The Tea-Publican Hostage Taking Credit Downgrade – Thanks, Mitch!

Posted by AzBlueMeanie:

Only in America can a criminal organization that aided and abetted the banksters of Wall Street in the largest financial fraud in the history of the world dare to presume to pass judgment on the government that should have prosecuted them for their crime.

As Ezra Klein writes today, "Standard & Poor’s didn’t just miss the [housing] bubble. They helped cause it. They were paid by the banks to award their AAA-stamp of approval to all manner of financial products that were anything but riskless — which, ironically, makes them an accessory to the resulting explosion of U.S. debt. You’ve heard the old joke about chutzpah being a young man who murders his parents and then pleads for leniency because he’s an orphan? S&P has chutzpah."

Indeed. the Financial Crisis Inquiry Commission reported in January 2011 that: "The three credit rating agencies were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval. Investors relied on them, often blindly. In some cases, they were obligated to use them, or regulatory capital standards were hinged on them. This crisis could not have happened without the rating agencies. Their ratings helped the market soar and their downgrades through 2007 and 2008 wreaked havoc across markets and firms." FCIC Final Report-Conclusions-January 2011. (.pdf).

Robert Reich writes today Why S&P Has No Business Downgrading the U.S.:

Pardon me for asking, but who gave Standard & Poor’s the authority to tell America how much debt it has to shed, and how?

If we pay our bills, we’re a good credit risk. If we don’t, or aren’t likely to, we’re a bad credit risk. When, how, and by how much we bring down the long term debt — or, more accurately, the ratio of debt to GDP — is none of S&P’s business.

S&P’s intrusion into American politics is also ironic because, as I pointed out recently, much of our current debt is directly or indirectly due to S&P’s failures (along with the failures of the two other major credit-rating agencies — Fitch and Moody’s) to do their jobs before the financial meltdown. Until the eve of the collapse S&P gave triple-A ratings to some of the Street’s riskiest packages of mortgage-backed securities and collateralized debt obligations.

Had S&P done its job and warned investors how much risk Wall Street was taking on, the housing and debt bubbles wouldn’t have become so large – and their bursts wouldn’t have brought down much of the economy. You and I and other taxpayers wouldn’t have had to bail out Wall Street; millions of Americans would now be working now instead of collecting unemployment insurance; the government wouldn’t have had to inject the economy with a massive stimulus to save millions of other jobs; and far more tax revenue would now be pouring into the Treasury from individuals and businesses doing better than they are now.

In other words, had Standard & Poor’s done its job over the last decade, today’s budget deficit would be far smaller and the nation’s future debt wouldn’t look so menacing.

We’d all be better off had S&P done the job it was supposed to do, then. We’ve paid a hefty price for its nonfeasance.

A pity S&P is not even doing its job now. We’ll be paying another hefty price for its malfeasance today.

Paul Krugman writes today S&P and the USA – NYTimes.com:

On one hand, there is a case to be made that the madness of the right has made America a fundamentally unsound nation. And yes, it is the madness of the right: if not for the extremism of anti-tax Republicans, we would have no trouble reaching an agreement that would ensure long-run solvency.

On the other hand, it’s hard to think of anyone less qualified to pass judgment on America than the rating agencies. The people who rated subprime-backed securities are now declaring that they are the judges of fiscal policy? Really?

Just to make it perfect, it turns out that S&P got the math wrong by $2 trillion, and after much discussion conceded the point — then went ahead with the downgrade.

More than that, everything I’ve heard about S&P’s demands suggests that it’s talking nonsense about the US fiscal situation. The agency has suggested that the downgrade depended on the size of agreed deficit reduction over the next decade, with $4 trillion apparently the magic number.

* * *

So what was S&P even talking about? Presumably they had some theory that restraint now is an indicator of the future — but there’s no good reason to believe that theory, and for sure S&P has no authority to make that kind of vague political judgment.

In short, S&P is just making stuff up — and after the mortgage debacle, they really don’t have that right.

So this is an outrage — not because America is A-OK, but because these people are in no position to pass judgment.

I have made the argument since the election of 2008 that "somebody needs to go to emergency, somebody needs to go to jail." The biggest failure of the Obama Justice Department was its decision not to prosecute the banksters of Wall Street and the credit reporting agencies that aided and abetted the largest financial fraud in the history of the world.

The banksters of Wall Street (1) did not go to jail; (2) got to keep their jobs; (3) got to keep the money they stole (in bonuses); and (4) the American taxpayer paid to clean up the devastation to the economy that their unbridled greed caused. Because they got away with their crime, the banksters of Wall Street have become emboldened: they believe they are the "Masters of the Universe" and are beyond the reach of the law  — and they are using their ill-gotten gains to attack the modest financial reforms passed by Congress to restrain their fraudulent criminal behavior — with the help of their Tea-Publican friends in Congress.

It has also lead to a criminal organization like Standard & Poor's having the audacity to render a politically motivated judgment on the creditworthiness of the United States. This is beyond surreal.

