- By JOHN CRUDELE
- Last Updated: 11:33 PM, February 4, 2013
- Posted: 11:33 PM, February 4, 2013
I’m Lol about this one.
Late yesterday afternoon, the Justice Department said it would sue Standard & Poor’s for rating mortgage-backed securities incorrectly during the 2008 financial crisis. This is funny on a number of levels; LOL — or laugh out loud — funny, in fact.
For one thing, why wasn’t Moody’s Investors Service sued? There’s no indication that Moody’s was any better at spotting the crappy mortgages that were bundled into securities by Wall Street and later sold (or taken over) by the government and taxpayers.
Could the exclusion of Moody’s have anything to do with the fact that Warren Buffett, a DC favorite who thinks he and other rich people are paying too little in taxes, is a major stakeholder in Moody’s?
But that’s not the funny part.
Back in August 2011, S&P started a chain reaction when it downgraded US debt from AAA to AA+. It was the first demotion for government securities in the history of this country.
More than two years later, the US still hasn’t fixed its debt problem. It still spends way more than it earns and could quite possibly be hit with another downgrade.
So is the US taking the offensive against S&P to keep the ratings firm in line at a crucial time in the discussions between Republicans and Democrats over how to handle the nation’s debt ceiling and profligate spending ?
That tactic, of course, could backfire. S&P could simply call Washington’s bluff and start rating all bonds — especially those issued by the government and its agencies — more strictly. Considering the Federal Reserve has been a shill buyer in the bond market for years, a close inspection of the viability of US government securities would be well warranted.
Then it’ll be LOL (lots of luck) keeping US bond prices up and interest rates down.
I want to do something different today. Here are the answers to some of the questions you forgot to ask about recent economic activity. This is sort of like me talking to myself — something that usually only happens when I’m driving alone in my car and can’t find a good country station.
Q: Last Friday the Labor Department said 157,000 jobs were created in January. The stock market seemed to like it, but was that a good number?
A: One hundred fifty-seven thousand jobs is mediocre growth. It was slightly below what Wall Street was expecting. Experts believe 250,000 jobs are needed each month just to keep up with people entering the work force for the first time.
Q: Then why did the stock market rally?
A: Partly because the jobs figure wasn’t awful. And the Labor Department revised some previous months’ growth upward. Stocks mostly rose because traders have control of the market and they thought it would be fun to get the Dow Jones industrial average back over 14,000 for the first time since 2007. Stocks also rose because the employment report came on the first day of the month, and that’s when professional traders like to put their money to work.
Q: So I can expect stocks to go down?
A: There’s no telling how long traders will have control of the stock market. And if you get lucky, you can go along with them for the ride. But there are a lot of problems that haven’t been solved — both in the US and Europe. In fact, the drop in stock prices yesterday was mostly because of renewed concerns about the European economy.
Q: So now I have to worry about Europe?
A: Yes, Europe, the US, China’s economic growth and plenty of other things, not the least of which is the Federal Reserve’s years-old policy of printing money. The Fed really can’t do much more to help the economy since interest rates are already at bargain-basement levels. But a change in its interest-rate policy could create a lot of turmoil and cause stocks and bonds to decline in price.
But your biggest concern should be that none of the US’s problems have been solved. Washington keeps delaying action on debt and spending levels and job creation.
Q: But 157,000 jobs were created in January!
A: Not really. I’ve gone through this before. Jobs are never created in the month of January. Companies lay people off after Christmas.
The figure the government puts out is seasonally adjusted. The real unadulterated, unadjusted figure shows 2.795 million jobs disappeared this January. That’s a little better than the 2.86 million lost in January 2012 but far from good news. Last year that 2.86 million job loss was seasonally adjusted into a gain of 243,000 jobs.
The financial markets, newspapers and TV cheered those 243,000 jobs because they really don’t understand the magic of seasonal adjusting.
Q: That’s too many numbers.
A: Yeah, and the more numbers I throw at you the more confusing it gets. This will put it all into perspective: The labor market seems to have peaked in November 2007, when there were 139.143 million jobs in the US. Last Friday’s number showed there were 132.705 — a drop of 6.4 million from the peak.
We do have about 5 million more jobs today than we did in 2010. But that’s probably not even enough to handle all the newcomers — like those graduating from school — trying to enter the work force.