Posts Tagged ‘Formulas in Finance’

Credit Rating Agency Standard & Poor’s to be sued for role in Financial Crisis: Government has the responsibility and obligation to protect everyone and it’s time that they began getting on with reform that would really make a difference to us all

February 5, 2013 Leave a comment

One of the most sinister, yet least reported stories that has highlighted itself in this mornings news is the power of independent credit agencies to wreak havoc not only on the lives of us as individuals, but also at Government level.

Credit Rating Agency Standard & Poor’s are set to be sued by the US Government for their assessment of mortgage bonds before the financial crisis, and the question must surely now be asked about the role that credit rating agencies play in our lives and if their methods of calculation are really that sound.

Much nearer home and in an article published by Observer last February, the causes of the banking crisis and its relationship with the ever increasing use of formulas in the financial world were made only too clear.

Formulas and their use it seems, are the logic and basis upon which many of the highly speculative – and dangerous – deals which now take place, are based. They are the very foundation upon which risk is calculated by apparent professionals who themselves would not be qualified or experienced to write such theories in the first place.

Odds on, it will be the use of such formulas which enable Companies like Standard & Poor’s to make such analysis upon which they are able to suggest that a financial ‘product’ can have the gold standard AAA rating or in fact go on to label the robustness of a whole Economy such as that in the UK. But it doesn’t stop there and each and every one of us have our lives touched by companies working in the very same way; albeit on a much more individual but nonetheless damaging scale.

Some of us will find it indeed odd that as consumers, we can actually run monthly accounts with credit scoring agencies, who for a charge, actually suggest that they can improve your credit rating. But how is it that they themselves harvest and hold the information which can make our lives so very difficult through their defacto credit scoring?

The parallels between all these situations are profoundly frightening and seriously so, as its seems that the ability of individuals, Government and even some brokers to gain credit on good terms is being governed by the very industries which seek to provide it.

Formulas have their place, but even the most simple have the potential to be proven wrong as has most recently been suggested in respect of Einstein’s Theory of Relativity and the work at the Hadron Collider which indicates that there are structures which can travel faster than the speed of light. Apply this to complicated Formulae where there are many variable inputs such as those in use within the financial sector, and you can soon see the need for disciplined use of parameters which there would appear no meaningful regulation in place to provide.

So how exactly is it that decisions which will directly or indirectly affect interest rates in all areas for Government, Business and us as individuals can be left in the hands of private companies who have so much to gain by having such horrific levels of power over us all. As has been proven by the misuse of statistics to represent information in a biased way, formulas can be derived to benefit the user, and no less so for the City than it would be for politicians time and again?

Tackling the use of these dark monetary arts which profit the few at the cost of the many can no longer be an uncomfortable truth which is swept under the carpet by politicians whilst lives in the real world are continuing to be ruined. Government has the responsibility and obligation to protect everyone and it’s time that they began getting on with reform that would really make a difference to us all.

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