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View From The Asylum

America is now so politically unstable that its constant lurching about has finally caught the attention of people who like to disregard politics and attend only to making money. It was their view of the political crisis that tipped S&P into downgrading US bonds. Yes the deficit is a problem that started them worrying, but it was the obvious fact that our political collapse prevents any form of sensible discussion about deficit that finally made a downgrade necessary. In my view they should have gone further. Such is the grip of the extreme right wing on our political system, and so inane are the policies being presented from that group, that our debt should have been downgraded even further. Lest you think I am being partisan: there were enough voices on the right claiming that a default was either no big deal or was necessary in order to get “Washington’s attention”. Yes, they advocated economic catastrophe as a legitimate political weapon. That is neither responsible nor constructive.

That is extraordinary. It is evil. It is astoundingly unbalanced, ill informed, dangerous, and just plainly stupid.

But it is the standard we now get from the right. The notion of a centrist Republican is both quaint and distant. The current crop of presidential candidates has taken collective leave of their senses and wandered off even more rightward. I never imagined it was possible to get more extreme. I was wrong.

That this is now concerning the Republican old guard is one of life’s more amusing current spectacles. Even the Wall Street Journal – nowadays little more than a Rupert Murdoch mouthpiece – ripped them all in a major editorial. When Murdoch, hardly a balanced shrinking violet, thinks someone is too far to the right, civilized people need to start worrying. The WSJ, after dismissing the entire group as unsuitable for the presidency, called for new faces – Chris Christie or Paul Ryan seem to be their preferences – and quite openly started the campaign to downgrade Romney, Bachmann, and Perry in particular.

The problem that the Republicans have is that their core voters are way off the charts in extremist land. A recent study found that the gap between the two ideological wings of American voters is the widest in 120 years. This division stemming entirely from the drift to the distant right on the part of the Republicans. The Democrats occupy most of the same positions they have for decades.

Last weekend’s straw poll in Iowa was a totally meaningless event because of the extremist views of those attending. Iowa has the most extreme core of Republican voters in the country consisting as it does of a mix of religious fanatics and neo-libertarians. Understandably Bachmann won. She is a bona fide nutcase. But she also represents very well a group of voters who resent pretty much everything about modern America. She, like a lot of American politicians, is a religious zealot. She is socially conservative and thus out of step with the average American voter. She has also said she would oppose extending unemployment insurance for our jobless workers; she would repeal bank reform; she would repeal health care reform; she would advocate a constitutionally enforced balanced Federal budget; and she was one of those who spoke about default as proper and sensible way forward. Nowhere has she addressed the outcomes of all of this. She, like most Republicans are staunch advocates of free market magic and small government, no matter that the vast majority, not just of Americans, but of Republican supporters are passionately attached to their entitlement programs. This is no economic program, but it resonates well with the extremists who constitute the Tea Party, who thus rally around Bachmann as their leader.

Perry is new to the race. Typically anyone entering at this point has a hard job in overcoming the more established candidates, but, such is the disarray, he has in just three days leapt to the front to challenge the consensus front runner Romney. Perry is from Texas so his language and demeanor are larger than life and his record distorted by his home state oddity. He is seen as strong on the economy because Texas has added so many jobs even in the depths of the recession. Those jobs tend to be minimum wage, but that is not an obstacle to his claim that we need more, not less, deregulation; that we need to defang unions even more; and that we need to carve government down further to open more space for private enterprise to drive us all forward on the wings of an investment surge. That Texas has actually performed less well, in percentage terms, than high tax, big government, and left of center Massachusetts doesn’t seem to get much of a mention. That would ruin the right wing narrative, and upset Perry’s chances of election. So the truth will have to be ignored. Then there’s Perry’s absurd statements about the Fed. He argued clearly that he thinks any attempt to use monetary policy to boost the economy is treasonous. Printing money would, he said, debase the currency and may succeed in getting us moving. In which case Perry might not get elected. Apparently this is his definition of treason. His recent advocacy of Texas seceding from the United States – because it is now run by a socialist – is OK though. Ugh.

