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Meet the Men Who Downgraded the Debt

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ALL DEBT, ALL THE TIME
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Amidst the analysis, the debate, the finger-pointing, the name-calling, and, naturally, the anxiety, little has been revealed about the people who did the actual downgrading of the United States AAA credit rating.

S&P names the primary analysts as: David Beers, global head of sovereign ratings and managing director; John Chambers, managing director and chairman of the sovereign ratings committee; and Nikola Swann, director of sovereign ratings.

Beers, whose LinkedIn profile shows that he works out of S&P's London office, has been the most visible of the three, though less is known about him than Chambers or Swann.

Of Beers, Reuters says he "favors small tie knots, sports a bushy mustache and smokes his fair share of cigarettes. Beyond that, he is a mystery, like the work he does," though we know that he is a "Wall Street veteran [and] a graduate of London School of Economics where he has endowed a scholarship in his name."


David Beers

John Chambers was described by the New York Post over the weekend as a "Wall Street bean counter who... never studied economics, majored in literature and philosophy, and has a master's in English lit."

According to the Post, Chambers is 55, lives with his wife, daughter, and two dogs on Riverside Drive in Manhattan. He grew up outside Kansas City, graduated from Grinnell College -- where he was a star swimmer -- with a BA in literature and philosophy, before getting a master's in English lit at Columbia.

Chambers' official bio offers a few more details:

John Chambers is a managing director at Standard & Poor’s, Credit Market Services division. Since 1997, he has been the deputy head of Standard & Poor’s Sovereign Ratings Group. In 2005, he was named chairman of the group’s sovereign rating committee. This committee, which consists of senior sovereign analysts, sets and changes ratings for the 125 central governments rated by Standard & Poor’s as well as for a score of multilateral and sub regional development banks. John also led Standard & Poor’s efforts in expanding its rating among Latin American financial institutions. He is a chartered financial analyst. He has his Masters of Arts from Columbia University and his Bachelor of Arts from Grinnell College.

Though Chambers refused an interview with the Post, his wife said of the downgrade, "I go on the wisdom of the people involved, including my husband."


John Chambers

Here's what we know about Nikola Swann:

He "is a Director, having joined the Toronto office in 2002. Nikola is primary analyst for the United States of America, Canada and Bermuda, as well as several public sector entities, including the International Bank for Reconstruction and Development, the International Finance Corporation, and la Caisse de dépôt et placement du Québec. Prior to joining Standard & Poor’s, Nikola worked as an Economist in the Canadian Federal Government’s Department of Finance. Previously, he worked in the Monetary and Financial Analysis Department of the Bank of Canada."

We also know, according to LinkedIn, that Swann is open to being contacted about:

  • career opportunities
  • new ventures
  • expertise requests
  • reference requests
  • consulting offers
  • job inquiries
  • business deals
  • getting back in touch



Nikola Swann, left, with Bermuda Premier Ewart Brown, center

Deven Sharma, the president of S&P, "oversees S&P's analysts in the rating committees," according to the Wall Street Journal. He has been at Standard & Poor’s since 2006 as executive vice-president and was promoted to president a year later. Before that, he was an executive vice-president at The McGraw-Hill Companies, S&P’s parent company, for five years."

"Mr. Sharma didn’t come to S&P with a background on ratings or credit markets, but he had worked on S&P’s strategy for several years since taking on the ratings company as a client in his previous role at consulting firm Booz Allen Hamilton Inc.," writes the Journal's Shefali Anand. "Mr. Sharma’s promotion was taken as an indication that S&P would continue to emphasize growing its business outside the U.S.

"Mr. Sharma was born in India 55 years ago. In 1977, he completed a bachelor’s degree in mechanical engineering from the Birla Institute of Technology in Ranchi, Jharkhand. He later moved to the U.S. where he obtained a master’s degree from the University of Wisconsin and a doctoral degree in Business Management from Ohio State University."



As for what goes on behind the walls of the ratings agencies, the Reuters piece offers a glimpse of what life is like inside S&P:

The ratings agencies hire a broad spectrum of experienced people, from Wall Street investment banks, central banks and from outside, including former journalists. The deeply analytical environment, one that is almost professorial far from the cut and thrust of Wall Street is an attraction, former employees say. And they are respected.

For sovereign rating actions, committee members include the country analyst, sector analysts such as banks, sovereign analysts from other countries to ensure that peer analysis is a core part of the process. The committee size can vary but for Moody's the sovereign committee can be as big as 20 people.

That is one of the key frustrations for those being rated -- they do not know who is on the committee, as those names are never published. The thinking, veteran ratings agency executives say, is that to reveal the names would lead to undue pressure on the raters. Even internally, one source said, committee notes omitted voting.

"Like here in the U.S. where you have these ridiculous jury trials and they have got the jurors that are all made public and then the press goes and hounds these people, the same kind of thing would take place with analysts that are part of the rating committee process," said one former agency director.

 
Of course, not all believe the collective judgement of three S&P employees should be taken as the Word of God.

Edmund Andrews of the National Journal writes:

S&P is hardly some kind of Delphic Oracle.  It and the other rating agencies were almost criminally negligent about the risks of subprime mortgages during the housing bubble.  And it’s not as if S&P told investors anything about U.S. fiscal problems on Friday that they didn’t already know.


Amy Borrus of the Council of Institutional Investors, says of the ratings agencies' overall track record:

It's been, in a word, pretty poor. You know, 10 years ago they failed to see the collapse of Enron coming around the corner. In the global financial crisis ... there were many instances where credit raters inflated ratings on structured financial products to win business from firms that issued the debt.


And Lloyd's of London chairman Lord Peter Levene says, "The ratings agencies failed the world economy in spades in the past."

Mehdi Hasan of the Guardian recalls a 1996 quote from Thomas Friedman of the New York Times, which is just as, if not more, relevant today as it was then:

There are two superpowers in the world today. There's the United States and there's Moody's Bond Rating Service. The US can destroy you by dropping bombs, and Moody's can destroy you by downgrading your bonds. And believe me, it's not clear sometimes who's more powerful.


Or, of course, Standard & Poor's. However, is the US now "destroyed" by the S&P downgrade? Hardly. As Minyanville's Kevin Depew points out this morning:

What can it all mean? Will interest rates go up? Will the dollar go down? Will I pay a higher interest rate on my credit cards? My auto loan? My mortgage? I just saw this headline:

Treasurys Rally as U.S. Debt Remains Go-To Haven

Hahaha. Do you know what that means? It means interest rates are lower, Treasury bonds are rallying as investors seek the safety of Treasury bonds after S&P downgraded Treasury bonds. That's all you need to know about the sovereign debt downgrade.

 


POSITION:  No positions in stocks mentioned.

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