SOARES: What’s your rating?

Sarkozy should have gone to FreeCreditReport.com. Last Friday, Standard & Poor’s nixed France’s AAA rating and banished the country to the lowly echelon of AA+ states, which includes Guernsey, the Isle of Man and — ah, right — the United States.

I’ve been told — implicitly, by the human resources departments of several financial services firms — that I’m wholly unqualified to talk about finance. But I did sit through Ray Fair’s “Intro Macro” course, and this is how the S&P ratings work: To fund their functioning, governments borrow money. To borrow money, they issue bonds to private investors, with a promise to pay them back at a later time. S&P then rates each country’s ability to pay back its loans, assigning it a credit rating that runs from AAA (good) to CC (Greek).

France wasn’t the only country whose ratings fell in last Friday’s S&P letter soup. Spain dropped two notches, from AA- to A, while Italy, formerly an A-rated state, slipped to a lowly BBB+. In a statement, S&P attributed the downgrades to an overall lackluster response to the larger European crisis. In particular, it cited the “open and prolonged dispute among European policymakers over the proper approach to address challenges.” In other words, the Europeans are being naughty, and their petty bickering is threatening their ability to pay back their loans.

But what does that mean? What if S&P rated not only governments and public companies, but people, too?

According to Google, the term credit comes from the Latin credere — “to trust, entrust, or believe.” In effect, then, S&P rates the worthiness of a country’s word. It makes sense. When a sovereign government takes a person’s money, it makes a promise — a bond — to give it back. S&P evaluates a country’s ability to fulfill that promise.

What if the same idea applied to people? I’m not talking about credit scores, the personal equivalent of S&P sovereign ratings, but ratings on our word, on our ability to meet our commitments — financial or otherwise.

I am, I think, a plain A, or maybe an A-. That is, I have a “strong capacity to meet financial commitments,” but I’m still “somewhat susceptible to adverse economic conditions.” That makes me a pretty reliable guy. I show up. I arrive on time. I respond to emails, I deliver on deadlines and I don’t ask for extensions. But I’m still subject to unfavorable circumstances — e.g., Saturday morning hangovers. This puts me below AA-ers (who spend Friday nights at Bass), but above BBB-ers (whose hangovers don’t limit themselves to the weekend).

Things get murkier below BBB. At BB+, considered the “highest speculative grade by market participants,” you’re a flake. You bail. You’re prone to the “sorry, forgot I had a meeting” text. And your friends know not to count on your presence.

But you’re still above CCC: “vulnerable and dependent on favorable business, financial, and economic conditions to meet financial commitments.” At that point, your permanence at Yale is wholly dependent on your dean’s good will and their excuses pad.

Of course, most Yalies are not CCC-ers. But we’re still a flaky bunch. We miss things — dinners, study sessions, coffee dates. In a way, it’s not our fault. We’re busy. We have class, rehearsal, meetings for assorted organizations. We push Google Calendar to the limits of its capabilities — and that’s precisely the problem. Our days become stacks of colorful little appointment boxes. A 6:30 p.m. “Dinner with Mary” gets sandwiched between a 6:00 p.m. “Reach Out meeting” and a 7:00 p.m. “MoFoPo section,” so that, at 6:45 p.m., Mary gets a text that reads, “sooo sorry, meeting ran late :( rain check?”

And flakiness begets flakiness. At some point between Camp Yale and Freshman Screw, unreliability becomes normal. We learn that no plan is ever set in stone, that things are always tentative, ad interim and subject to change. Flakiness no longer bothers us, and we become flakes ourselves. Maybe that’s just how things work. Maybe we’re not supposed to show up.

Or maybe we’ll grow out of it. Maybe it’s a four-year thing, like Wednesday night Toad’s and an infatuation with a cappella. Maybe, like a pair of bulldog-printed sweatpants, flakiness becomes an idiosyncrasy displayed only at the gym and around loved ones. After all, your boss at Morgan Stanley won’t take rain checks, and a Dean’s Excuse won’t buy you an extension on those DCFs.

Or maybe it will. Maybe we live in a BB+ world. I’m not sure. But barring a hangover on Saturday morning, I’m holding on to my A-.

Teo Soares is a junior in Silliman College. Contact him at teo.soares@yale.edu.

Comments

  • River_Tam

    > “I didn’t understand how they were turning all this garbage into gold,” he says. He brought some of the bond people from Goldman Sachs, Lehman Brothers, and UBS over for a visit. “We always asked the same question,” says Eisman. “Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.” He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number.

    – Michael Lewis

  • Lake_Balbina

    what a clever article! i hope to see more of your musings mr. soares. well done.