When A "Credit" Agency Writes An Op-Ed Piece

Both Ezra Klein and Felix Salmon defend S&P from criticisms. Salmon's defense is very telling:

S&P is not judging the quality of Treasury bonds as an investment.

Say what? Then in what way is S&P issuing a credit rating? If S&P acknowledged they were writing a political Op-Ed, that would be one thing. But in fact, S&P is purporting to do precisely what Salmon says it is not doing - judging the creditworthiness of US government obligations. Salmon's argument makes no sense. More . . .

Salmon makes a more interesting (though contradictory to his first point) argument when he writes:

[A]all sovereign defaults are political, not economic — especially defaults by countries which borrow exclusively in their own currency. S&P and Moody’s can look at all the econometric ratios they like, but ultimately sovereign ratings are always going to be a judgment as to the amount of political capital that a government is willing and able to spend in the service of its bonded obligations. If Treasury really believes that S&P based its judgment fundamentally on debt ratios and the like, it’s making a basic category error about what it is that sovereign raters actually do.

If this is the case, I think someone, S&P especially, should point out that in fact, S&P is NOT doing a credit rating, but some type of "political willingness" rating. Of course no one will care what some guy name John Chambers at S&P has to say about politics. If they were truthful about what Salmon says they are doing, no one would even report on what S&P thinks about this.

This is a big lie by S&P is Salmon's defense of S&P.

And even that defense is ridiculous. I can't speak for other countries, but in the United States, there is a constitutional obligation not to default on debts. There will never be even a technical default by the United States government. Because the 14th Amendment prohibits them.

Or does the United States Constitution not count in determining "political willingness?"

Anyway you cut it, these defenses of S&P are embarrassment for those providing them. Shame on Klein and Salmon.

Speaking for me only

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    The S&P rating will help Obama (5.00 / 2) (#11)
    by MO Blue on Sun Aug 07, 2011 at 12:01:24 PM EST
    achieve his agenda to cut domestic and safety net programs. I expect that Erza will continue to cheer all the way. Of course, nothing in Obama's agenda will negatively impact Erza's standard of living. In fact, once Obama is done, Erza will pay less taxes and have more money to spend.

    We have already been told that the funds will be used not to "really" pay down debt but to allow for further corporate tax cuts and for the top 2% and to continue our never ending wars.


    Yep. (5.00 / 1) (#28)
    by TeresaInSnow2 on Sun Aug 07, 2011 at 12:55:43 PM EST
    This only hurts Obama if he cares more about re-election than about making himself a billionaire in private industry.

    Who cares if he loses, if he is known to have handed over funding for "entitlement" programs to the corporate powers that be.

    I think Obama wants to be a billionaire.  I don't think he truly wants to be president again if he can help it.


    Of course he cares about re-election. (5.00 / 3) (#39)
    by masslib on Sun Aug 07, 2011 at 01:28:55 PM EST
    His entire time in office has been spent worrying about re-election.  Indeed, there is absolutely no policy agenda there, merely a political agenda.  It's a blatantly corporate agenda, but that too is part and parcel of a compltely POLITICAL agenda.

    If Obama didn't want to be elected a second term, he would not run.  People need to stop second geussing on this.  He wants to run and win a second term.  On that there is no other way to read the tea leaves.

    The S&P downgrade is strictly political and a brazen sign of corruption.  Having the US lose it's AAA status on his watch does NOT favor Obama.


    If it gives the government (5.00 / 1) (#64)
    by TeresaInSnow2 on Sun Aug 07, 2011 at 02:22:12 PM EST
    a good excuse to rob our entitlements for corporate America, it's good for Obama the citizen.

    Maybe Obama has gotten to the point where he knows that he can't win re-election (and I'm pretty sure re-election is an impossibility if things continue on this trajectory and I have no reason to believe they won't).  Thus, he's going to do everything possible to make himself a wealthy man in the private sector.


    Of course there's another way ... (5.00 / 1) (#70)
    by sj on Sun Aug 07, 2011 at 03:26:57 PM EST
    ... to read the tea leaves.

    Assumption:  Obama is not personally invested in a second term.

    Assumption:  His term was intended from the beginning to dismantle the safety net.

    Dismantle in process: check

    Okay then, he intends to run and is pursuing a 1 BILLION dollar reelection war chest.  He has very, very effectively made the possibility of a primary challenge almost nil.

    It doesn't matter if he wins or loses.  The shredding of the safety net continues.

    Now the talk from the White House has been all about the political necessity and courting of the "independents" but the actions have not supported this.  They can read a poll.  They know they're losing support all around.  One can postulate that they just don't care.  

    Now, this is tea leaf reading.  I don't know what is "in his heart".  I can only go by his actions.  I'm not saying that I'm right -- I'm only saying that there is absolutely another way to read the tea leaves.


    LOL... (5.00 / 1) (#87)
    by masslib on Sun Aug 07, 2011 at 04:31:17 PM EST
    If he wasn't personally invested he would not run and he would not have presided over a completely political agenda.  This is the ole Obama means to suck argument that defies rational thinking, IMO.

    It's really not that, you know (none / 0) (#96)
    by sj on Sun Aug 07, 2011 at 05:38:42 PM EST
    I don't believe for a second that "Obama means to suck".  Whatever that means, anyway.  Obama has an agenda that is in accord with that of his funders.  And my tea leaf reading doesn't make the assumption that he intends to lose.  Only that he intends to prevent a populist from gaining a platform.

    In the end, it doesn't really matter, does it?  The dismantling will continue.  Either in Obama's quite deft hands or those of a Republican.  


    Yes, it seems like the use of ratings (none / 0) (#58)
    by KeysDan on Sun Aug 07, 2011 at 02:00:51 PM EST
    as a pressure point may be in our future so as to default on US promises for old age and disability benefits and health care to the poor and aged so as to avoid US default.  Never let a crisis, real or not, go untapped.  

    Dragging Social Security (none / 0) (#114)
    by cal1942 on Mon Aug 08, 2011 at 11:39:17 AM EST
    into a debate about discretionary spending means, IMO, one thing:  An unwillingness to pay back funds borrowed from the Social Security Trust Fund.

