Paul Bickerstaffe drew my attention to an extraordinary S&P trampoline downgrade and upgrade again . .. after arguing, I resorted to the sort of cheap sarcasm that can unfortunately close down interesting arguments.
I still think the idea that such a blatant movement from the highest rating to one of the lowest can only be cockup, not conspiracy. If there was a plot to put terrible securities into a government/tax-payer protected haven, then you would choose a target less conspicuous than something recently downgraded past junk. Paul, IMHO, overestimates the perfidy, and underestimates the potential incompetence, of staff at S&P: rating thousands of tranches of difficult RMBS etc, with all the problems of asymmetric information/lemons etc that goes into it, is never easy.
But there are serious reasons to believe that finance, as a system, exerts a destabilising, corrupting pull over its regulatory environment, and the payoffs that it accrues. You don’t have to be a Marxist to believe this possible, just stop short of IEA-style right wing idealism about markets. Simon Johnson, ex-IMF chief economist, has put this powerfully himself. (this has been such a continuous refrain at the BaselineScenario as to make the place quite dull at times).
Banking profitability is too high. Efforts to fix finance might stop this. Bankers are going to lobby to keep it high,. and have powerful voices I’ll accept that, and am happy to write about it when it’s a factor. But behind the scenes deals to lie about debt-ratings – nah.