Issue of the Week: The Incompetent Standard & Poor's
Plus Hero of the Week
Standard & Poor's rating agency helped to create the worst recession since the Great Depression by putting AAA ratings on toxic mortgages that were bundled into securitized debt obligations that were nothing but junk and destined to implode. So, did S&P give these junk investments its AAA ratings because the agency was focusing on keeping its clients happy and keeping those large fees coming in, or were they just incompetent?
Today, the question is: Did S&P downgrade U.S. debt from AAA to AA+ because they are incompetent or because they are being very political—or some combination of both? One clue is that S&P was the only one of the three major rating agencies to downgrade the U.S. debt. And the markets responded with an overwhelming chorus of “Stupid,” as the demand actually went up for U.S. Treasury debt on the following trading day and interest rates correspondingly went down. Obviously the S&P's downgrading may well have been just politics, pure and simple, and had nothing to do with the country's creditworthiness, since actual investors were unfazed.
We don't know the answer to our second question, but it seems some combination of three things: incompetence, S&P's efforts to make Obama look bad and defeat him in 2012, and a defensive posture to cover their butts, since it now makes it very difficult for U.S. Attorney General Eric Holder to investigate and prosecute S&P for their fraudulent AAA ratings of toxic securities, since that would look like retaliation by the Obama administration. S&P may not know how to rate securities, but it does know how to make money and protect its positions.
Heroes of the Week
Kathy's House Volunteers
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Kathy's House (600 N. 103rd St.) is supported by charitable contributions and the work of volunteers, who give their free time to perform reception-area duties, housekeeping, office tasks, and fund-raising and special event help. Readers interested in helping out-of-town patients through a difficult and expensive time are urged to call the volunteer line at Kathy's House at 414-453-8290 or visit www.kathys-house.org.
Carter and Clinton were not the only ones doing this, it was done by Reagan and both Bush's too.
One big "blame" was the repeal of the Glass-Steagel act, that 1937 thing that forced banks to keep conservative savers money in one type of bank, and investment loans on another, separate type of bank. It was finally rpealed by Clinton, but he had no choice, The House and Senate both had 90% majorities in favor, veto-proof no matter what Clinton did.
Simple fact is that when "fiat money is circulated", even if all from other peoples loans and government debt, then business makes profit that can be bled off as hard cash (taken out of the country's economy), and all levels of government collect tax revenue (mostly from the working and middle classes, who are not in position to write any of it off).
How wrong you are @Pyg... the downgrade is not to be blamed on racism! Had it been so, then the downgrade would have taken place immediately upon Obama's winning the election in 2008!
The racism problem is more of a Wisconsin problem than anything else. We are such a small player in the money world.
I wish I knew the downgrade problem, if I did then I would have made a killing as an investor.
What I can only make a guess at is it has to do with the percentage of debt carried to GDP. We had such a drop in GDP, that even holding debt constant threw that percentage off. As much as I hate to mention anything "W" Bush said, he is right about "faith-based", but dead wrong on what that faith is in.
Business growth is all about "Faith", but it has nothing to do with whose God is the Supreme God. -- It's all about "Faith" that when you invest today, that you will be paid back tomorrow... with Profit!
I still think it has to do with all the hedge-funds and those infamous Credit Default Swaps, the very stuff that Brooksley Born of the Clinton administration was trying to have regulated, and Alan Greenspan had her shut up. These unregulated items are seen by investors as working like "insurance" against investment failure.You know insurance, you pay a regular premium on a bet that "shit happens" and they will pay you back in full on a claim. Likewise, the "insurance company" is making a reverse bet that shit won't happen, letting them not pay you a dime, and they can keep all the premiums they collected. (Remember, it is also possible to pay the entire premium up front, making it look more like a bet then a structured instrument.)
True "Insurance" is regulated, US rules to make sure they have the deposits on hand to pay the claims when "shit happens". Like Katrina in New Orleans and State Farm losing their ass. --- These credit default swaps were not regulated, therefore not required to have the deposits on hand to pay when the investments fail.
Now, look at the local bookie on a horse race. You and the bookie make a bet. If the owner of the horse made a bet against his own horse, then he was effectively insured against losing, all because he was "betting on failure". Since an "off-track bet" is on a horse race, is the owner of that horse informed on how much money is riding on his success? No, it's none of his business... How would you like it if someone you do not know took out "life insurance" on you? If you were murdered, that's where they first point the finger.
But, that's what hedge funds do, that's what these credit default swaps do, and it was totally unregulated. That's what AIG was selling, and we know what happened to them. Why are they not in prison? No regulations against what they did, so there was nothing to prosecute them on. Does that make it fair and right?
These bailouts that began even before Obama was in office was trying to make sure this didn't make the major banks fail, that's the majority of the rise in debt that happened. Taking into account that it was people refinancing their rising home values that was what kept the economy going, and you see what happened. Homeowners rise in debt, their ability to build a new house from the ground (provided they could sell their old home) was what fueled the profits of business, and brought in tax revenues.
Note that comment about "provided they could sell their old home", had it not been for those sub-prime mortgages, many of those deals would never have been able to be closed, denying 7% to all those realtors, denying fees to the home inspectors, denying fees to the closing and title insurance services... denying money to the private business involved.
Had we not had a mortgage interest tax deduction, had we not had Fannie Mae and Freddie Mac "insuring" us lowly working class so we could get the loan, then none of the wealthy would be near as wealthy today. Furthermore, less homes would have been built, meaning less construction workers getting paid, less home items being made in the factories.
The real culprit had to be this thing called "leverage". When I took econ 101 back in the late 70's, it was said that our fractional reserve banking system allowed $1 (invested by a buyer of a US Treasury bond) to do the work of $6 in the economy. With all the changes over the decades, that $1 was now allowed to circulate as $30, only a 3% stake. Wall Street crashed in 1929 when the buying "on margin" was looking like a 10% stake. (That $6 figure of the late 70's was like a 16% stake.) To me, it was one big government operated Pyramid scheme.
Standard and Poors probably downgraded the US because they failed to successfully resume the pyramid scheme, and that is all born by conservatives, playing their political control game. I heard it said on an investment program "You make your money in a bear market", meaning while others feel stressed and weak, (or simply caught in a slump in the "natural" cycle of things), that's when those who are flush with cash can buy cheap (or take control, shutdown, and liquidate). I would not be surprised if there are many with the cash who WANT the US to fail.
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Want your "racist" answer? Look at the mismatch in the economy, look at how much needs to be "amputated" so it needs no resources from the rest of the body anymore. Would it be any surprise if that percentage happens to equal the percentage of a certain minority? If so, how do you get all "them" to relocate into the arm that is about to be amputated? You need to herd in and segregate!