    I believe that's where Obama has been coming from from the start.


    S&P's point is very simple (3.00 / 2) (#107)
    by Slado on Sun Aug 07, 2011 at 11:10:28 PM EST
    On our current course we will go broke.  The economy with normal growth cannot support our commitments.  In fact we are already broke and we have already crossed the line of being able to repay our debts if we do not stop making promises.  That is the rub that is so hard for many liberals to understand.  We cannot keep moving forward with our curent style of government.  We must reduce it and S&P is betting we won't realize it until we are forced to.

    After the last few weeks I can hardly blame them.

    BTD and others are shooting the messenger.  Their motives don't have to be pure for them to be right.

    Dear Slado, (none / 0) (#111)
    by me only on Mon Aug 08, 2011 at 06:21:35 AM EST
    we can always repay our debts.  We have this magical thingy called a printing press.  The US will only default if the government decides to default.

    Will this cause inflation, sure.  But it will not cause us to go broke.


    That's called Argentina and just because (none / 0) (#112)
    by Slado on Mon Aug 08, 2011 at 09:34:04 AM EST
    you cover up being broke with worthless money doesn't mean you are not still broke.

    We will default in one way or another.   Bottom line we will never meet the promises we've made to the public.

    We will greatly slash benefits or they will slash themselves because the economy as a whole will come crashing down trying to support them.

    Of this there is no doubt.    You can keep Medicare but you will loose Social Security.  You can have SS but you must give up Medicare.  

    The debate of the next decade will be how much government can we afford and what do we want to spend our limited resources on.

    As I've said repeatedly we must slash every program.   To suggest that some are untouchable (military, SS, Medicare etc...) is to show that you are out of touch with fiscal reality.


    If it comes down to stiffin' somebody... (none / 0) (#113)
    by kdog on Mon Aug 08, 2011 at 09:50:12 AM EST
    I'd rather it be bond and treasury holders than the sick and the old.

    Perhaps we should have been downgraded long ago, but right now it just reeks of politics and corruption and another confidence scam.


    Slado (none / 0) (#115)
    by cal1942 on Mon Aug 08, 2011 at 11:48:34 AM EST
    your argument is ludicrous.

    The nation isn't broke, isn't going broke and won't go broke.

    There is nothing we cannot pay for if we deem it important.

    There is a great deal of untapped wealth available and many very expensive, pointless activites that can be eliminated.

    Take away the Bush tax cuts and the unfunded wars and two thirds of the deficit goes away.  Fire up the economy and deficits disappear.

    Raise taxes on high income to a more sensible level and we pay down the debt.

    Whether this happens or not depends on voters wising up and getting rid of Conservatives.


    Argentina? (none / 0) (#116)
    by me only on Mon Aug 08, 2011 at 07:11:13 PM EST
    What are you talking about?  Do you even mildly understand the difference?

    I need more facts (none / 0) (#1)
    by Militarytracy on Sun Aug 07, 2011 at 11:14:09 AM EST
    I know they did a conference call with journalists on Saturday but I need more information.  There is such a thing as bookkeeping, which is having to transition from ten years of magical two sets of books bookkeeping back to basic bookkeeping because they crashed the damned world with unethical magical bookkeeping.

    Just because the Constitution says you will do the impossible, it doesn't mean that you will be able to preform the impossible.  The Constitution doesn't make the impossible possible.

    I'm sort of surprised at you again, since right out of the gate it has been suggested that the Bush tax cuts were the #1 item leading to us getting downgraded.  If the markets crater, they may have to deal with jobs...you noted that.  If our credit rating has been legitimately downgraded because of the Bush tax cuts, they may have to repeal them tomorrow and Republicans may have a very hard time explaining why they won't when it is destroying our global standing.

    There is nothing impossible (5.00 / 2) (#6)
    by Big Tent Democrat on Sun Aug 07, 2011 at 11:42:07 AM EST
    about paying the US debt.

    I don't understand your comments on this frankly.

    But there is a lot I do not understand.


    If we reach a point where we could (none / 0) (#10)
    by Militarytracy on Sun Aug 07, 2011 at 11:57:17 AM EST
    be in danger of actually defaulting, but you can be assured that you will ONE DAY some how some way get your money...... that alone is pretty economically and financially devastating as a country. At least for a little while :)

    I want more facts before I attack in this situation.  And if more financial writings come out stating that the Bush tax cuts are the #1 policy decision that got us here I'm good with that too.  I'm not convinced that at this time and this juncture, this isn't a legitimate rating.  I'm not convinced this is a rating that can't finally inspire our leaders to repair some of the things they keep ignoring right now either.


    Still not understanding you (5.00 / 2) (#15)
    by Big Tent Democrat on Sun Aug 07, 2011 at 12:07:52 PM EST
    I should just make this simple :) (none / 0) (#17)
    by Militarytracy on Sun Aug 07, 2011 at 12:22:51 PM EST
    I agree with Ezra :) once

    Still do not understand you (5.00 / 1) (#22)
    by Big Tent Democrat on Sun Aug 07, 2011 at 12:33:36 PM EST
    That's okay (none / 0) (#37)
    by Militarytracy on Sun Aug 07, 2011 at 01:26:03 PM EST
    I don't understand you either :)  Stuff happens

    that is simple alright, (5.00 / 2) (#24)
    by cpinva on Sun Aug 07, 2011 at 12:50:17 PM EST
    simply wrong, as is klein & salmon. give them credit though, who'd have guessed two people could be so utterly deficient in both logic & law on the very same day, not including S & P of course.

    if S & P isn't rendering judgment on the creditworthiness of USA, Inc.'s debt (bonds), it has no reason for existing, period. since that's what it purports (and i mean that in it's strictest definition) to do for a living, anything else is superfluous.

    unless you're suggesting that, gosh, maybe the US gov't can't meet its debt service/retirement obligations, so therefore the 14th amendment is moot, the rest of your comments make absolutely zero sense.

    perhaps, you've confused the debt & debt ceiling with cash flow; the two are not the same, and one is not dependent on the other. the federal gov't has more than sufficient cash flow (both amount and timing) to cover all its debt obligations, default was never a real issue, to anyone with half a functioning brain.

    clearly, neither S & P, klein or salmon possesses the requisit half a functioning brain.