Set beside Bachmann and Perry, Romney is the epitome of rectitude and good sense. Which, naturally, makes him hard to understand. His supporters seem to think he is the centrist in the race, and, indeed, that he was governor of Massachusetts appears to support that notion. Which is exactly why he is pariah to the right, thus making his road to the nomination very difficult. His health care reform was the model for Obama’s. This is somewhat awkward for the Republicans who revile all things Obama. He made a few half hearted comments about the debt default before falling into line and saying he opposed it. Apart from that it is very hard to tell what his economic policies would be. All we get is a steady trickle of supply side sounding stuff and evasions about substance. Romney, thus far, has chosen now, the middle of a storm, to avoid saying anything about what he might do were he to win. This is normal Romney tactics – he has a record of being whatever is necessary to win elections. His views are thus all over the lot. He is the ultimate chameleon, and hardly the solid leader we need to make the hard decisions that lie ahead.

So I agree with the WSJ, this is a rum bunch, none of whom should ever reach the White House. They are simply irresponsible and hugely dangerous to our way of life. This despite the pretense of protecting said way of life. But the WSJ, and its owner, is being disingenuous. After all it too has piled on with virulent anti-Obama bile ever since he was elected, and it tolerated the enormously irresponsible fiscal policies of his predecessor out of blind ideological loyalty. Only when the tide of extremist insanity rose high enough to threaten the profits of big business, did the WSJ realize that it had invoked a populist movement that it no longer could control. I need not mention the role played by Murdoch’s primary vehicle of propaganda – his Fox News Network – in destabilizing, energizing, and indoctrinating our right of center voters. Like the sorcerer’s apprentice, Murdoch cannot control his troops. They are marching ever more to the right and threatening his newspaper’s advertisers and subscribers.

All of this is encapsulated nicely in a conversation I had a few days ago with an acquaintance whom I talk with maybe once a month. He is a late middle aged salesman for a steel manufacturer. He is a solid Republican. And he would appear for all the world to be a good, honest citizen. Except he is embittered and deeply anti-social. Although I am sure he would deny being so. In his words: America is spent. It is finished. Why? Unions. Illegal immigrants who leech off hard working people like himself. High taxes. Socialist entitlement programs paid for by those high taxes. Obama. Obama. Obama. Unemployed layabouts who do not deserve to be supported. Unfair Chinese competition. Oh, and Islamic designs to undo Christianity here in America. Because of all this he supported going into default rather than raising taxes. In his view the country is already destroyed, so any further damage is incidental. He is absolutely opposed to the US taking any more debt because he will have to pay it off while the layabouts and leeches get a free ride. Plus he doesn’t believe that debt is something a properly run home should have, so nor should a properly run nation. Unless that debt pays for the military, in which case, as a patriot, he is willing to make an exception. So Reagan’s debt is OK. So too was Bush’s. There were wars to fight. But Obama, being a socialist, has run up unnecessary and wrongheaded debt.

Here’s the culmination of his argument: it would be better to fall into depression than use debt to fend it off. Only through the pain of depression will the layabouts, the illegal immigrants, and the other leeches be purged. If that pain is deep and long lasting, so be it.

There is no counter argument to this mix of bitterness, cynicism, small mindedness, self-pity, and social antipathy. That someone could reveal all this in the space of less than an hour, and be profoundly attached to it all, astonished me. The seething hatred and loathing of what modern America has become that undergirds this outpouring shocked me. I had no response. My standard Keynesian answers merely stirred up more hatred. Yet I feel he is a good person. He has been relentlessly misinformed and misled. His views are genuine. His attitude is hardened by the recession and the fact that his employer has downsized violently to survive. The constant drumbeat of hatred spewed out by the likes of Murdoch has been sufficiently divisive that someone like this person, who ought to be a pillar of society, so reviles it that he actually argues for its downfall.

Burn the village to save the village.

America has fallen into a spasm of extremist rage. It has gone mad.

The inmates have risen up. The asylum has run amok. What do we do now?

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Ethics, or Not, and Economics, or Not

Let’s start with some fun:

How many economists does it take to screw in a light bulb? None. They simply wait for the free market to do it for them. Which is why economists are always in the dark.

I am still waiting, by the way, for the surge in investment and consumption that inevitably follows any reduction in the size of government. The free market is supposed to be delivering that surge any day now …

And I am still waiting for my coffee to be stirred by those same free market forces. The magic is so awesome, so I am told, it can, and will, accomplish absolutely everything.

You think I am joking? Then why are there so many popular books purporting to explain with “freakish” accuracy a whole host of stuff. Apparently those authors think that the magic is real. Or at least the analytical framework that describes the magic can be extended to all sorts of problems most of us never thought tractable to it.

Meanwhile my coffee has grown cold.

