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IT'S ALL IN THE NUMBERS

by Peter Gehr
13 replies
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And we wonder why US credit was downgraded

The numbers leading S&P to downgrade U.S. Credit:

• U.S. Tax revenue:_______________________$2,170,000,000,000
• Federal budget:_________________________$3,820,000,000,000
• New debt:_______________________________$1,650,000,000 ,000
• National debt:__________________________$14,271,000,000,000
• Recent budget cut:______________________$38,500,000,000

Let’s remove 8 zeros and pretend this is a household budget:

• Annual family income:___________________$21,700
• Money the family spent:_________________$38,200
• New debt on the credit card:____________$16,500
• Outstanding balance on the credit card__$142,710
• Total budget cuts:______________________$385
  • Profile picture of the author clint48
    Looks like it needs to be downgraded a little more.

    Clint
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  • Profile picture of the author seasoned
    Even many that LIED about the reason for the downgrade quoted S&P which baically said they LIED! o it shouldn't have been a mystery to ANYONE! Frankly, it should have been downgraded LONG ago, but if grades were like academic grades, and 2008, AFTER the crash, were an A, today I would rate it an F! Jim straw put it REALLY well when talking about this. People buy investments NOT because they are good, but because they think a bigger sucker is around the corner. He likened it to a burning match.

    BTW you said:

    • Annual family income:___________________$21,700
    • Money the family spent:_________________$38,200
    • New debt on the credit card:____________$16,500
    • Outstanding balance on the credit card__$142,710
    • Total budget cuts:______________________$385
    Let's analyze that! $142,710 debt could mean a $4760 minimum monthly payment! $21700 ANNUAL salary is $1808/month, so credit companies are OK with you spending as much as $542.5. Is $4760<$542.5? NOPE! If the US were a family, their credit rating, for FICO or vantage, would be in the toilet JUST for THAT! ALSO, your debt payment should NEVER be over your monthly REAL income! Is $4760<X<$1808? HELL NO! That means BANKRUPTCY! And I haven't even looked at the OTHER stuff! As for the $385? If your credit were better, you could save over 8%! The 385 is less than 0.3%! So it is statistically insignificant. In fact, cutting so little looks bad and could EASILY have cost over 2%! So the 0.3% savings actually COST money! It is like stealing a candy bar from a store, to save $0.50, and having to spend a few hundred thousand trying to keep yourself out of jail! You see, the .3% is a savings *****NOW*****! The 2% is spent NOW, next year, the year after that, etc...

    Steve
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  • Profile picture of the author Fazal Mayar
    It always has been in the numbers but the us debt is huge :O
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  • Profile picture of the author TLTheLiberator
    Originally Posted by Peter Gehr View Post


    And we wonder why US credit was downgraded

    The numbers leading S&P to downgrade U.S. Credit:

    • U.S. Tax revenue:_______________________$2,170,000,000,000
    • Federal budget:_________________________$3,820,000,000,000
    • New debt:_______________________________$1,650,000,000 ,000
    • National debt:__________________________$14,271,000,000,000
    • Recent budget cut:______________________$38,500,000,000

    Let’s remove 8 zeros and pretend this is a household budget:

    • Annual family income:___________________$21,700
    • Money the family spent:_________________$38,200
    • New debt on the credit card:____________$16,500
    • Outstanding balance on the credit card__$142,710
    • Total budget cuts:______________________$385
    Peter,

    I say after aiding and abetting the massive mortgage/CDO fraud that helped put this nation into the worst times since the 1930's and losing lots of credibility and authority S&P sought to make a splash.

    Now they have the nerve to downgrade the most sought after debt on the planet??

    Rumors are they are now being investigated for their role in the mortgage mess.

    BTW...

    ... I'd love to see your numbers for the year 1999 and your analysis of how we went from approx. 4.6 trillion in debt in 1999, with a yearly budget surplus of 225+ billion to where we are today.

    All The Best!!

    TL
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    • Profile picture of the author Kay King
      We're doing a very obvious tit-for-tat. Investigating and possibly suing (that's what the guy said) the one rating agency that told us to grow up.

      They must have special pills that allow people to look at a camera and talk about it with a straight face. It's getting embarrassing.

      Reminds me of the "don't blame me" thread. If you want to start pounding, start with regulators that looked the other way deliberately.

      I remember Greenspan's ponderous voice saying "the housing market is stable - it cannot go down". That was at the height of the mortgage trading frenzy when some were asking why it was being allowed and encouraged.
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      • Profile picture of the author TLTheLiberator
        Originally Posted by Kay King View Post

        We're doing a very obvious tit-for-tat. Investigating and possibly suing (that's what the guy said) the one rating agency that told us to grow up.

        They must have special pills that allow people to look at a camera and talk about it with a straight face. It's getting embarrassing.
        The S&P and the rest of the rating agencies should have done the adult thing and rated those mortgage backed securities what they really were and perhaps this nation would not be in the mess we're in.

        After those antics, I'll politely decline any advice from them.

        I say lots of people should get into trouble for their greed and what it has done to this nation and S&P and the rest of the rating agencies are on my list.