    Our credit worthiness (none / 0) (#36)
    by Militarytracy on Sun Aug 07, 2011 at 01:25:29 PM EST
    on a global scale has a great deal to do with how the rest of the industrialized world perceives us too.  We gotten everyone into one hell of a mess.  It was our business practices, it was our treasury of Goldman Sachs that has produced the horrible circumstances that other countries face.  I think the Tectonic plates governing markets and currency are about to shift drastically on the United States if the United States doesn't get it's $hit together, and I don't think we are interested in doing that.

    Agreed, (none / 0) (#35)
    by masslib on Sun Aug 07, 2011 at 01:22:18 PM EST
    And, if the US were to default than the whole damn world would be defaulting.  The S&P downgrade is beyond absurd.  

    There two primary contributing causes... (none / 0) (#16)
    by Abdul Abulbul Amir on Sun Aug 07, 2011 at 12:10:26 PM EST

    One is the explosion in federal spending.  Federal spending doubled between 2001 and 2011.  This is obviously unsustainable.

    The other is the decline in tax revenue primarily caused by the decline in income to be taxed.

    U.S. incomes plummeted again in 2009, with total income down 15.2 percent in real terms since 2007...

    With more and more spending and less and less to be taxed, the creditworthiness of the US is obviously less sound.

    On top of that with a narrow tax base (nearly half of all households paying no income tax) tax revenue will increase more in a strong economy and fall more in a poor economy.  Lets see if Obama calls for that half of all households that pay no income tax to "chip in" or "pay their fair share."



    The US is (5.00 / 1) (#18)
    by Warren Terrer on Sun Aug 07, 2011 at 12:29:56 PM EST
    sovereign in its own currency and all its debts are denominated in that currency. It can always pay off its debts if it chooses to do so. It is not in the least bit obvious that its creditworthiness has decreased. The US had a higher debt to GDP ratio during WW2 and yet S&P rated US debt as AAA then. It has been solid AAA ever since 1941 in fact.

    There is nothing economically obvious in support of this downgrade. But there are obvious political reasons for it.


    The WWII spending (none / 0) (#23)
    by Abdul Abulbul Amir on Sun Aug 07, 2011 at 12:48:33 PM EST

    The WWII spending was obviously going to end at the conclusion of the war.  There is no obvious end in  sight for the current spending binge.  

    The risk is not so much a technical default but rather in being paid off in inflated dollars.



    perhaps so, (5.00 / 2) (#25)
    by cpinva on Sun Aug 07, 2011 at 12:52:17 PM EST
    but unless you're suggesting FDR had a crystal ball, and knew in advance exactly when the war was going to end, your comments make no sense.

    FDR was good, he wasn't that good.


    exactly when it would end (none / 0) (#63)
    by Abdul Abulbul Amir on Sun Aug 07, 2011 at 02:18:49 PM EST

    Hehehe thats funny.  

    So winning (5.00 / 1) (#26)
    by Warren Terrer on Sun Aug 07, 2011 at 12:52:42 PM EST
    the biggest and most destructive war in history was obvious. No downgrade required. Absurd.

    I believe it was 1947 (none / 0) (#33)
    by CoralGables on Sun Aug 07, 2011 at 01:13:40 PM EST
    when we achieved the highest debt to GDP ratio. A crystal ball wasn't needed as to the end of the war.

    Your point (none / 0) (#34)
    by Warren Terrer on Sun Aug 07, 2011 at 01:14:42 PM EST

    Winning the war WAS obvious (none / 0) (#40)
    by CoralGables on Sun Aug 07, 2011 at 01:29:17 PM EST
    when the ratio peaked, although it should have been attached to cpinva's comment above you

    The war was over (5.00 / 2) (#51)
    by Warren Terrer on Sun Aug 07, 2011 at 01:44:43 PM EST
    when the ratio peaked. But that's not the point.

    The point is that even DURING the war, when US debt was mounting because the US was in the middle of taking enormous risks in order to fight extremely powerful enemies, when there was enormous risk that the US, or at least its allies, could suffer major defeats resulting in damage to the US economy, or that the war could drag on and on to the point where the US could no longer fight and its economy be wrecked, the US still maintained a AAA rating with S&P.

    It's easy in hindsight to claim that US victory in WW2 was obvious, but history doesn't back up that claim. WW2 put the US economy at far greater risk than anything happening today and resulted in higher debt levels, yet the USA maintained its AAA S&P rating throughout. This proves that the Friday downgrade is a sham.


    in theory, is there (none / 0) (#2)
    by observed on Sun Aug 07, 2011 at 11:22:12 AM EST
    any way to sue over this?

    Probably not. (none / 0) (#4)
    by jpe on Sun Aug 07, 2011 at 11:33:10 AM EST
    S&P is certainly entitled to its opinion.  It's even been an uphill battle suing the NRSOs for their horrific MBS ratings, where there's a credible argument for gross negligence or worse.

    I think the first point is addressed by Salmon: (none / 0) (#3)
    by jpe on Sun Aug 07, 2011 at 11:31:24 AM EST
    S&P doesn't care about or look at the likely recovery in the event of default. If the US ever did default, investors would ultimately get back 100 cents on the dollar, interest included. Shorting Treasury bonds into that kind of a default wouldn't make you much money. But it would still be a default -- and S&P is trying to gauge the likelihood of such a thing happening.

    The 14th amendment would require that if the US were to default, the investors would be made whole.  But that doesn't change the fact that there was a default in the first place.  
    If this is the case, I think someone, S&P especially, should point out that in fact, S&P is NOT doing a credit rating, but some type of "political willingness" rating.

    They did:
    More broadly, 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 to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

    Wrong on all counts (5.00 / 2) (#5)
    by Big Tent Democrat on Sun Aug 07, 2011 at 11:41:04 AM EST
    S&P claims to be providing INVESTMENT ratings on the creditworthiness of sovereign debt. Salmon says they are lying.

