Slashdot Mirror
S&P's $2 Trillion Math Mistake
Last friday Moody's S&P announced that they had downgraded the U.S.'s credit rating (leading to a pretty huge discussion on Slashdot I might add). Since then more interesting news has come out, suraj.sun writes "In a document provided to Treasury on Friday afternoon, Standard and Poor's (S&P) presented a judgment about the credit rating of the U.S. that was based on a $2 trillion mistake. After Treasury pointed out this error — a basic math error of significant consequence — S&P still chose to proceed with their flawed judgment by simply changing their principal rationale for their credit rating decision from an economic one to a political one. S&P incorrectly added that same $2.1 trillion in deficit reduction to an entirely different baseline where discretionary funding levels grow with nominal GDP over the next 10 years. Relative to this alternative baseline, the Budget Control Act will save more than $4 trillion over ten years — or over $2 trillion more than S&P calculated. S&P acknowledged this error — in private conversations with Treasury on Friday afternoon and then publicly early Saturday morning. In the interim, they chose to issue a downgrade of the U.S. credit rating."
Somebody correct me if I'm wrong, but at current spending levels, cutting $4T over 10 years still has us running a deficit. Considering that this deal was politically the best we could do, it's easy to agree with S&P's pessimistic view of our political budget woes.
"Ask not what your country can do for you." --John F. Kennedy
There was a time when people worried about who had the largest nuclear arsenal.
This kinda reminds me of that "1000 vs 10,000" nuclear weapons discussion. Everybody is dead after 1000 bombs go off. It isn't like 10,000 bombs are going to kill you that much more.
The point being the economy is still going down the tubes...
It was S&Ps rating system that the banks gamed with repackaged mortgages in the first place. Fuck um.
How long before the media points that out? Think they will?
It isn't basic math, or any math at all, really. Despite massive quantities of data analysis and some of the most mind bending graphs ever devised, plain old emotion still rules most financial markets and most certainly rules things like applying "AAA" versus "AA+" to some piece of paper.
These people everyone is amped up about changing the US' rating are the same people who entirely failed to foresee the biggest economic collapse most of us have ever lived through. They were handing out AAA ratings, to mortgage backed securities that no one other the guy who invented them could even understand, just a few months before they became almost completely worthless. The fact that anyone still trusts S&P and their ilk is illustrative of the fact that emotion rules this game. They've proven with math that they know no more than anyone else.
"Sacrifice for the good of The State" - The State
You're right... it's just too bad that S&P didn't warn investors about the even greater risks involved in bundling questionable home loans and calling the result "investments".
No one ever had to evacuate a city because the solar panels broke!
But then again, most mortgage owners have a reasonable plan to get out of debt in a certain time. For instance, my mortgage will be fully paid off in 15 years, and even assuming I default before that, the bank can sell the house and get their money back, so it won't disrupt anything else.
Can the US government claim the same ?
How can you in one sentence admit that "the US does have some serious long term budget problems" AND claim that getting anything less than the highest possible rating would be "political posturing" ?
I'm Rocco. I'm the +5 Funny man.
The CBO assumed discretionary spending will grow at the rate of inflation. S&P assumed it grows with GDP. Both of these are perfectly valid assumptions (if any complaint is to be made, they're both too optimistic since historically the growth in discretionary spending has far exceeded both measures); a legitimate alternate choice of economic models is not an error. This is the Obama administrations typical "all reasonable experts agree" tactic of painting legitimate differences in opinion as disengenuous.
As for S&P's "acknowledgement", it was more along the lines of "we just reported your long term unfunded obligations are $211 trillion and you lack the political will or ability to do anything about it. And you want to have an argument over whether it's really $211 trillion or $209 trillion? If it's that improtant to you, we'll use your numbers, but you're completely missing the point here."
Nothing has changed that makes the US more likely to default.
I would strongly disagree.
Almost all bond issuers can only default by not repaying the principle and interest. I do agree with you that is infinitely unlikely, since the US Govt can simply print the money on demand. Of course no one expected the USSR to collapse when it did, so, its slightly more likely the USA could collapse now.
The failure mode is the US is one of the few bond issuers who controls global inflation. What exactly is the difference, financially, between "not repaying" and "repaying a hyperinflated nominal value"?
Real world example: You buy a 10 year, $1K t-note. I agree completely the odds are excellent, although not quite 100% perfect, that in 10 years you'll have your $1K plus a tiny bit of interest returned to you. I disagree in that the odds are pretty high that due to high to hyper inflation, that $1K t-note will only be worth approximately one restaurant meal.
That is an inflationary default.
"Science flies us to the moon. Religion flies us into buildings." - Victor Stenger
I happen to be on the side of "spend less", but it is a perfectly legitimate opinion to want to spend more AND collect more. The Democrats aren't advocating raising spending while lowering taxes. Frankly, that sounds like what the Repubs did under Bush II.
W..w..W - Willy Waterloo washes Warren Wiggins who is washing Waldo Woo.