Let’s throw in a quote. Guess who said this:

“It is a mistake to limit collective action to state action … norms of social behavior, including ethical and moral codes … [can be] reactions by society to compensate for market failures.”

That’s Ken Arrow. He of Arrow-Debreu, the centerpiece of equilibrium theory, and one of the modern giants of the trade. As an aside, I, as usual, have a perverse reading of Arrow-Debreu: I see it as the perfect negation of equilibrium thinking. The conditions necessary to make it all work are so absurd and other worldly that the entire effort fits only in a Platonic universe far from planet earth. The problem is that economists are so smitten with their favorite shiny bauble that they have lost all ability to realize that Arrow-Debreu actually destroys general equilibrium theory as relevant thinking for a real, live, actual economy.

Oh well. Reality has never been an issue for economists.

What the quote from Arrow made me ponder is this: can economics ever be ethical?

Ethical, that is, in the modern notion of such, with some sort of ethical compass guiding the profession as it seeks to enlighten and provide social value.

The problem is the sticking point that economics has been so impervious to outside influences that it is way behind other professions in accepting that it has a social responsibility at all. Then, when economists wake up as they are now doing, they immediately invoke the notion of magic to protect themselves from actually having to engage in ethical thought as it relates to economic theory and activity. The usual suspects tell us that competition will drive out the bad apples and thus economics is a self-policing and self-cleansing profession in no need of setting boundaries on itself, or of articulating what might or might not be acceptable ethical conduct on the part of its practitioners.

In part this is because economics is a political activity – so much of it relies on pre-existing political questions having been answered. For instance: what does society view government for? Answer this one way and one set of economic theories can be deployed. Answer it another and the polar opposite theory can be deployed. Economists apparently can support any political position. So much for science. And, possibly, so much for ethics. Economists is a very malleable subject. It can thus, easily, become snake oil. It both causes and cures the yips. Now that’s ethical.

I give some economists great credit, they are actually trying to address the ethical problem. They almost immediately run into the usual road blocks. How dare they call economists unethical! After all most economists are jolly good folk trying to do their best. Like the rest of us, they will acknowledge the existence of those few bad apples, but, hey, that’s society for you. Then there’s that invocation of magic that, somehow, works its magic particularly well inside the profession, and thus obviates the need for any formal reaction. Lastly there’s the old problem of who would do the policing. Economics is a highly fractured profession – many of its members don’t recognize it as a profession, preferring to rely on the even older notion of collegiate academia to insulate themselves from the consequences of what they teach and theorize about. Hey, a collective is a collective by any other name. But that’s just me talking. Although Arrow seems to agree.

Like so many of the problems that have led to the profession’s demise in recent years, this denial of the need for an ethical position is largely a result of the fact that economists are massively disengaged from the society they purport to study. They like to hide from the enormous impact their ideas have. I am not new in saying this, but, economists have a disproportionate, and probably undeserved, impact on the livelihoods of their fellow citizens. More so than sociologists, psychologists, and statisticians, all of whom have bitten the bullet and developed ethical codes of conduct for their professions. So economics, from this perspective, is both more influential and more cavalier about it. Who cares how many unemployed there are? My model is internally consistent and wonderfully elegant. That’s all that counts. No. I don’t think so.

Some folks argue that economics is just so complicated that untangling a clear ethical stance is too difficult. I find this a cop out. It presumes that the entanglement of objects of economic interest are less tractable to ethical scrutiny than, let’s say, those covered by sociologists. Again, I don’t think so.

Let me get back to Arrow.

Those of us who decry the contribution economics made to the great destruction of wealth we call the great recession, and who are ashamed of the nefarious activities of the economists called to task in the movie “The Inside Job”, would surely reason that economics has undergone a failure, not a market failure perhaps, but certainly a failure. The response has been abysmal. There has been a great wailing and outpouring of “I told you so”, but not much action. The profession has not cleansed itself: those economists who were dragged into the spotlight by “The Inside Job” still occupy prestigious positions, still write articles for the media, and still command the respect of their peers. In other words, economics appears immune to ridicule and public opprobrium. That is not healthy. It is a sign of a declining and insular, rather than a vibrant and connected, profession. The public, deeply affected by what economists think, is entitled to something more. Especially as those self same economists are still teaching, and thus influencing a new generation of students who will carry forward both the ideas and the ethical stance – or lack thereof – of their teachers.