    The 14th Amendment PROHIBITS debt default, it does not have provisions for AFTER a default.

    Your information is utterly incorrect.


    The S&P rates the likelihood of default. (5.00 / 1) (#9)
    by jpe on Sun Aug 07, 2011 at 11:57:10 AM EST
    Pretty simple.

    The 14th didn't prevent our technical default in 1979.  It is possible for the US to default; the 14th amendment isn't a physical force that can literally prevent default.  It creates a right to payment.  Hopefully that means it would preclude default, but in any event it requires recompense in the event of default.


    The likelihood (5.00 / 2) (#12)
    by Warren Terrer on Sun Aug 07, 2011 at 12:04:59 PM EST
    of default is zero. There was never going to be a default. The debt ceiling debate was nonsense from beginning to end. Everyone knew that Obama would cave and no default would occur. Furthermore, default could have easily been avoided had no agreement been reached. The Fed would just buy all treasuries and coupons as they came due and the default would be a purely technical and meaningless one between the Treasury and the Fed.

    But even if a default were possible and that's all S&P is opining on, why didn't it issue the downgrade a month ago when the negotiations were underway and default seemed like a possibility? Why issue it a few days after the debt ceiling was raised?

    The real purpose of the downgrade? To give the Republican Party a talking point against Obama in the upcoming elections.


    Of course (5.00 / 1) (#14)
    by Big Tent Democrat on Sun Aug 07, 2011 at 12:06:58 PM EST
    ANYTHING is possible I suppose.

    BTW, there was no actual default in 1979. Technical or otherwise.


    The reason is (5.00 / 1) (#21)
    by Big Tent Democrat on Sun Aug 07, 2011 at 12:32:57 PM EST
    that the delay did not trigger a violation of the bonds in question.

    It was of course stupid and inexcusable, but not a default.


    It would be a credit event. (5.00 / 1) (#91)
    by jpe on Sun Aug 07, 2011 at 04:40:07 PM EST
    The prospect of a late event negatively impacts credit.  That's fairly obvious.

    I agree (none / 0) (#101)
    by Militarytracy on Sun Aug 07, 2011 at 06:31:39 PM EST
    It would be a credit event and a huge one.

    And that's what I mean. (none / 0) (#90)
    by jpe on Sun Aug 07, 2011 at 04:38:25 PM EST
    The 14th no more precludes default than the 4th precludes illegal searches.  

    They should, but they may not, and when they don't what they do provide is an after-the-fact remedy.


    The 14th says debts cannot be not paid bcz of some (none / 0) (#100)
    by jawbone on Sun Aug 07, 2011 at 06:30:13 PM EST
    Congress decides they should not be paid for...whatever reasons.  For example, a strong Tea Party contingent of Congress could not pass a law stating debt incurred to provide, oh, heatth care and rehab for soldiers should not be paid, that the TPers did not agree with the earlier Congress who passed enabling legislation for such payments to soldiers.

    I deliberately chose something which should not be a matter of debate.

    Default could occur due to other reasons, but Congress cannot decide to not honor US debts.

    Nor can a prez do so.

    But, iirc, the Supremes declared that the US is not bound to pay out SocSec.

    I am not learned in legislatese or a Constitutional scholar, so I may have gotten this wrong.

    But what precipitated the 14th was talk among some Congress people that the US should not pay off Civil War debts.  


    Do you think President Perry, Speaker Cantor (none / 0) (#19)
    by steviez314 on Sun Aug 07, 2011 at 12:30:55 PM EST
    and Majority Leader Paul would necessarily care what the 14th Amendment says?  Or even a SC with a few more conservatives?  Who knows.

    President Perry would (5.00 / 2) (#20)
    by Big Tent Democrat on Sun Aug 07, 2011 at 12:32:01 PM EST
    Of course not (none / 0) (#97)
    by gyrfalcon on Sun Aug 07, 2011 at 05:45:42 PM EST
    but if they take over the government to that extent, there'd be even less likelihood (less than zero) that there'd be a default.  Among them, they'd cancel the ACA, abolish Medicare and Medicaid, the Depts. of Education, Energy, HHS, the FDA, the EPA and half or more of the rest of the federal government.

    There'd be plenty of money to pay off bondholders even after they abolish the corporate tax altogether and lower individual high-income taxes to 10 percent or so.


    exactly correct (none / 0) (#27)
    by cpinva on Sun Aug 07, 2011 at 12:53:56 PM EST

    otherwise, neither S & P or the 14th amendment clause would have any reason for existing at all.


    The 14th Amendment PROHIBITS debt default (none / 0) (#30)
    by Abdul Abulbul Amir on Sun Aug 07, 2011 at 12:57:27 PM EST

    It does not.  The 14th prohibits questioning the validity of debt, that is repudiation.  The US can default on debt without questioning its validity.  

    Horsesh*t (5.00 / 1) (#48)
    by Big Tent Democrat on Sun Aug 07, 2011 at 01:34:30 PM EST
    Cogent arguement that. (none / 0) (#62)
    by Abdul Abulbul Amir on Sun Aug 07, 2011 at 02:15:20 PM EST

    This not much different than falling behind in making payments on a car loan.  You can be in default without questioning the validity of the debt or repudiating the debt.



    No need for one (none / 0) (#68)
    by Big Tent Democrat on Sun Aug 07, 2011 at 02:53:22 PM EST
    Your comment was horsesh*t.

    Here is section 4. (none / 0) (#72)
    by Abdul Abulbul Amir on Sun Aug 07, 2011 at 03:36:13 PM EST

    The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

    Emphasis added.  This says nothing about prohibiting the late payment of a valid debt.  However it does repudiate the debt of the confederate states incurred in fighting the Civil War.



    More horsesh*t (none / 0) (#81)
    by Big Tent Democrat on Sun Aug 07, 2011 at 04:11:26 PM EST
    Nope (none / 0) (#7)
    by jimakaPPJ on Sun Aug 07, 2011 at 11:44:46 AM EST
    The 14th says that actions be undertaken to prevent a default, not that the lenders be made whole after one.