> Democrats want less government spending as a percentage of GDP [1]. The TEA Party wants to destroy government [2], unions [3], and the US economy [4].
FTFY.
Sources: [1] http://en.wikipedia.org/wiki/File:US_Federal_Debt_as_Percent_of_GDP_by_President.jpg
[2] http://www.contractfromamerica.com/Idea.aspx
[3] http://en.wikipedia.org/wiki/2011_Wisconsin_protests
[4] http://www.standardandpoors.com/ratings/us-rating-action/en/us/
Join the window installer's union, where prosperity is a brick throw away!
Yeah, and God Forbid the people that can afford to give a little more to help the country that allowed them the opportunity to become wealthy in the first place actually do so. They didn't write those big bribe checks...oh, I'm sorry, campaign contributions... to have someone turn around and raise their taxes and cost them an extra percent a year. I mean, what is that, a few thousand dollars less a year? How will they ever survive?!
I'm all for spending cuts, but without taxes being raised on the wealthy, it's just more of the same BS. Tell the people living on 12 grand a year in the projects that it's time to tighten their belts so that the asshole speculators on Wall Street can get away with their ridiculously low effective tax rates. Oh, but I forgot, all that paper being traded back and forth "creates jobs". That's why these there's so many jobs out there now, right? That's why these companies are all sitting on record amounts of cash in the bank both here and abroad, meanwhile they're laying people off left and right...
This is just Part II of the extortion scheme that started with the bailouts as the rich try to snatch up an even bigger piece of the pie than they already have.
1) Plan on gaining 100 pounds.
2) Gain 75 pounds.
3) Congratulations. You have a weight loss of 25 pounds.
Except for ending slavery, the Nazis, communism, & securing American independence, war has never solved anything.
The poor? Those guys with government housing, free health care, food stamps, welfare, WIC and government cheese? The guys with a PS3 and an Xbox on their 42" LCD TV?
You know, it amazes me how many people think being poor is just so awesome...
As someone that's actually been poor and lived in the projects, (really poor, not "my parents can't afford to buy me a car for my 16th birthday" poor) that's a bunch of crap. More right-wing propaganda to justify their moral bankruptcy and not being satisfied with what they have, nor grateful that they are successful enough not to be in that position. I went to sleep every night listening to gun shots, police sirens, dogs barking, and helicopters, watched families get torn apart by drugs as they sought some escape from their dismal existence, seen fist-fights break out over job openings at McDonald's and Walmart because there's nowhere else to work. Yeah, that sure is an awesome lifestyle. Highly recommend it...if you want to grow up without a childhood.
Meanwhile, the right finds that one guy out of a thousand that made it out and broke the cycle and holds him up as being some sort of proof that anyone can do it, conveniently ignoring how ridiculously lucky that guy really was. Throw 1,000 darts at a dartboard and you're probably going to get a bullseye, but that doesn't count for shit when the other 999 are embedded all over the bar.
While I agree wholeheartedly that our government is ridiculously corrupt and that the people of this country no longer have representation (unless they make $250,000+ or are one of those new "people", i.e., a major Corporation), I don't think we need to leverage our financial solvency strictly on the backs of the poor and disadvantaged. Cutting these social programs isn't going to effect the crack dealers and hustlers in the ghetto, it's going to hurt the kids, the elderly, and the infirm. The kids that the right all professes to care about when they're railing against Planned Parenthood, they're the ones that are going to go hungry. What the hell did they do to deserve their lives? They were born to the wrong mother and father so screw 'em, that's what they get for being poor? Yeah, right...
But, by all means, keep talking about that awesome welfare existence. It helps identify those that truly have no clue what they're talking about...
Government: We planned to increase the budget deficit by $4 trillion next few years, but now we're only increasing it by $2 trillion! We cut spending by $2 trillion dollars!
S&P: You still increased spending. You didn't cut anything. You still spend almost twice as much as you make. You are no longer credible.
Government: Traitors! Terrorists! Hostage takers! Can't you idiots in private industry do math?
Pathetic. Even the slashdot title of this article is complete rubbish.
6th Street Radio @ddombrowsky
Considering how petty Congress is being about the entire issue, I would downgrade the damn rating as well. From their ( S&P ) standpoint, the leaders of the USA are willing to put the entire economy at risk while they squabble about their own little pet issues.
:|
We ( the US ) obviously can't get its act together by ourselves. Congress proved that. It took the threat of a downgrade before we finally decided to get semi-serious about the issue. Personally, I would consider the S&P downgrade as a warning shot across the bow. In effect "Get your sh*t together or suffer the consequences".
We shouldn't REQUIRE a GD debt increase to begin with. If our idiot 'leaders' would learn to spend less than they take in, we wouldn't NEED a debt ceiling at all. S&P sees this, as does the rest of the world. The leadership isn't interested in reducing their spending and, as a result, S&P made the right decision. This isn't a sustainable path. At some point it WILL come falling down around you. Why the retards in charge can't figure this out is beyond my ability to explain.
