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.


8 thoughts on “S&P – conspiracy or cockup?

  1. Sorry I didn’t pick up this link in before now.

    Don’t worry at all about the sarcasm – I genuinely did find the notion of me thinking of velvet gloved capitalist rogues stroking white cats amusing, and I’m sorry if my next comment looked like I was trying to close the discussion down – I can see looking back how it might have looked like I was taking offence and withdrawing

    Having said that, LibCon as a virtual environment is not best suited to proper sane discussion, though it has its uses. My original post had actually been copied across by Libcon without my knowing (not that I mind the extra readership).

    On the subantive matters of ‘conspiracy or not’ I’d like to come back to you on this in a post at one of my places, not least as it ties in with a similar comment made here (see no.5 from Barney); I think the issue is important. I’ll be sure to link to this piece. It may be a few days as i ahev a blogpost to-do list as long as both my arms.

    Thanks for engaging seriously with an opposing view, though. It’s all too rare in blogoland.

  2. No, my contrition was geniune: I take off into heavy irony rather too quickly. It is the standard response of a ditherer in the face of strong opinions: I am a natural sceptic, so find the sight of the certainties of others at first puzzling, then daunting.

    On the subject of the capture of international finance, I think I may have to regard its response to whatever heavy regulation the governments throw at it post-crisis as the proof of the pudding. Banking is uncompetitive: if governments find ways to force its margins down, will it try to sabotage? If it is successful, then I think the case Simon Johnson/Bickerstaffe case may be well proven. I hope one day to write a paper on how this can be done – but all my contacts are ‘insiders’ – I may well become part of the machine that keeps the surplus extraction going!

    Good luck getting through the to-do list. I am only just waking up to what a time-drain this is.

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