    The bigger question is, shall we let a credit rating agency determine our political intercourse?


    This just in: sometimes the law isn't followed. (5.00 / 1) (#92)
    by jpe on Sun Aug 07, 2011 at 04:42:16 PM EST
    You may as well be saying that because we have the first amendment, there are no violations of church & state.

    That's obviously deeply flawed, and for the exact same reason your argument is flawed.  The law isn't a superhero that goes around stopping violations of the constitution; sometimes things have to be rectified after the violation has occurred.


    Not the same thing (none / 0) (#106)
    by jimakaPPJ on Sun Aug 07, 2011 at 11:00:33 PM EST
    A default would be a national event viewed by one and all before it happened.

    A high school allowing prayer in class is a different thing all together.


    I know this will sound like I'm (none / 0) (#8)
    by Anne on Sun Aug 07, 2011 at 11:51:56 AM EST
    sitting here wearing my tinfoil hat, but...I've found it interesting from the get-go that, when this whole debt ceiling pimple was coming to a head, S & P's threats to downgrade referenced the magic $4 trillion number that the president had been pushing for - and in their announcement of the downgrade, once again mentioned that number.

    Obama and the WH predictably came out spluttering in anger, but over the last two-plus years, I have been learning that presidential anger, or anger expressed via surrogates, is not always what it seems.

    There's just something bothering me about it that I can't quite put my finger on - like, when will the administration make an announcement that, even though they think S & P overreacted, it believes it must start dancing to their tune and the pressure will be even greater to cut, cut, cut?

    And then, there are the rash of op-eds and pieces by business writers - there was one in my paper today.  Here's a bit of it:

    The United States of America has just received its character-lending warning from Standard & Poor's. The community's leading citizen and most prominent borrower has been observed engaging in intemperate behavior, running up bar tabs at the Elks lodge and requiring police visits for domestic disputes. The credit officers are getting worried.

    S&P's decision Friday to downgrade America from the top AAA rating to AA+ for the first time is about our willingness to pay, about whether we possess the mettle to do what is necessary and show we deserve the world's confidence.


    S&P's downgrade is a character issue for the United States because the country can well afford to pay its debts. We're still the richest nation. Even after World War II, when the national debt as a portion of the economy was far larger than now, S&P had no problem giving the United States its top, AAA rating.


    S&P, which badly misread the impending housing meltdown and made an embarrassing error in Friday's downgrade report, is not the perfect messenger. But that doesn't mean the message won't resonate. On Saturday the agency expanded on why it was so disturbed about America's direction.

    "The debacle over the debt ceiling continued until almost the midnight hour," John Chambers, head of S&P's sovereign ratings committee, told reporters.

    That, he seemed to be saying, does not become the world's wealthiest, most powerful country. That, he seemed to say, is a character problem.

    Is it a coincidence that these kinds of things are appearing all at once?  And is it a further coincidence that many of them are coming from reliable Obama defenders, who appear to be opining counter to the administration's feelings about S & P?  Makes me wonder if the whole thing isn't just another Grand Bamboozle, designed to move us closer to the Grand Bargain.

    See what has become of me?  I trust nothing anymore.  I don't believe what the politicians say, and I don't trust the media and the so-called experts much, either, because I think they're all in bed together - and they're not just "cuddling," I don't think.

    You're right (5.00 / 3) (#13)
    by Big Tent Democrat on Sun Aug 07, 2011 at 12:05:55 PM EST
    very tin foil. Does not makes sense to me.

    This is not good for Obama.


    My tin foil hat alerted me (5.00 / 2) (#59)
    by ruffian on Sun Aug 07, 2011 at 02:07:31 PM EST
    the opposite direction this morning while I was listening to Chambers on one of the Sunday shows. He said something to the effect that they were disturbed over the divisions in government and would look again when there was more unity. I took that to mean when there was a GOP white house and congress.

    I think the whe thing is more GOP hostage taking.


    We do have a character problem (none / 0) (#32)
    by Madeline on Sun Aug 07, 2011 at 01:09:24 PM EST
    and last week it was out there in bold letters.

    Unstable and dysfunctional government led by unstable and dysfunctional people with character deficits.

    This isn't the NFL.  It's the government who supposedly leads the world.


    I also am thinking that this (none / 0) (#76)
    by Towanda on Sun Aug 07, 2011 at 04:00:42 PM EST
    plays into the hands of those who wring their hands about Social Security, Medicare, etc. -- that this downgrade can be (mis)used to exploit politics and economics of fear on the people.

    So although I thought at first that this is the Wall Street sorts trying to hurt Obama in 2012, I dunno, because he has been working hard for them.

    And now, this scare tactic could work for him and for them again to get the people to accept measures from desperation and confusion, not from common sense.

    We just will have to see how this is played out by the pols -- since this clearly is a political move by S&P having little to do with our fiscal ability to pay our debts.  Yes, we can! so this is about something else, and that has to be something that serves the Wall Street sorts.


    Of course it plays into that hand... (none / 0) (#86)
    by masslib on Sun Aug 07, 2011 at 04:27:05 PM EST
    Obviously Beers is one who wrings his hands about social security, Medicare, etc...It's extortion.  But I don't think any sitting President wants to preside over the US losing it's credit rating.  There is a difference.

    But if this buys Obama the election (none / 0) (#94)
    by Towanda on Sun Aug 07, 2011 at 04:51:01 PM EST
    again -- that is, as a commenter put it here so well, the contest between advertising agencies, which comes at a cost -- that's all that matters.

    So the ads can amp up scare tactics on both sides, about who were the bad guys in this, Obama or the Repubs, but the guy with more multimillions to make more ads and buy more ad time wins.  

    I'm just wondering if this was the real grand bargain.


    I was thinking about my dad (5.00 / 2) (#99)
    by christinep on Sun Aug 07, 2011 at 06:20:02 PM EST
    who used to say--from time to time when he, my sister, & I were eating dinner--"Christy, beware of the oligopolistic system."  My dad was prescient...no degrees, worked in the PA coal mines as a kid, & then got-his-life-saved by the CCC (for which--after God & country--he believed to his dying day that no President was greater than FDR)...but, striking a pose & saying that to two young children at dinner. He knew whereof he spoke.

