S&P’s arbitrary arithmetic

It’s easy to get yourself into a corner if you make decisions without a sound basis. More than that, it’s really hard to change your mind if there was never a basis for the decision in the first base. Or if you don’t want to be honest about what the basis is.

What am I on about? The S&P’s downgrading of the US was political not economic. Whatever credibility they have left after the AAA rating of defaulting (and inherently likely to default) CDOs is now gone.

S&P showed their lack of understanding of US budgetary processes by mis-estimating the value of the spending cuts by $2 trillion. And when corrected, simply changed the rationale for the downgrading.

Yes, much of this comes from Paul Krugman.  I don’t pretend to understand the US budgeting process (yet) but at least I know that I don’t know.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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