The more I read about the S&P downgrade, the more screwy it seems. Paul Krugman:
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.
S&P prepared an analysis to justify a specific conclusion. The analysis was off by $2 trillion. Treasury explained to S&P that the analysis wasn’t even close to being accurate, which led the ratings agency to concede they’d made a mistake.
And a few hours later, S&P decided to reach the same conclusion anyway. The agency wanted to proceed with a downgrade; whether its numbers added up was irrelevant.
That certainly inspires confidence in the integrity of Standard & Poor’s decision making, doesn’t it?
The press release issued by S&P reeks of some attempt at manipulation. For example —
The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.
Ezra says the downgrade is defensible, citing a statement from S&P about our political dysfunction —
“The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges,†they explained in the statement accompanying Friday’s decision. After Republicans in Congress spent three months weighing whether or not to default on our debt and Senate Minority Leader Mitch McConnell said that paying our bills would never again be a foregone conclusion, can anyone really argue with that?
I can’t argue with that, and if S&P had given that as its primary reason for the downgrade I would be much less suspicious. But it goes on and on about other things, including “entitlements” and “discretionary spending,” that make it sound as if they are more interested in imposing more austerity. They do mention revenue increases also as a desirable thing, but more or less in passing. It almost reads as if they threw in a couple of mentions of revenue to make it seem less like dictation from the Tea Party.
Not long ago S&P, along with the other major credit agencies, gave their approval to what they must have known were worthless mortgage-backed securities, thus playing a role in the financial meltdown of 2008. In that case, S&P was being paid by the firms issuing the securities, which makes it clear that their primary focus is on pleasing their customers. So who is the customer now?
Anyone want to bet that if we had a white Republican President that the rating would have still been AAA+?
You can’t give black people good credit ratings.
Especially black guys.
It only goes to their heads.
They’ll do nothing but waste the money ordering t-bones, Colt 45, Cadillacs, blow, and Ho’s, for themselves and their posse’s.
And why is it that the rating from a ratings agency that was so demonstrably wrong for years, matters?
I especially love how after it was pointed out to these imbecilic assclowns that their estimate was 2 TRILLION DOLLARS OFF, that a couple of hours later they came back and decided to downgrade it anyway.
That was a move done out of pure spite.
And a move to make Republicans more electable in 2012.
Disgraceful.
Disgusting.
I wish I had the proper words to describe how I feel.
Well, I might, but I already had to wash my mouth out with bourbon and soap yesterday. (OK, in truth, the suds weren’t from soap, but from beer 🙂
So, sue me. My credit rating is already kind of like Governor Perry’s GPA.
Did you see Fox News calling the President’s birthday celebration a “hip hop barbeque”? Not subtle.
David Atkins says it well:
1) Numbers are their thing, and S&P was off by $2 trillion?
2) These are the same geniuses who top rated Lehman and AIG before they went under/got into trouble
3) They’re the only credit agency that has down rated the USA.
I echo Krugman, their credibility is what’s in question.
I’m not a fan of Joe Klein, but he did manage to capture a reaction like mine several months ago when S&P started making threats:
The math error in the latest statement just makes it worse.
http://swampland.time.com/2011/04/18/poor-standards/
maha,
Yes I did, and that’s kind of where my comment came from.
They’re getting less and less subtle over there – and they weren’t exactly subtle to begin with.
I think it’s only a matter of time before they, or someone on the floor of the House and/or Senate say the N-word.
Of course, that’ll only improve FOX’s ratings, and make sure whoever the politician who said it wins in a landslide.
Not to defend S & P but would you loan money for a mortgage to a couple who clearly don’t get along and are headed for divorce? When the husband clearly has said he doesn’t care if the bills get paid. The last analysis is clearly the right one; that to the extent that we can trust the S&P, it’s a comment on the politics, not the financials.
Maha’s question is a great one, who are the customers now?
It’s no secret that leading up to the recession, perhaps partially causing it, S&P made the billions realized by the wealthy and influential Street criminals possible. Now S&P has set us up to make drastic cuts in government spending – so we can go back to our AAA credit rating?
