Standard & Poor’s

It has been a vintage week for old remains. A skeleton beneath a car park was confirmed as that of Richard III and the US Department of Justice exhumed Standard & Poor’s emails from nearly a decade ago. Neither was a pretty sight.

John Gapper

Barack Obama and Mitt Romney. Image by Getty

On the day of the US presidential election, we are witnessing a perfect antithesis of those who believe in intuition and those who trust in data. That has implications not only for political observers but for finance.

Nate Silver, the New York Times’ polling guru, who crunches the state and national polls and feeds them into a unified model that spits out a probability of who will be elected president, has Barack Obama as the 91.6 per cent favourite to win.

Meanwhile, Peggy Noonan, the Wall Street Journal columnist and former speechwriter for Ronald Reagan, feels something in the air: 

John Gapper

Standard and Poor's HQ. Image by Getty

The Australian court judgment against Standard & Poor’s for misleading investors in a complex, structured derivative is a worrying development for rating agencies that face growing legal risks.

The judge found S&P negligent in having accepted a false estimate of volatility given to it by ABN Amro, the issuing bank, and thus assigned the securities a triple-A rating in 2006. In practice, these securities collapsed in value within two years.

As Jayne Jagot, the judge in the case, ruled:

“S&P believed ABN Amro’s assertions that the actual average volatility of the Globoxx since inception was 15 per cent. S&P did not calculate the volatility for itself although it could easily have done so and, in my view, was required to do so as a reasonably competent ratings agency . . . This assumption as to volatility was unreasonably and unjustifiably low.”

 

John Gapper

It’s never a good sign when politicians resort to nationalism, or start to complain about other countries. When a central bank governor does it, things must be bad.

Christian Noyer’s suggestion that ratings agencies should downgrade the UK before they downgrade France would be funny if it wasn’t for the fact that he is the governor of the Bank of France.

I can understand, and even be amused by, the knockabout spectacle of French politicians trying to counterattack against the threat of France losing its triple-A rating by criticising the Brits.

But a central bank governor who is supposed to be above the political fray and to co-operate with other monetary authorities in easing the financial crisis? It isn’t very dignified.