Inside S&P’s homework disaster
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President Barack Obama often talks of the need for Americans to hone their numerical skills if the US is to compete in the global economy. S&P’s botched downgrade must help his case: it is time for action when even the guardians of a nation’s credit rating struggle to carry a one.
When the debt ceiling deal emerged last week S&P instructed their triple A team of analysts to crunch the numbers away from the media hubbub. Pizza boxes stacked up on the executive floor, while management braced for the backlash if the numbers guys came up with a downgrade verdict. Even so they must have been caught out by the ferocity of the reaction.
“Amateur hour,” was how one official described S&P’s conflation of official growth and inflation assumptions, which produced the error. Within hours the agency staff were being labelled as unpatriotic innumerates on cable news shows, and a Saturday conference call with reporters was hastily arranged too – a move not even made during the deepest days of the financial crisis.
Yet US education deserves its share of the blame. Washington’s elite are alumni of Ivy League schools, where grade inflation is rampant. Perhaps S&P could now follow Harvey Mansfield, a Harvard philosophy professor, who awards students two grades: one reflecting his real view and an “ironic” mark to be formally submitted.
The Trader returns
Last week saw the sudden return of “The Trader”, an image not much seen since the financial crisis, when newspapers were full of images of dejected men on trading floors. On Friday three UK broadsheets carried the same front-page picture of a distraught pair of chaps on the floor of the New York Stock Exchange. Their palms covered their faces, giving the sense of a man having a really bad day – as many traders did on Thursday, when US stocks had their worst session in two years. The rise of High Frequency Trading, however, means such snapshots risk becoming a relic. A sad server is so much harder to spot.
Stand up, Austan
Austan Goolsbee, at least, is doing his bit for education. The outgoing chairman of the council of economic advisers, who is perhaps better known as the administration’s only occasional stand-up comedian, returns to the University of Chicago at the start of the next semester. On Friday afternoon, before the downgrade news broke, the nerdiest members of Washington’s policy elite gathered for his leaving party, in the ornate Secretary of War room in the Eisenhower Executive Office Building. Chocolate cookies and fizzy drinks were served, and among the 100 or so guests both Ben Bernanke, Fed chair, and Tim Geithner, Treasury secretary, popped in. Mr Goolsbee’s departure is a double blow for the administration: they are losing a talented economist, but also a wonk with a wisecracking sense of humour – an attribute surely now badly needed in post-downgrade DC.
In the Huntsman
Republican presidential candidates lined up to take a pop at Mr Obama after S&P’s news emerged. Minnesota congresswoman Michele Bachmann called for Mr Geithner’s head. Texas governor Rick Perry’s mass prayer rally could have been confused with a call for the Almighty to restore the AAA rating. Even Mitt Romney piped up, for a change. In recent weeks droll Democrats have described his absence from the debt debate as the “Mittness Protection Programme”. Former US ambassador to China Jon Huntsman, however, struck a more measured tone, talking of the president “presiding” over the downgrade, and thus spreading the blame. This emollient note is both why he is feared by Democratic insiders, and has about as much chance of winning the GOP primary as S&P does of receiving a White House Christmas card.
It’s been a grim week but perhaps Washington would benefit from lightening up a little and taking a tip from House speaker John Boehner. During an emergency meeting with fellow congressional Republicans the former bartender was asked whether he needed an energy drink to keep him going through the late-night debt ceiling negotiations. His reply: “How about a Merlot and a cigarette?”