What a great excuse it’s given the Republican power brokers/players in the House to cut the financial legs out from under the already strapped 98% of us. So who is S&P working for?
Not to be rude or crude, but who the fuck made the schmucks at S&P the boss of everything?
Why does it matter?
If S&P were to be swallowed up by a sink hole, would their rating still have meaning.
I’m with Felicity in asking who S&P works for, sounds like the fox is guarding the hen house.
All I can guarantee you is, they ain’t workin’ for us!
I know their report was somewhat critical of Republicans, but I do still think this was done embarass Obama and to advance the Republican agenda. Remember, they did write about entitlements being a big part of the problem.
And don’t you think some of those financial firms that S&P and the other ratings agencies pumped up over the last few years would like to see DC run by Republicans so that they can privatize SS, and make Medicare a voucher system?
My guess is, that’s who S&P is working for.
They’re just trying to be subtle about it. You know, make it acceptable to the DC pundits as “bipartisan” criticism of both parties handling of things. But after all is said and done, the Republicans will still blame all of this on Obama and the Democrats and say, “Look, he and they are to blame. WE’VE NEVER had the credit rating lowered during a Republican President and Congress!”
Follow the money!
Always follow the money…
I actually agree with S&P’s political analysis that our legislative branch is broken and the Federal government shows no signs of being able to help us out of our economic problems.
What irks me is that S&P thinks it has any right to comment on purely political problems. It’s clear this announcement wasn’t based on financial concerns. If they ever had a right to comment on our political problems, which I don’t think they ever did, they forfeited those rights during the Bush years, and with their active participation in the great mortgage debacle.
So, yes, they’re right that DC politics around the economy and budget is broken. But S&P of all people don’t get to make a peep about it until a few years AFTER we’ve unwound all those robo-signed mortgage-backed securities with improperly registered deed transfers and all the related foreclosures have made it through the system. Speaking of which, has S&P finished revising their ratings of all the banks holding those bogus securities on their books still? I don’t think so.
In other words, where do they get off telling us how to run our country, and how likely it is for us to succeed? If I wanted the political opinions of a bunch of unindicted criminals, I’d have asked for it. And I didn’t.
http://www.theonion.com/video/obama-debt-ceiling-deal-a-prime-example-of-democra,21083/
“President Obama has destroyed the credit rating of the United States through his failed economic policies and his inability to control government spending by raising the debt ceiling,” said Bachmann, Minnesota Republican and GOP poll-leading candidate for her party’s presidential nomination in 2012.
Really! She’s sick!
OT – but ‘the response’ to Governor Prick “Good Hair” Perry’s “The Response’ rally was less than I think they expected.
In a 70,000 seat stadium, with a roof and A/C, there were only about 30,000 people who ‘responded.’ And that may be overestimated.
http://thecaucus.blogs.nytimes.com/2011/08/06/prayer-rally-draws-thousands-in-houston/?partner=rss&emc=rss
So if you were wondering if “The Reponse” was to be an answer to this question that Jesus asked:
“Hey Paul, I wonder how many intolerant racist, xenophobic, homophobic, misogynistic moronic crackers who follow low-intellect white leaders can fit into a football stadium?”
The answer might be, “Not as many as you might think, Jesus.”
I’ll take that as a good sign in these end (of sanity) times.
Gulag…They should of had an Auto de Fe..I’m sure that would have raised the attendance level. I’m sure even Marcus Bachmann would have attended.
“Really!she’s sick!”
Yeah, but she uses a megaphone so everyone will know.(she’s Palin with a marching band featuring a tap-dancing act0
And Swami, if her husband ain’t a queen, he should get an oscar.
(I don’t mean that in a hostile way)
Swami,
NOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOBODY expects the Spanish Inquisition!
http://slog.thestranger.com/slog/archives/2011/07/18/queen-for-a-day
Nod. But this is really the silliest of things, and one of those places where liberals have to make some noise.