        TL
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        • Profile picture of the author Kay King
          I doubt if your list makes much difference to S&P. It's going to be the talking point for some - mean old rating agencies. It's a diversion.

          Truth is - we're in trouble here and pointing fingers and adhering to one side or the other without question should be off the table.
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          • Profile picture of the author TLTheLiberator
            Originally Posted by Kay King View Post

            I doubt if your list makes much difference to S&P. It's going to be the talking point for some - mean old rating agencies. It's a diversion.

            Truth is - we're in trouble here and pointing fingers and adhering to one side or the other without question should be off the table.
            I'd love to know exactly what sides you're referring too.


            TL
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    • Profile picture of the author seasoned
      Originally Posted by TLTheLiberator View Post

      Peter,

      I say after aiding and abetting the massive mortgage/CDO fraud that helped put this nation into the worst times since the 1930's and losing lots of credibility and authority S&P sought to make a splash.

      Now they have the nerve to downgrade the most sought after debt on the planet??

      Rumors are they are now being investigated for their role in the mortgage mess.
      PLEASE make up your mind! FIRST you say that they should NOT have downgraded the garbage because most other things are seen as being no better. THEN you say they SHOULD have mentioned a big chunk of the garbage on the heap and not rated it so.

      Determining the value of a CMO by a third party, such as S&P is *****VERY***** complicated. I should know, since I was one of the FIRST to work with the EPN interface, and helped develop and maintain a good delivery program.

      The first being a way to electronically deliver them, and the second being a way to assemble them.

      There are only THREE ways to value them.

      1. LEADING: Based on the component parts, and expected value. WHO do you think gives them the data?
      2. TRAILING: History of the CMO.
      3. *****TRAILING******: Based on the industry or history of the provider.

      So even if S&P DID miss-value them, it may not have been their fault.

      I mean if mcdonalds issues a bond, HOW do you think it should be valued? You would check out the credit of mcdonalds and past history of any bonds THEY issued! With CMOs, NEITHER piece of data is really available, unless you go to the place that assembled it.

      But HEY, you can AGAIN blame the BANKS, since THEY are the ones that assemble the POOLS of mortgages for them!

      BTW it has been like 20 years before it was created, and about 12 since I last worked on it, and the program ALSO relies on bank data, although some of that is taken from a third party. But THAT is trying to rate the individual mortgages that it uses to make the parts for the CMOs. THERE, they use the owners and THEIR past history, and THAT is why your mortgage costs more if your credit is bad. The higher the risk, the higher the interest rate to sweeten it so others will buy it.

      Steve
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      • Profile picture of the author TLTheLiberator
        Originally Posted by seasoned View Post

        PLEASE make up your mind! FIRST you say that they should NOT have downgraded the garbage because most other things are seen as being no better. THEN you say they SHOULD have mentioned a big chunk of the garbage on the heap and not rated it so.

        Determining the value of a CMO by a third party, such as S&P is *****VERY***** complicated. I should know, since I was one of the FIRST to work with the EPN interface, and helped develop and maintain a good delivery program.

        The first being a way to electronically deliver them, and the second being a way to assemble them.

        There are only THREE ways to value them.

        1. LEADING: Based on the component parts, and expected value. WHO do you think gives them the data?
        2. TRAILING: History of the CMO.
        3. *****TRAILING******: Based on the industry or history of the provider.

        So even if S&P DID miss-value them, it may not have been their fault.

        I mean if mcdonalds issues a bond, HOW do you think it should be valued? You would check out the credit of mcdonalds and past history of any bonds THEY issued! With CMOs, NEITHER piece of data is really available, unless you go to the place that assembled it.

        But HEY, you can AGAIN blame the BANKS, since THEY are the ones that assemble the POOLS of mortgages for them!

        BTW it has been like 20 years before it was created, and about 12 since I last worked on it, and the program ALSO relies on bank data, although some of that is taken from a third party. But THAT is trying to rate the individual mortgages that it uses to make the parts for the CMOs. THERE, they use the owners and THEIR past history, and THAT is why your mortgage costs more if your credit is bad. The higher the risk, the higher the interest rate to sweeten it so others will buy it.

        Steve
        Steve said...

        PLEASE make up your mind! FIRST you say that they should NOT have downgraded the garbage because most other things are seen as being no better. THEN you say they SHOULD have mentioned a big chunk of the garbage on the heap and not rated it so.

        I say...

        You haven't come close to what I was saying.

        Once again you seemed confused ( or maybe you hope I'm confused )...

        ...but thanks anyway for the seminar on how rating agencies work.

        TL
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  • Profile picture of the author hardraysnight
    kind of sad it should impact on the world

    i have my own curb against inflation, sports betting
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  • Profile picture of the author seasoned
    It is almost like you are trying to say a doctor said a kid was poisoned, when he wasnt, but blame someone else for poisoning his blood, and destroying his heart. SORRY, you CAN'T have it both ways!

    Steve
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  • Profile picture of the author gadel
    This is very alarming.
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