Let me not belittle what has gone on. In many ways the profession has reacted nobly by undergoing a soul searching and internal debate, but much of that activity has consisted of throwing the same old epithets back and forth, while sticking heads firmly in the sand hoping the storm will pass. This has had the side effect of widening the audience of people aware of the deep rifts within economics, and of the fact that there is no one, scientific, theory they can call into play to help society plot its way through the complex realm of economic activity.

Society is entitled to more than this.

And among the things society is entitled to is something it already receives from other professions: a willingness and effort to police itself with respect to ethical behavior.

Those light bulbs never screw themselves in, we all know markets fail, and economics needs more credible action to rehabilitate itself in the eyes of the public. I happen to think that a code of ethics would be a step in that direction.

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A Call to Arms: My Rough Draft

Let’s make this blunt:

The US government can borrow at 2.2% today. That’s the market price of ten year money. That is an insanely cheap cost of funds. It shows, if free market analysis means anything at all, that the market is not in the slightest bit concerned about the American deficit at the moment. Nor at any time over the next ten years. So we have an entire decade to debate and fix the long term trajectory of the debt, which is essentially a debate about becoming a less imperial nation – cutting offense spending; and restricting health care costs in an humane way. Period. Those two budget items are in danger of swallowing the economy. They need hacking back. The question is how and when. That is a political discussion, not an economic one.

Meanwhile the US government should be borrowing every last dollar it can at these cheap rates and investing like crazy in renewing the national infrastructure so it is bright and shiny new, and thus capable of supporting the innovation of the private sector as we look for competitive advantage and fend off the threats of low cost labor in emerging nations like China and India.

The government should be pouring money into rehabilitating our road, rail, and electrical grids. It should be sponsoring alternative energy research and then subsidizing it so we shift away from fossil fuels. It can spend to induce the market. It can augment the market. Or it can simply supplant the market. Maybe all three approaches in various combinations depending on the problem being solved.

One thing we know for sure: the notion that markets deliver everything, anyhow, anywhere, and at the best price is a thoroughly outdated, outmoded, and, frankly, rather quaint idea. It died during this crisis. Government has a role to play. We need to admit it.

The opportunity is right in front of us. Cheap money is heading our way. We should grab it with both hands. We owe it to our children, and to generations beyond them, to grasp this moment and clean up three decades of malign neglect.

Of course we could always just print the money, but there seems to be an even greater aversion to that, so let’s borrow.

The benefits of this attack on our problems?

Bending the arc of wealth creation upwards; creating space and support for private innovation; plugging the gaps and blind spots in the market to make the economy more complete; and being outright greedy. Money is cheap. Use it.

Next: productivity. The wage and productivity link has been broken for three decades ever since government was sidelined and the regulatory burden lifted from the economy. The wheels moved more freely, so those who could run more quickly stole all the goodies. Profit dominated wages. This is untenable over the long term, and destructive of the entire American vision. We need to stop it. Our divided society is a direct result of the adoption of neo-libertarian policies. It is antithetical to democracy, but very supportive of plutocratic republicanism. Those of us who believe in democracy need to fight back. This means using government to eliminate asymmetries through policies like strengthening unions; raising the minimum wage – or tethering it more precisely to measures of inflation; putting grit into big finance to raise transaction costs and hamper capital flows; and generally supporting collective action to provide support to wage earners in their fight to be rewarded for their efforts. Some of us cannot run as fast as others. An un-handicapped race produces few winners. A democracy needs more. This offends the libertarians and their ilk. So what. Their individualist mantra is profoundly anti-social and inoperative in a large complex society like ours. A democratic economy is a convoy crossing dangerous waters: if it sticks together we all succeed. If it separates the laggards get picked off or preyed upon. And, unfortunately, even the most fleet amongst us are laggards when compared with sharks.

Next: slash banking. I mean slash, not prune. Our financial system has been revealed as an inefficient allocator of our nation’s capital resources – two huge bubbles in three decades is an awful and damning record. It is badly managed; poorly regulated; and invasive. It is a pernicious weed rather than a centerpiece of our garden. It sucks in capital for its own use, rather than deploying capital for socially beneficial use. So slash it back. Re-regulate it. Separate speculation from banking. Carve out the payment system – it is a public good – and either nationalize it, or place into the care of commodity style consumer banks, taxpayer backed, that have no connection with speculation. Re-write the laws so that the managers and traders of speculative portfolios are invested as partners – and so they gamble with their own and not taxpayer money. Withdraw any taxpayer support, explicit or implicit, for speculative investing. Eliminate evils in the derivatives market – indeed think about getting rid of most, if not all, the derivates market by restricting it to trades based upon asset ownership. If you don’t own an asset you shouldn’t hedge it. Put the burden of proof onto the so-called innovators to justify all their hair brained consumer products. And get the lawyers to simplify rather than complicate the fine print so we can all understand it – the law is not a product development weapon, it is an even handed institution working for all of us, not just Wall Street.