Personally, I hope the other rating companies follow suit. It will take that level of threat before my elected morons finally quit bickering and note the cliff edge they're dancing on. Maybe ( and it's a longshot ) they'll be able to get this train back on the right track. Maybe.
Given their track record, I'm definitely not counting on it. . .
Intended or not, corporations saw Social Security as a excuse to drop employee pensions (and take the difference as profits). At one time, even "menial" workers got decent pensions as part of their employment package. After 30 years of downsizing, rightsizing, off-shoring and union-busting, most people's only options for retirement are to gamble what little savings they have on the stock market (we all know how that worked out) and fall back on Social Security for the rest. The problem is not the "entitled" poor and retired, it's the entitled corporations who have sucked this country dry and given nothing back.
Support Right To Repair Legislation.
Well, first a positive note : America's not nearly as bad as most other nations that grace this planet. China, while currently better than America, isn't without debt problems. But America's better off than Europe when it comes to debt. Yet Europe is better behaved than Turkey & middle east, who are in worse shape despite massive influxes of money.
But still that would mean that on the average, Americans ... did never even intend to repay their debts. Welfare states were created, knowing full well they were doomed. People trading their income now, in the form of taxes, for health care, study help for their kids and pensions that won't come, except for the first ones who enjoyed these benefits.
And yet lots of generations had the option of turning the tide, and didn't. Not just in America, but in Europe, the middle east, and Asia, lots of people had the option of stabilizing the system by choosing to take responsibility instead of shoving the bill to their kids, and all chose wrong.
The real question is, now that the cat's out of the bag, how long do we pretend we can put it back in ? The system has failed, and while this obvious truth can still be denied, it will reassert itself soon enough. Though I do hope we can pretend a while longer, I have a family to take care of, and despite the rosy pictures implied in leftist and progressive propaganda if we simply take the money from the bankers, we all know that their promises of wealth, brotherhood and justice for all will turn into the wars, concentration and slaughter camps they turned into last time.
I would simply suggest to take the lessons of history to heart : when public opinion does not just jabber about evil bankers, but actually attacks them in numbers, do what millions of people forgot to do before world war 2 : run ! Run to a place with sufficient food, home produced food, without multiculturalism (which will soon be nothing but a fancy word for ethnic wars), and preferably a nation without military alliances. Stay far away from any large American city, get the fuck out of Europe (the EU, not Switzerland), get the fuck out of the middle east, get the fuck out of Africa, or if you must, at least stay out of Northern Africa and the Saharan countries.
I don't know who will rise, it depends on many factors. I guess it will be whichever decent nation manages to not get destroyed, and I frankly seriously doubt it will be China.
It being a bubble did not automatically mean that mortgage-backed securities were iffy. All the rating agencies cared was: 'Were people going to continue to pay their mortgage?' They couldn't care less if the house value was going to collapse, except to the extent that it was going to affect the likelihood of paying the mortgage.
However, the fact it was a bubble did affect that, and hence the rating agencies should have taken a closer look at them...
Something like half those damn things never had the mortgages properly transferred inside. Some mortgage backed securities appear to, legally, have no mortgages at all in them.
This isn't some sort of fraud in the loan making, where the rating agencies arguably weren't supposed to care about. It wasn't fraud in the foreclosures, which is also happening. This is fraud in the actual securities. Some of the investors who went bust have started looking at the actual securities, and discovered they were utter nonsense, without actual loans inside.
Forget the damn housing bubble, or the economic collapse. Those can be argued the rating agencies weren't able to foresee. However, the fact they stamped A+ or whatever on an security with bogus pieces of paper stating that some unknown mortgage will be transferred in at some future date, some mortgage that didn't even exist and can't be transferred now...well...seriously, I don't understand how they're still in business.
If corporations are people, aren't stockholders guilty of slavery?
I'm not gonna bother picking out each assertion you made and responding to it like you did, but the reason why we do not allow things to revert to how they were at the birth of the industrial age when there were no social programs whatsoever is because it is in the interests of the greater good to provide these basic things.
The alternative is to end up with situations where you have large quantities of street rats banging on car windows at every intersection in every major city in the US, crime skyrocketing, property values plummeting, urban blight, disease due to poor living conditions and malnutrition. Basically, look at how the poor live in Mumbai or Rio, or hell, even here in the US in cities like Detroit and Cleveland. Those people are getting assistance and look at how bad off those areas are. Can you even imagine what it's gonna look like when they're cut off? Detroit is gonna burn to the ground.
Now, I'm sure I'll get some sort of "so?" response to that, or how it's their own fault for being lazy, or whatever the hell sin they committed to end up poor (since nobody has ever had problems outside of their control, like illness or job loss), but regardless, getting them aid is better than playing the "survival of the fittest" game that you seem to be championing for. This isn't a third world country; there are plenty of them to choose from if that's what you're looking for. Hell, I bet your money will go pretty damn far there, too, and I doubt there'd be too many tears shed if more like minded people followed suit, but that's not the type of country that so many people have given their lives defending.