are implicated in breathtaking criminality, and even more astonishing self-enrichment.

For those who really want to read about the crisis, and not the justifying mumbo-jumbo advanced by the players, Michael Lewis lays it out in a brilliant treatment published in Portfolio:

http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom?print=true#

The End
by Michael Lewis December 2008 Issue
The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liar’s Poker, returns to his old haunt to figure out what went wrong.

[Lucky Luciano]

8. Downgrading another does nothing for us.

As I mentioned above, the US can always print money to pay debt whereas Spain cannot.

[JackRiddler]

14. S&P needs to be stripped of its corporate charter...

all of its properties and especially documents confiscated, its executives arrested and prosecuted to the fullest possible extent for the historic fraud they perpetrated on millions of investors for decades, leading directly to the present-day disaster.

They and Moody's are at the center of the present financial typhoon, responsible for many times the damage caused by Arthur Andersen. It's incredible that they're still allowed to go around passing judgment on sovereign states.