Lastly: undo the great risk shift. For three decades we have shifted increasing amounts of risk onto the shoulders of those least able to carry the burden. We wrapped this in the guise of making people more responsible for their own futures. But in so doing we overwhelmed them. We chopped away at the predictability of lifetime incomes by getting rid of reliable employment. We moved more and more of the risk of retirement onto the average worker through the trick of making defined benefit plans into defined contribution plans. The result? We now have a generation of retirees looking at poverty or highly reduced circumstances. We tied their futures to the randomness of the stock market – a market so opaque that even the experts routinely screw up.

We never gave them the money management skills to succeed. And, even worse, we did not compensate them for the risk being foisted on them – remember wages have been flat, so our workers were forced to take on greater risk without any greater reward. None of our leaders, bankers, or free market economists would ever accept such a deal. But that is the deal we forced down the throats of the middle class. So of course we produced an economy of debt and fear. We added volatility right as we extracted protection. We must reverse that.

Another aspect of this is the disaster of our health care system. Unexpected health care cost is the number one recurring reason for personal bankruptcy in America – problems with real estate have eclipsed it only temporarily. If ever there was a sign that the average American cannot save sufficiently to offset the risk inherent in our economy, this is surely one. We need collective action to disperse risk as broadly as we can in both the retirement and health sectors. These are the two greatest costs the average household necessarily faces – education is a third, but is more optional – and are exactly where we have piled on risk during the years of illusion. For those of you who abhor collective action: then try to adjust the risk reward balance a different way. You will fail because the market you so loudly proclaim is the vehicle for the bifurcation I am pointing to as the source of the problem. The market failed. It’s time to move forward, not back.

Theses four steps are predicated on my observation that the policies of the past three decades, and the economic theories that enabled them, are utter failures. They have produced a deeply divided nation whose future is diminished and uncertain. It is time to stop debating the failure and to acknowledge it. It is time to stop harping on about the collapse of the theories that led us into this swamp, and to develop new ones. Above all else we no longer need to concern ourselves with the petulance of those who abetted the decline – they are irrelevant to the future. Let historians talk about them. We need action.We need action now. You may – I hope – disagree with my short list of things to do. So be it. Then make up your own and let’s discuss. But not for long: we must, and need, stop the malaise from withering our future to nothing. To do that we must act.

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The Fed at Bay

Just a very quick note about two aspects of the Fed’s announcement on interest rates today.

First: it is obviously worried about the economy. Very much so. Enough to announce that it will be keeping rates unchanged until at least 2013 – or as long as the economy stays this weak, which from my perspective amounts to the same thing. Duh. On the surface this is a clear signal of intent to combat malaise. To tell the market that rates will stay at the current lows for two more years is a profound signal. Or it ought to be. It lets everyone plan. It removes uncertainty. It ought to shock. I am left a little skeptical, though, mainly because nowhere in the Fed’s release was there much hint of other measures in the pipeline. That is unfortunate, because the economy could do with a big dollop of help right about now. In the absence of any sensible fiscal policy, and in view of the weakness of the economy, the Fed is being forced further into uncharted waters. Still, doubts aside, I am glad it is prepared to go there.

But.

Second: there is obviously great disagreement within the Fed about basic economic matters. Three of the governors, the usual gang of hawks, who objected publicly to the use of the specific time period for interest rates. These hawks, who have been wrong consistently about practically everything since the crisis first hit, are sticking to the tired and discredited theory that pumping the economy full of cash will inevitable lead to higher inflation. Note the word “inevitably”. The causal connection may, or may not, be there under normal circumstances, but it is absolutely not there in our current near depression circumstances. We are bang up against a zero interest rate boundary that invalidates normal theory. Instead it invokes the need for alternative ideas which, fortunately, the other seven governors have embraced, albeit cautiously . Still, the vocal opposition to the Fed’s new direction from the hawks, represents the strength of the old ideas and mimics the position taken by the extremists in Congress who advocate the equally discredited supply side notions and austerity policies that are undermining the recovery.