Think about this:
The US tends to spend about twice as much, *per capita*, as other nations for health care, including those who have, e.g., single payer, so they cover *everyone*.
The US government tends to spend about half of health care expenditures. Okay? So Medicare, Medicaid, VA, etc., those add up to about half of our health care costs.
That means that, if this were any other country, we could be spending *every single penny* that individuals spend on health care on something else. But, let’s just pretend that we “only” halve that. We could cut our private health care expenditures by 50%, and take the money that the government already spends, and we should be able to cover *everyone*, not just the 85% or so that we currently cover. And there would still be lots of extra cash flying around for people to suck up, since we’d still be spending about half-again as much as other nations spend on health care, per capita.
We don’t need entitlement reform; first, we need health care cost reform. Then, we can see what Medicare is really doing, and in the mean time, we have 26 years to work on Social Security.
From ThinkProgress: National Journal: ‘It’s hard to read the S&P analysis as anything other than a blast at Republicans’
This is the first really big negative for the Republicans in all long while. I think the left needs to use this big time. The lowering of the credit rating was because the Repugs showed that they have no intention on agreeing with any thing presented by the Democrats and President Obama. They showed their intention of not caring what is GOOD for the country and only caring about “putting it to” our first black President. Right now, the Repugs have only worked for the destruction of America; and, I am glad they have been called out by an entity that gets people’s attentions.
they didn’t downgrade the debt as bad as it really is. just like they didn’t do with the CDO’s before the housing market crashed. betcha the banks aren’t betting on us treasuries going up..
http://joshuagamen.com/2011/08/05/here-comes-qe3-dow-drops-500-points-in-biggest-loss-since-that-week-we-all-remember-in-2008/
In a vengeful fit one might want to rate them back if that were possible, however I’d think a stop-on-a-dime, over-the-top, born-again austerity during a downward spiral would be enough for any prudent bystander to ring some alarm bells. AAA rating has to stand for something, like maybe refraining from exacerbating the downward spiral or even arresting and reversing it and THAT AIN’T Happening, now is it?
That’s plausible Bonnie, more than anything else I’ve heard.
LongHaired – To add to the sheer nuttiness of our so-called health care system, if health care benefits were taxable income (income is income except in the US tax code, obviously) employees would be paying $126 billion per year more in income taxes. By way of the back door, employer- provided health-care is a $126 billion/year government health-insurance system.
For no other reason, it’s probably provable that the people screaming the loudest against Obama-care are the people who have employer-paid health care. I suspect they’d shut-up about it were their employer-paid health care suddenly part of their taxable income.
Right-wingers *never* overestimate crowds. Didn’t you learn that when 737 *billion* people joined Glenn Beck?
Well… you’re touching a bit of a sore spot here. I used to work in pensions, you see, and had it drilled in why a pension was deductible. Any standard employee benefit that’s seen as necessary to attract and retain good talent is seen as a deduction as a necessary business expense. And, benefits that don’t have a cash equivalent (which includes pensions – which *do* have a cash equivalent) are typically not taxable. I can get free soda, milk, and juice while at work for my employer, but it’s not taxable, and it’s probably deductible for the employer as well.
Anyway: that’s the reasoning for why health insurance wasn’t taxed for a long time.
Should it be taxed?
I don’t know. I’ve never seen an argument suggesting that it would help do anything about health care costs. It might have helped a coalition of businesses demand more government action, but it also might have caused more employers to drop their health care plans.
I *have* seen people say things that clearly showed that they thought that the tax deduction for health insurance was a bad thing… but I’ve never seen the source for their conviction.
LongHaired – the only argument I know of for taxing the health insurance benefit was posed before health-care became an adjunct of the insurance business. It was argued that because the actual cost of health care would be ‘hidden’ from the consumer, the consumer would necessarily be unaware of the exorbitant cost of health care and thus do nothing to rein it in.
I can easily see the demerits and merits of either argument. What I do find interesting is the hue and cry coming from the opponents of Obama care because Obama care puts more of the government in the health care mix – the missed point being that the government, by way of the back door, has been in the business for decades.