Saturday, August 6, 2011

Standard and Poors? now this is rich

I have long held Standard and Poors in an extra special level of contempt.  Not because they are utterly corrupt (which they are) or because they are hopelessly incompetent (ditto) but because through a string of otherwise meaningless mergers, they are a branch of a company called McGraw-Hill.  Yes THAT McGraw-Hill--the name that somehow always caught my eye on the textbook whenever any class in school actually drove me to tears of boredom.  If any company is more responsible for turning the USA citizenry into blank-stare ignoramuses than McGraw-Hill, I would be hard-pressed to even suggest who it would be.

So yesterday, the same Standard and Poors that routinely handed out AAA bond ratings to bundles of liar-loan mortgages decides to further cripple the USA (and probably the global) economy by downgrading USA debt.  The sheer arrogance of this literally takes your breath away.  And of course, being a division of McGraw-Hill, S&P couldn't even get its math right.

S&P $2 trillion error does not call off US downgrade
Published: 06 August, 2011, 12:52 
The downgrade that came days after Congress finally agreed to raising the debt ceiling has been decided despite a US$2 trillion miscalculation, S&P admitted. European markets are expected to respond to the downgrade on Monday. 
The S&P rating agency admitted a $2 trillion miscalculation when deciding the downgrade. S&P had to rouse several of its European committee in the middle of the night to decide whether to go ahead and downgrade America’s crediting rating. That the downgrade went ahead has not really surprised anyone, as most know that the US had had unsustainable debts for many years. 
S&P officials notified the Treasury Department early on Friday that it was planning to downgrade the US government’s credit from the top-notch AAA rating it has held for decades. 
After just two hours of analysis, Treasury officials discovered that S&P had miscalculated future deficit projections by close to $2 trillion. It immediately notified the company of the mistakes, which S&P admitted. 
The miscalculation and the time the ratings agency took to reconsider the downgrade are among the controversies surrounding the decision to downgrade the US, which has held the agency’s top triple-A rating since 1941. more

"Who Gave S&P The Authority To Tell America How We Pay Our Bills"
Robert Reich | Aug. 6, 2011 
Standard & Poor’s downgrade of America’s debt couldn’t come at a worse time. The result is likely to be higher borrowing costs for the government at all levels, and higher interest on your variable-rate mortgage, your auto loan, your credit card loans, and every other penny you borrow.

Why did S&P do it? 
Not because America failed to pay its creditors on time. As you may have noticed, we avoided a default. 
And not because we might fail to pay our bills at the end of 2012 if tea-party Republicans again hold the nation hostage when their votes will next be needed to raise the debt ceiling. This is a legitimate worry and might have been grounds for a downgrade, but it’s not S&P’s rationale.

S&P has downgraded the U.S. because it doesn’t think we’re on track to reduce the nation’s long-term debt enough to satisfy S&P — and we’re not doing it in a way S&P prefers. “The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” says S&P. It also blames what it considers to be weakened “effectiveness, stability, and predictability” of U.S. policy making and political institutions.
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. more

S&P and the USA
Paul Krugman   August 5, 2011
OK, so Standard and Poors has gone ahead with the threatened downgrade. It’s a strange situation. 
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. Yet US solvency depends hardly at all on what happens in the near or even medium term: an extra trillion in debt adds only a fraction of a percent of GDP to future interest costs, so a couple of trillion more or less barely signifies in the long term. What matters is the longer-term prospect, which in turn mainly depends on health care costs. 
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. more
Of course, as we have been saying here at real economics for a long time, this assault on democratically elected governments has been the real agenda.  So goofy S&P is just a stooge in a bigger strategy.
Shock Doctrine International
Posted on August 2, 2011 by emptywheel

In the middle of the debt ceiling debate yesterday, Naomi Klein tweeted a link to this article, describing how the sovereign debt crisis in Europe is eroding democratic and labor rights.

The economic, and democratic, crisis in Europe raises questions. Why were policies that were bound to fail adopted and applied with exceptional ferocity in Ireland, Spain, Portugal and Greece? Are those responsible for pursuing these policies mad, doubling the dose every time their medicine predictably fails to work? How is it that in a democratic system, the people forced to accept cuts and austerity simply replace one failed government with another just as dedicated to the same shock treatment? Is there any alternative? 
The answer to the first two questions is clear, once we forget the propaganda about the “public interest”, Europe’s “shared values” and being “all in this together”. The policies are rational and on the whole are achieving their objective. But that objective is not to end the economic and financial crisis but to reap its rich rewards. 
The troika (European Commission, ECB and IMF) has decided to improve the mechanisms designed to favour capital at the expense of labour, by adding coercion, blackmail and ultimatum. States bled by their over-generous efforts to rescue the banks, and begging for loans to balance their monthly accounts, are told to choose between a market-led clean-up and bankruptcy. A swathe of Europe, where the dictatorships of António de Oliveira Salazar, Francisco Franco and the Greek colonels ended, has been reduced to the rank of a protectorate run by Brussels, Frankfurt and Washington, the main aim being to defend the financial sector. 
After which, we had this exchange:

Me: this entire year must feel like an awkward, sickening, “I told you so” for you.
Klein: if i had a magic riot wand, i would wave it now. #debtdeal
Klein: you did ask me how i felt earlier… 
Because, after all, it’s not just in Europe where debt is being used as a cudgel to roll back workers’ and democratic rights. The big news of yesterday’s debt deal–one the Administration is crowing about–is an entity that will sidestep democratic processes so as to make it possible to cut back on Social Security and Medicare. (As I was watching the vote yesterday, probably more than half the calls coming into CSPAN were from people talking about how worried they were that this debt debate might interrupt disability or Social Security checks; I think CSPAN was confused that many of these came in on the Republican line.) 
And that fact–the fact that this colossal stupidity is somehow happening on both sides of the Atlantic gets too little attention. As I noted the other night on BlogTalkRadio, we can’t attribute the debt deal just to the Tea Party. Not only has Obama been trying a variety of ways to set up a Catfood Commission that could cut Social Security since he got into office (as DDay points out, the Democrats were the first to try to hold the debt ceiling hostage to get a Catfood Commision), but Greece and France and the UK are all doing effectively the same thing, and they’ve got no Tea Party to blame. In fact, a week ago Saturday (July 23), in the middle of heated negotiations with the Republicans on the debt ceiling here, Obama checked in with Nicolas Sarkozy to see how austerity summer was going on his side of the pond. more

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