When you have an element of your leadership actively engaged in advocacy of policies that will disrupt and harm the economy you are partially crippled. It makes it harder to marshal the public behind the kind of bold action we need to avoid outright depression and a long term malaise.

We are well and truly limping at the moment. Hobbled and without leadership capable of putting in place the policies to solve the crisis.

But at least the Fed, or at least the seven governors who supported today’s action, are trying a wee bit. Which is much, much, more than we can say for the cowards in the White House and the extremists in Congress.

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S&P Rubbish

As an afterword on the whole downgrade silliness, the world has been full of S&P critiques. Quite why we need to add to the very obvious fact that S&P is clueless as to risk, and very likely corrupt to boot, seems beyond me. Anyone who believed the magical stardust sub-prime mortgage lead into AAA gold alchemy is clearly incapable of even the most simple analytical process. Alchemy is alchemy no matter how you dress it up, and no matter how many MIT economics PhD’s devote their mathematical skills to the problem.

Nonetheless there appear to be a few hardy souls who still take S&P seriously. So to help them kick the habit I want to direct their attention to Nate Silver’s excellent thorough and complete destruction of S&P value. To put it bluntly: S&P adds no value at all to the sober assessment of default risk. Indeed it may actually muddy the waters sufficiently that an investor is misled. The key moment in Silver’s analysis is when he concludes that including an S&P rating in a model designed to predict default makes that model less likely to succeed. In simple parlance: S&P reduces the amount of information in the marketplace. This is the polar opposite of its avowed intention, and totally undermines the value it claims to represent when it charges investors for its services.

Its ratings are rotten. Worse, they are so rotten that it would be worth an investor betting against whatever S&P says is likely to happen.

This is not, obviously, what a rating agency is supposed to do, but S&P manages to be a negative force by ensuring that its opinion is worthless.

Think about this finding of Silver’s: S&P takes pride in the serial correlation of its ratings. This means that when it downgrades a bond rating, the next move is likely to be a downgrade as well. S&P talks openly about this. What does this mean? Basically it implies that S&P, when it downgrades a rating, has already enough information to downgrade again. So, we are reasonable to ask, why not go the whole hog in one go? Why take these stutter steps? Why hide the information from the market? Why sow confusion instead of clarity?

Who knows? But the one thing we can conclude is that S&P is a truly bad rater of debt default liability. And since that is what it does for a living we can further conclude that the bond market, to the extent it takes notice of S&P is full of easily duped investors.

I happen to think that the bond market isn’t so easily fooled. After all it had re-priced Greek debt way before S&P downgraded it. Indeed as Silver also points out: the pricing of debt in the general market is a pretty good guide to what S&P is likely to do with its ratings … two years later.

Why anyone listens to these fools I don’t know. Perhaps they are good friends. Perhaps they feel sorry for S&P and its band of overpaid incompetents. Perhaps inertia stops them from eliminating S&P from the list of information sources. Or, perhaps, they are simply too lazy or cheap to do their own analysis. In which case they’ve lost a lot of money along the way.

I happen to think it is this latter explanation. The banks, in their frenzy to cut costs, eliminated the staff who did the in house analysis. They outsourced credit analysis to S&P and their ilk for bonds, and to the credit rating agencies for consumer default risk. The credit bureaus are extraordinarily poor at analysis and have very weak systems. S&P is now exposed as worse than useless – literally since it destroys an investors ability to predict default. Combine the two, as in the rating of those toxic derivatives built upon a foundation of credit scored mortgages, and it is easy to see why then banks blew up. They were buying into alchemy on a grand scale. They still are. On an equally grand scale. Which means that the banks are no safer or better at pricing risk than they were before the entire edifice collapsed a few years back.

As a last word: if the US wants to issue AAA rated bonds in the near future perhaps it should learn some of those old derivative tricks. Maybe, I am just suggesting, it should merge its debt issuing with that of Greece. Given a suitable sprinkling of market magic dust, the right combination of debt into tranches that only lawyers understand, and the earnest incantations of the right number of math wizards – from MIT of course to ensure impeccable pedigree – and BAM! the US could produce AAA bonds comprised entirely of subpar material. The market would swallow it whole. After all S&P blessed it.

They would, wouldn’t they? After all they’ve done it before.

Oh. Wait. They were paid off for that service. So clearly the US Treasury needs to throw a few bucks S&P’s way to grease the analysis.

S&P rubbish. Indeed.

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