    IMO, that is what the S&P is all about. At this point--and without more factual info (MT is appropriately cautious here, methinks)--it is troubling that a private association, directly involved with the industry responsible for the economic pratfall & suffering stemming from 2007 & 2008, has the gall to make such an evaluation about a sovereign nation...and, based upon what??? Whatever S&P's purpose, after botching the lending industry ratings several years back & after botching the math supposedly leading to this rating by @2Trillion, it is much more than troubling that this little, private, wealthy "ratings" group could even seek to provide a potential self-fulfilling destructive prophecy as to the US.  My goodness...they must think that they are the spokesmen for an oligopoly or Grover Norquist even!


    I don't know why (none / 0) (#29)
    by Madeline on Sun Aug 07, 2011 at 12:57:15 PM EST
    some are so defensive about the S@P decision.  Yes, maybe all the talk about unnecessary to worry about default and the tainted credit agencies are true. However, they are driving the car right now.

    If I were the making a decision about the US and giving a AAA rating, I would do the same thing.

    The horrid, hip slapping and arrogant and belligerent statements , day after day to get media by the so called "Young Guns" and the fact that Norquist is the decision maker on  the budget/debt decisions is insane. The Democrats came off as powerless, ineffective and leaderless. It was not only a fail, it was a big fail for the entire world to see.

    It seems pretty clear according to article in the Wasington Post and NYT and others that he debt was driven by  Bush administration; Obama has added $1.7 trillion and Bush gave us $7 trillion. All verified by the CBO.


    My question is: Why doesn't the public know those this? Why don't the Democrats broadcast the facts about it?

    Moody's and Fitch announced that they will give the AAA rating with a warning.

    They are bad at their job. (5.00 / 2) (#45)
    by Addison on Sun Aug 07, 2011 at 01:32:59 PM EST
    S&P rates credit-worthiness for investors. That is what they do.

    US Treasurys are the best credit risk in the world. During the recent bout of financial instability, the top-rank of US Treasurys was re-affirmed as people bought them up in boatloads. In fact, over the past few months of credit-rating agency threats and the debt ceiling crisis, the yield for US Treasurys went down. The market is less worried about US Treasurys than any other investment product on Earth.

    And yet there are many investments rated above them by S&P.

    There's no defensiveness necessary. It's ridiculous without any argument, the facts are ridiculous. It's like a baseball pundit demoting the Yankees down to AA minor leagues because they lost a series against the Orioles and had a manager ejected from a game.


    You know, you're wrong. (none / 0) (#73)
    by Madeline on Sun Aug 07, 2011 at 03:52:02 PM EST
    what are you going to say when Moodys and Fitch downgrade?

    and yes, treasuries are safe. But if nothing changes when congress comes back they will downgrade. They were very clear about that.  The best we can hope for is that Spain, Greece, Italy and France is worse than we are.


    No, I'm not wrong. (5.00 / 1) (#85)
    by Addison on Sun Aug 07, 2011 at 04:24:17 PM EST
    Your seemingly absolute trust in these discredited, corrupt institutions over your own eyes and the clear judgment of international markets in favor of US Treasurys as AAA-level investments is bewildering.

    what are you going to say when Moodys and Fitch downgrade?

    When/if those other agencies downgrade, if they don't have better arguments than S&P I'll add them to the list of wannabe political PACs and remove them from the list of economic analysts.

    If they have good, substantive, quantitative economic reasons I won't have to say anything -- people will have stopped buying US Treasurys already because all necessary information will be freely available for months ahead of the downgrade. S&P has no unique/special knowledge of the US credit risk situation. The market knows what S&P knows, and the market usually acts before S&P does. And given the same information, the market bought MORE US Treasurys during the recent debt ceiling crisis and credit-rating threats.

    yes, treasuries are safe. But if nothing changes when congress comes back they will downgrade.

    So you agree that Treasurys are safe? So S&P's sovereign debt rating is meaningless as a credit/investment risk rating? But that's what they do, they are a credit-rating agency. Do you also read the charts I provided you that show that no one actually paid much attention to the debt ceiling crisis vis-a-vis US credit risk? So S&P is pointless but we should listen to them when they downgrade on something outside their accreditation? Or what? Your points don't really fit together well enough to argue against -- which is a wily strategy but unconvincing.

    S&P's ratings apparently aren't objective, apples to apples comparison of one AAA/AA rating and another yields absurdities. S&P is just rating credit risk subjectively based on domestic politics -- perhaps the US is slightly more of a risk compared to where it was 10 years ago, so it's AA+, but somehow other countries that aren't as secure as the US are still AAA. Nonsensical.


    I'm on offense (none / 0) (#31)
    by Big Tent Democrat on Sun Aug 07, 2011 at 01:00:22 PM EST
    My point is S&P is full of sh*t.

    Your comment seems to have no relation to the RELEVANT facts in this matter.


    Well, I think those that defend (none / 0) (#42)
    by Madeline on Sun Aug 07, 2011 at 01:30:06 PM EST
     government we saw last week are full of s**t. It's deteriorating and there is no stop sign.

    I agree with Ezra

    Those of us in Washington who would like to see the government work have long wondered when the business community and other entities who need a functioning political system would begin exerting a countervailing force. Perhaps it begins now. If not, then this may be the first of many downgrades to come.

    What company, corporation wants to buy, add, invest, support this craziness?

    And forget bonds. Their rating will go down.


    Obviously all the damn bond traders (5.00 / 1) (#47)
    by masslib on Sun Aug 07, 2011 at 01:33:51 PM EST
    who keep buying up US debt.  S&P absolutely is trying to exert a countervailing force to cut US spending, but that is based strictly on idealogy.  Shame on Ezra for defending the mind numbingly indefensible.

    Many people. (5.00 / 1) (#50)
    by Addison on Sun Aug 07, 2011 at 01:38:48 PM EST
    What company, corporation wants to buy, add, invest, support this craziness?