That being said, it is worth looking at the press release from Standard & Poor's for its analysis supporting its credit downgrade. Short version: S&P believe the U.S. government has become ungovernable due to the Tea-Publican stategy of hostage taking, particularly after the federal debt ceiling fiasco, and their unwillingness to do what any sane person would do in this situation — raise revenues.

You have to read past the topline bullet points the media is reporting and get down into the weeds of the analysis. Here are some key highlights. S&P | United States of America Long-Term Rating Lowered To 'AA+' Due To Political Risks, Rising Debt Burden; Outlook Negative:

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.

* * *

The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently…

* * *

In our view, the difficulty in framing a consensus on fiscal policy weakens the government's ability to manage public finances and diverts attention from the debate over how to achieve more balanced and dynamic economic growth in an era of fiscal stringency and private-sector deleveraging (ibid). A new political consensus might (or might not) emerge after the 2012 elections, but we believe that by then, the government debt burden will likely be higher…

* * *

The act contains no measures to raise taxes or otherwise enhance revenues, though the committee could recommend them.

* * *

Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act. Key macroeconomic assumptions in the base case scenario include trend real GDP growth of 3% and consumer price inflation near 2% annually over the decade.

Our revised upside scenario . . . retains these same macroeconomic assumptions. In addition, it incorporates $950 billion of new revenues on the assumption that the 2001 and 2003 tax cuts for high earners lapse from 2013 onwards, as the Administration is advocating…

Our revised downside scenario . . . features less-favorable macroeconomic assumptions, as outlined below and also assumes that the second round of spending cuts (at least $1.2 trillion) that the act calls for does not occur. [i.e., political stasis]. . .

* * *

Our revised scenarios also take into account the significant negative revisions to historical GDP data that the Bureau of Economic Analysis announced on July 29. . . First, the revisions show that the recent recession was deeper than previously assumed, so the GDP this year is lower than previously thought in both nominal and real terms. Consequently, the debt burden is slightly higher. Second, the revised data highlight the sub-par path of the current economic recovery when compared with rebounds following previous post-war recessions. We believe the sluggish pace of the current economic recovery could be consistent with the experiences of countries that have had financial crises in which the slow process of debt deleveraging in the private sector leads to a persistent drag on demand.

* * *

The outlook on the long-term rating is negative. As our downside alternate fiscal scenario illustrates, a higher public debt trajectory than we currently assume could lead us to lower the long-term rating again. On the other hand, as our upside scenario highlights, if the recommendations of the Congressional Joint Select Committee on Deficit Reduction–independently or coupled with other initiatives, such as the lapsing of the 2001 and 2003 tax cuts for high earners–lead to fiscal consolidation measures beyond the minimum mandated, and we believe they are likely to slow the deterioration of the government's debt dynamics, the long-term rating could stabilize at 'AA+'.

In other words, S&P is saying that it agrees with President Obama's position that we need a balanced approach to debt reduction with new tax revenues (upside scenario) – including the expiration of the Bush tax cuts, the biggest driver of our federal deficit. But S&P downgraded our credit rating based upon the unfavorable political climate for any serious and responsible fiscal policies in light of the reality of a Tea-Publican Party that has adopted a political strategy of holding the country hostage for its religious cult of "no taxes." S&P was cognizant of the "Septuagenarian Ninja Turtle" Mitch MxConnell's threat the other day in coming to its conclusion.  McConnell vows to hold debt ceiling hostage again:

Senate Majority Leader Mitch McConnell (R-KY) confirmed […] that Republicans will hold the debt ceiling hostage in the future, saying, this debate “set the template for the future”:

MCCONNELL: It set the template for the future. In the future, Neil, no president—in the near future, maybe in the distant future—is going to be able to get the debt ceiling increased without a re-ignition of the same discussion of how do we cut spending and get America headed in the right direction. I expect the next president, whoever that is, is going to be asking us to raise the debt ceiling again in 2013, so we’ll be doing it all over.

Thanks Mitch! This is what your Tea-Publican hostage taking strategy has resulted in — a downgrade in the creditworthiness of the United States for the first time. I hope you and your terrorist pals are happy. You have achieved what no other terrorist organization in the world could even dream of achieving.

S&P speculated above that "A new political consensus might (or might not) emerge after the 2012 elections." The way out of our economic nightmare is clear — "Not ONE Republican" in 2012.

UPDATE: S&P didn’t specifically single out Republicans. It criticized the overall $2.4 trillion deal as too limited, and it implicitly criticized both political parties for refusing to tackle their sacred cows – entitlements, in the case of Democrats; tax increases in the case of Republicans. Why S&P’s Downgrade is No Joke – NationalJournal.com:

But it’s hard to read the S&P analysis as anything other than a blast at Republicans.  In denouncing the threat of default as a “bargaining chip,” the agency was saying that the GOP strategy had shaken its confidence.  Though S&P didn’t mention it, the agency must have been unnerved by the number of Republicans who insisted that it would be fine to blow through the debt ceiling and provoke a default.