Is David T. Beers More In Charge Than Obama?

He took the triple-A from the United States, but no one passing this mustachioed 50-something in the street would imagine he was the man who fought with Obama over who was really in charge. Until Standard & Poor’s lowered America’s credit rating, David T. Beers lived discreetly in London, where he had studied at the London School of Economics before graduating from [the University of] Virginia in International Relations. But on [Aug. 5], the team of analysts he led shocked the world by classifying America as a AA+, a dream for most countries, but humiliating for Obama, who not long ago had proclaimed that the U.S. was neither Greece nor Portugal.

That same Friday, Beers got an article on Wikipedia, as The Independent noted. Even if some biographical data was exposed there, an interview with Fox News to explain S&P’s decision is what made his face well known over the weekend. Modest for one who claimed to do accounts better than the Department of the Treasury, Beers declared on the American channel that his decision would not have much impact. In the end, a AA+ is not very different from a AAA. Obama, however, had to hear the warning!

The ratings agency itself turned a deaf ear. Having informed the White House that it would no longer have an eternal triple-A, S&P in return received the warning of a $2 trillion error in its debt calculations. Even so, they went ahead with the announcement, with something Paul Krugman called “chutzpah.” In an article in The New York Times, the Economics Nobel Laureate dismissed the agency’s decision by reminding us that in 2008, on the eve of the financial crisis, S&P had still given an A grade to Lehman Brothers.

But if The New York Times is on the left, The Wall Street Journal is not generally considered a skeptic of global capitalism. And even so, it revealed that of the 15 countries that had been incapable of paying their debts in the last 35 years, 12 maintained an S&P rating of B or better for months before. Now, as The Wall Street Journal notes, since a B signifies only 2 percent average probability of default in a year, the wizards at the agency should really clean their crystal ball. Another example of a dubious prophecy is that it gave the same rating to both Argentina and Brazil in 2001; the first country went into crisis the following year, while the second began a decade of success.

Ratings agencies are useful. They give investors some idea about the accounting rigor of companies and countries. The problem is that they do not exist just for creditworthiness. Many countries err by legislating that investments follow the criteria of S&P and its sisters, Moody’s and Fitch (both of which maintained AAA for the United States). It would be like forcing universities to follow the choices of the Swedish Academy. As prestigious as its Nobel Prize for Literature is, this would mean one would not read Pessoa nor Borges nor Joyce.

In America, Obama has already made it clear that neither S&P nor Beers will be more in charge than he is, even if unemployment continues to be high, growth weak and markets and public opinion sliding away from recovery. In Europe, it is also time that the political leaders show the ratings agencies and the markets that they are not afraid to rule so that they will not be humiliated.