    No disrespect intended, but the mere fact that you're asking this shows you're not familiar with the actual situation. Yields for US Treasurys have gone down over the past few months. People are racing to add to, invest in, and support this craziness.



    http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yi eldYear&year=2011


    they have no where else to go (none / 0) (#75)
    by Madeline on Sun Aug 07, 2011 at 04:00:28 PM EST
    Spain, France, Italy?  They're buying because they think the market will fall.

    Well, thanks for the assist... (5.00 / 2) (#77)
    by Addison on Sun Aug 07, 2011 at 04:02:13 PM EST
    Nowhere else to go? But what about all the AAA sovereign debt out there that's apparently a better buy than US Treasurys!

    Heh (none / 0) (#80)
    by Big Tent Democrat on Sun Aug 07, 2011 at 04:10:40 PM EST
    Nothing to do with credit ratings (none / 0) (#46)
    by Big Tent Democrat on Sun Aug 07, 2011 at 01:33:51 PM EST
    ESPN's getting in the sovereign debt rating game (none / 0) (#38)
    by Addison on Sun Aug 07, 2011 at 01:27:47 PM EST
    Yeah, yeah, so S&P (a credit rating organization) is issuing ratings that have nothing to do with credit (aka: investment) quality. I'm sure the situation is worth a few chuckles. Well, laugh all you want, buckos. When ESPN issues their sovereign debt power rankings, and US Treasuries come in under the Bengals, who'll look like an idiot then?

    Early in my business career (none / 0) (#41)
    by NYShooter on Sun Aug 07, 2011 at 01:29:26 PM EST
    I did a stint as a credit manager for a national retail chain. The first rule drilled into me was how to analyze the 2 criteria of credit:

    1. The ability to pay
    2. The willingness to pay

    I think S & P is saying that they don't have any doubt about the U.S. in regards to #1. But the Republicans have surely shown they are not as committed to #2 as a company, or country, that deserves an AAA rating should be.

    We've said a thousand times, with good cause, the Republicans are "insane." Should insane people warrant the same rating as sane people?

    Really? (5.00 / 2) (#43)
    by masslib on Sun Aug 07, 2011 at 01:31:01 PM EST
    Because they sure as hell raised that debt limit.  The S&P rating is BS.

    Willingness to pay? (5.00 / 1) (#44)
    by Big Tent Democrat on Sun Aug 07, 2011 at 01:32:46 PM EST
    How did you figure that out?

    Heh (5.00 / 1) (#60)
    by Warren Terrer on Sun Aug 07, 2011 at 02:08:16 PM EST
    Apparently there was no court system back then to deal with the unwilling.

    Because I try to figure out (none / 0) (#65)
    by NYShooter on Sun Aug 07, 2011 at 02:27:38 PM EST
    what S & P was saying.

    When you see a group of insane people take over the reigns of Government, a group that was willing to throw the global economy into chaos in pursuit of their ideological insanity, and a group that demanded policies that would guarantee the further increase of our national debt, that could give credit grantors reasons to pause.

    I didn't say I agreed with them, I'm just trying to give a rationale for their decision.

    I gotta say the rage filled bluster I see here in some of the comments is reminiscent of the brain dead assaults I took when trying to explain during the primaries that Obama wasn't quite "The One" they had been waiting for.


    No (none / 0) (#67)
    by Big Tent Democrat on Sun Aug 07, 2011 at 02:50:25 PM EST
    I meant it YOUR job.

    "I meant it YOUR job?" (none / 0) (#95)
    by NYShooter on Sun Aug 07, 2011 at 05:36:37 PM EST
    What are you asking?

    He means (none / 0) (#102)
    by Warren Terrer on Sun Aug 07, 2011 at 06:56:51 PM EST
    during your stint as a credit manager for a national retail chain, how did you calculate anyone's willingness to pay, as opposed to their ability to pay?

    Well, obviously, one's payment record (none / 0) (#103)
    by NYShooter on Sun Aug 07, 2011 at 07:40:36 PM EST
    would be the primary determinant.

    However, if there was a management change, and the new management displayed an irresponsible, and reckless attitude towards their debts, that would give one pause as to their intentions, and their grasp of the fundamentals of contractual commitments.

    In other words, regarding S & P's analysis,  an element of uncertainty was introduced that didn't exist before.


    No. (5.00 / 3) (#49)
    by Addison on Sun Aug 07, 2011 at 01:35:53 PM EST
    If it was about "willingness to pay" they wouldn't have put in all their policy prescriptions regarding cutting entitlements and raising taxes. They would have said, "we're worried about the debt ceiling" or "you need to raise the debt ceiling 3 months ahead of time or risk a downgrade". But they went well beyond that. They might as well have been a PAC they way they spoke. It was a bid to be a political pundit organization, and it undermined their actual purpose of credit-rating (which they don't do well, either). There's no way around that.

    So you think (none / 0) (#61)
    by Warren Terrer on Sun Aug 07, 2011 at 02:11:21 PM EST
    the downgrade is an attack on Republicans? Interesting.

    From Crooks and Liars (5.00 / 1) (#66)
    by dead dancer on Sun Aug 07, 2011 at 02:44:09 PM EST
    "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."

    It's right there on Page 4 of the official Standard & Poors "Research Update" - the actual report on what they did and why - published on August 5th as the explanation for why they believe Congress - and even the Gang of Twelve - will be unable to actually deal with the US debt crisis.



    That's a good point (none / 0) (#69)
    by Warren Terrer on Sun Aug 07, 2011 at 03:12:43 PM EST
    but I think that's in there primarily for political cover, to protect S&P from allegations that the downgrade was done to harm Obama.

    As C&L points out, the media is ignoring this aspect of the S&P report. And it's no secret that the Republican party is 100% opposed to revenue increases. That's been their position for many years now. So it's not like S&P revealed any inside information about GOP behavior.

    Watch what happens. The GOP will have no problem campaigning on the talking point that the US lost its AAA credit rating for the first time in 70 years while Barack Obama was in the White House. They aren't the least bit concerned about criticism of themselves buried within the report that's already being totally ignored by the media. The vast majority of people aren't going to read the report or pay any attention to the details, but everyone has heard about the downgrade.

