Standard & Poors Downgrade (Follow Up)

When I heard the announcement Friday night that Standard & Poor’s had downgraded the U.S. I was suspect of the action. Not because I’m a financial genius, my suspicion was because of my experience with that branch of S & P (and Moody’s) in the past, my watching the markets, and my experience dealing with politics.

I am always suspect of information released by, or affecting the government, on a Friday night or weekend. That the time when you put information out that you know has to come out, but you want to have some extra time to figure out a response without the criticism that you deliberately withheld the information. S & P’s release is also suspect because they waited until late on a Friday night, a time when one could be certain that members of Congress had gone home.

As I mentioned I had dealings with this branch of S & P in the past. in the mid 1990’s I was assigned full time to Miami’s Fraternal Order of Police (FOP) Lodge, Miami FOP #20 was (and still is) the Collective Bargaining Agent for the law enforcement officer of the City of Miami. Periodically the rating companies, including S & P would meet with City officials prior to issuing a change in Miami’s Bond rating. At one point the raters also wanted to meet with the unions along with the City administrators. The meetings would be in three parts, the first was a general meeting in which the City would put on a presentation and the raters would ask questions. Then they would meet alone with City administrators, then with the union officials, and finally a closing session with all groups present. A part of the goal for S & P was to learn if there were labor issues that could impact the City negatively, and to get a feel for contract negotiations to determine the fiscal impact of any agreement reached. These talks were very direct, to the point and intense. Considering the intensity put into rating a municipality, if the information provided to the public was accurate and complete downgrading the U.S. at this time made no sense. Putting the U.S. on a negative watch list is warranted, a warning of a downgrade the next quarter or six months absolutely, yes.

Then on Saturday morning I saw an interview with an S & P representative trying to defend their actions. After watching the interview, and the fact that the other rating companies had the same information and didn’t lower the U.S. rating, I believed that there was something else behind the action.

No, I’m not jumping on the conspiracy bandwagon that this is out of the Cloward-Piven “playbook” and that the administration was complicit in S & P’s action in order to gain support to seizing more control of the financial markets and the economy. That’s a stretch at this point and besides the President can control the economy of the U.S. and the world just by his words. Looking at the Dow Jones yesterday before, during and after President Obama made his public comments demonstrates that point (he began to speak at 1:58 PM).

graph information from UBS

Another point proved by the Dow Jones yesterday was “Be careful what you ask for.” Over the weekend people kept asking why “we” weren’t hearing from the President, his aides and advisors were talking to the media, appearing on the Sunday talk programs, but not a word from the President.

Finally word came Monday morning that the President was going to speak at 1:00 PM. I went online and accessed the streaming audio from a local talk radio channel so I could listen to the President. To be honest I was hoping that the Barack Obama of the 2004 Democratic Convention would also be present, the charismatic speaker. I wanted to hear the President motivate us and layout specific steps he was going to do to address the situation, after all he had the entire weekend to come up with an initial plan (while his advisors and confidants were out testing Democratic talking points).

1:00 PM came and went, then 1:15, 1:30, 1:45 and still no President, but word that it would only be a few minutes. As the times came and went the market reacted. Finally at 1:58 PM the President spoke. Instead of getting the President of the United States we got a candidate for President. The President said that in the next several weeks he would lay out a specific plan, but no details. When President Obama began to speak the DJIA was down 427, by the time he finished the market dropped another 105 points to 532. Throughout the remainder of the day DJIA was like a roller coaster, up and down, it FINALLY closed -634 points (-5.52%).

I expected that today the market will begin to increase because the professional investor, persons that play the market will start to buy those stocks that dropped yesterday betting that the market will turn around, which in the short term will be a self fulfilling prophecy.

I REALLY hope that Congress and the Administration are paying attention, people don’t want politics, they don’t want talking points, people want results.  If the President does that, if people see him actually presenting detailed proposals instead of just promising time and again that they will soon come, he’ll easily win reelection without campaigning.