    At some point I expect to see Democrats trying to spin the downgrade in their favor and as a reason to support Obama's austerity proposals. That's politics. But realistically the downgrade is designed to harm Obama not the GOP, and it will be Obama, not Republicans, arguing against S&P.


    Timmeh Rides Again. (none / 0) (#52)
    by Addison on Sun Aug 07, 2011 at 01:45:05 PM EST
    MSNBC just now:

    BREAKING NEWS: Timothy Geithner to stay on as Treasury secretary - AP

    But why?

    Because (none / 0) (#54)
    by Warren Terrer on Sun Aug 07, 2011 at 01:47:28 PM EST
    Obama thinks Timmeh is giving him great advice.

    Let me consult my library... (none / 0) (#56)
    by Addison on Sun Aug 07, 2011 at 01:50:58 PM EST
    My 11-dimensional chess strategy guide says Obama's keeping him on now so he can fire him later to show decisive leadership. I might've almost believed that 2 years ago!

    Gee and who was arguing with (none / 0) (#55)
    by Militarytracy on Sun Aug 07, 2011 at 01:48:02 PM EST
    S$P since April about the problems they had with us?  Tim Geithner

    And Tim Geithner told them what he has told all of us when we point out to him that he is screwing everyone over and destroying longterm economic stability.


    Because Obama quite rightly (none / 0) (#98)
    by gyrfalcon on Sun Aug 07, 2011 at 05:57:45 PM EST
    figures there's absolutely no way the GOPers in the Senate will let him appoint a replacement other than say Paul Ryan, that's why.

    Exactly (5.00 / 1) (#104)
    by ruffian on Sun Aug 07, 2011 at 07:57:02 PM EST
    Talk about a major side show when we need it least

    This is a good point... (5.00 / 1) (#105)
    by Addison on Sun Aug 07, 2011 at 08:38:27 PM EST
    ...although there are always permanent acting secretaries. I don't think Geithner's replacement, even given a free pass confirmation, would be much better. It's more a political/personal story than anything.

    Wall Street wants the rating to plummet (none / 0) (#53)
    by Dadler on Sun Aug 07, 2011 at 01:47:22 PM EST
    His argument (5.00 / 1) (#57)
    by Warren Terrer on Sun Aug 07, 2011 at 01:56:19 PM EST
    makes no sense. He starts out seemingly saying that Wall Street wants US debt rated at junk so that it can profit from the high interest rates that would ensue. Then later he says Wall St wants interest rates on US debt at zero, while wanting it rated as junk at the same time. I don't understand this argument.

    Keiser is a gold bug and sees the world entirely through that lens. I don't take him seriously.


    I realize he's a gold bug (none / 0) (#82)
    by Dadler on Sun Aug 07, 2011 at 04:14:45 PM EST
    I have differences with him, but the one i don't have with him is his focus on corruption and criminality being the problem. He is laser-like on it, like no one else, an on that he is right. We are in the middle of a grand theft that is still going on because it is allowed to go on.  When we let anything go, everything eventually will.

    Again, I have my differences from him, and his thing with gold and silver is one of them in a way, but I tend to see him as just a harbinger precious metals person.  I've heard him say too many humane and sensible things to toss him aside over a thing for precious metals I don't share.  


    Warren and I agree on very little (none / 0) (#84)
    by me only on Sun Aug 07, 2011 at 04:21:43 PM EST
    but that gold bugs are lunatics is one thing we are both certain of.

    Gold breached $1700/oz tonight (none / 0) (#108)
    by Mr Natural on Mon Aug 08, 2011 at 12:00:23 AM EST
    Gold bugs may be wackos, but they're on the right side of the trade, at least for now.

    So were (none / 0) (#109)
    by CoralGables on Mon Aug 08, 2011 at 12:38:16 AM EST
    those that grabbed high priced tech stocks, and those that sunk everything into high priced real estate. You're on the right side until you're not.

    It's a world of bubbles. And like all bubbles be they tulips or beanie babies or gold or real estate or tech stocks, they pop. It's just a growing example of the psychological and sociological phenomena of the greater fool theory.

    Of course it's always possible that it keeps going up.


    I didn't say that people trading gold (none / 0) (#110)
    by me only on Mon Aug 08, 2011 at 06:18:53 AM EST
    are wackos.  I said that gold bugs, people who think that we should return to the gold standard are wackos.

    Is being late on a payment a default? (none / 0) (#74)
    by me only on Sun Aug 07, 2011 at 04:00:12 PM EST
    If it is, then we have already defaulted.

    No (5.00 / 1) (#79)
    by Big Tent Democrat on Sun Aug 07, 2011 at 04:09:51 PM EST
    IT isn't a default, unless the instrument defines it as such. Generally there are cure periods.

    The 1979 scenario was actually more about Treasury incompetence than anything else.


    Did Treasury pay the extra interest (none / 0) (#83)
    by me only on Sun Aug 07, 2011 at 04:20:19 PM EST

    A settlement was reached (none / 0) (#88)
    by Big Tent Democrat on Sun Aug 07, 2011 at 04:32:46 PM EST
    made sense business wise.

    Treasury wins the case if they adjudicate but they lose in the longer run.


    So if they had gone to court (none / 0) (#93)
    by me only on Sun Aug 07, 2011 at 04:48:49 PM EST
    the credit market would have reacted like a default going forward.

    Sounds like Treasury screwed up, just like not paying your credit card bill on time.


    You know what other country (none / 0) (#78)
    by Makarov on Sun Aug 07, 2011 at 04:04:02 PM EST
    doesn't have a AAA rating from S&P? Japan.

    Can you guess their 10 Year bond rate? Would you believe 1.5%?

    What else is there to know, really? Credit rating agency influence might impact CDS rates, but we wouldn't know because in Dodd-Frank we decided to let them remain secret contracts.

    Friday's 5 yr CDS rates: (5.00 / 1) (#89)
    by steviez314 on Sun Aug 07, 2011 at 04:34:15 PM EST
    Easy to find CDS rates

    Cover up the country names and see if you can guess which one is the AA+ formerly AAA.

    Sovereign ratings are a joke.