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This just burns my butt!!!



April 19, 2011 – Comments (10)

Standard & Poor's sent shockwaves through Wall Street and Washington when it lowered its outlook on U.S. federal debt to "negative," but the credit-rating agency's own credibility has recently been called into question.

In fact, just last week a Senate investigations subcommittee ripped Standard & Poor's in a comprehensive report on the financial meltdown. The bipartisan report -- issued by Sen. Carl Levin, D-Mich., and Sen. Tom Coburn, R-Okla. -- in part blamed S&P for the crisis, saying the agency had inflated ratings on mortgage-backed securities for their own profit, only to later downgrade those ratings, destroying the value of the securities and contributing to the crisis.

"It was not in the short-term economic interest of either Moody's or S&P, however, to provide accurate credit ratings for high-risk RMBS and CDO securities, because doing so would have hurt their own revenues," Levin and Coburn said in their report. "Instead, the credit rating agencies' profits became increasingly reliant on the fees generated by issuing a large volume of structured finance ratings."

In short, the senators say, "Inaccurate AAA credit ratings introduced risk into the U.S. financial system and constituted a key cause of the financial crisis."

The credibility of S&P is especially significant in the wake of the rating agency's statement on Monday that it was starting to lose faith in the government's creditworthiness. While S&P maintained its best-possible AAA rating for US federal debt, the firm lowered its outlook from "stable" to "negative." The statement means the agency now thinks there is a one-in-three chance that it will reduce the rating of the bonds in the next few years.

The S&P report quickly reverberated from Wall Street to Washington. On Monday major market indicators recorded their biggest one-day drop in more than a month. In Washington -- where a debate is raging on whether to raise the country's debt ceiling -- lawmakers pounced on the report for partisan gains.

House Majority Leader Eric Cantor, R-Va., said the report should serve as a "wake-up call" to Democrats who want to increase the country's $14.3 trillion debt ceiling. Republicans, Cantor warned, will only vote to raise the limit if the deal includes "meaningful fiscal reforms."

"Serious reforms are needed to ensure America's fiscal health, and today S&P sent a wake-up call to those in Washington asking Congress to blindly increase the debt limit," Cantor said. "Today's announcement makes clear that the debt limit increase proposed by the Obama administration must be accompanied by meaningful fiscal reforms that immediately reduce federal spending and stop our nation from digging itself further into debt."

Coburn argued that the S&P report "highlights the dangers of waiting for the perfect political moment to tackle our debt crisis."

"Waiting until the next election puts our fiscal and national security at risk," Coburn said. "It's time for both sides to drop their partisan talking points and decide what we can do together while we still control our own destiny. If we refuse to negotiate within our own government, we will soon find ourselves negotiating with foreign governments and the international financial community on terms far less favorable than we enjoy today."

The inability of Congress to rein in the nation's soaring deficits in recent years was at the heart of S&P's concerns. However, the agency did applaud new efforts from both sides of the aisle to tackle the country's long-term fiscal problems. Earlier this month Rep. Paul Ryan, the head of the House Budget Committee, unveiled the Republicans' budget proposal that would slash $4.4 trillion in red ink over the next decade. Just last week President Obama countered with his own plan that would cut $4 trillion in the next 12 years.

"We view President Obama's and Congressman Ryan's proposals as the starting point of a process aimed at broader engagement, which could result in substantial and lasting U.S. government fiscal consolidation," S&P noted. "That said, we see the path to agreement as challenging because the gap between the parties remains wide. We believe there is a significant risk that Congressional negotiations could result in no agreement on a medium-term fiscal strategy until after the fall 2012 Congressional and Presidential elections."

The Treasury Department countered by accusing S&P of underestimating the likelihood that lawmakers would reach an agreement before then.

"S&P assumes that the U.S. will enact 'a comprehensive budgetary consolidation program – combined with meaningful steps toward implementation by 2013,' but we believe S&P's negative outlook underestimates the ability of America's leaders to come together to address the difficult fiscal challenges facing the nation," said Mary Miller, Treasury's assistant secretary for financial markets.

Levin is currently traveling overseas and was unavailable to comment for this story.



Ok, so a day after the S&P downgrades it's outlook, Congress makes a bi-partisan statement that they are aware that both S&P and Moodys inflated mortgage ratings because they had financial incentive to do so. So apparently they are willing to admit what the rest of us knew years ago, but still not willing to do anything about it unless ratings on US debt get worse.

They are making a public statement "We are going to stop washing your back if you stop washing ours." What really gets me is that they are making this statement out in the public rather than behind closed doors. They think that the public is either too stupid or too weak to take them to task on it.

Dear Congress,

Given that you came out with this statement just one day after the downgrade, you must have been aware this was happening earlier than today. When did you know? Why haven't you acted sooner?

Why aren't you announcing a punishment for these ratings agencies if you know a crime has been commited?

If you are flat out saying that their ratings are biased and can't be trusted and in the same breath threatening those companies if they downgrade your own ratings, what kind of faith can the public have that those ratings will be anymore accurate?

Please enlighten the public on how to view the current Congress. Are you to inept to act on the crime that you just announced or too corrupt?

Why should anyone trust Congress any more than the ratings agencies that you just denounced?

Why should we trust a market built on the ratings that you just declared falsified?

Do any of you expect to be re-elected?

Just checked my birth certificate and I'm sure I wasn't born yesterday,


10 Comments – Post Your Own

#1) On April 19, 2011 at 3:46 PM, kdakota630 (29.41) wrote:

So, S&P has a reputation for inflating their ratings.  Doesn't that suggest that they've done the same for U.S. debt?

The bi-partisan criticism suggests S&P might not be reliable, but also that U.S. debt should likely be rated worse than it is.

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#2) On April 19, 2011 at 4:11 PM, buffalonate (68.40) wrote:

We should have made the ratings agencies nonprofits and that would get rid of the incentive to take bribes.  They tried to put in an amendment that would randomly assign ratings agencies to bonds and stocks to take bribery out of the equation but it didn't pass. 

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#3) On April 19, 2011 at 4:21 PM, FleaBagger (27.32) wrote:

"One in three"? Here's my prediction: there's a one in three chance that I will acknowledge it is night tonight at some point after it is day.

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#4) On April 19, 2011 at 8:53 PM, rd80 (96.82) wrote:

"...we believe S&P's negative outlook underestimates the ability of America's leaders to come together to address the difficult fiscal challenges facing the nation," said Mary Miller, Treasury's assistant secretary for financial markets.

Clearly one of Mary Miller's talents is the ability to keep a straight face while regurgitating idiotic talking points.

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#5) On April 19, 2011 at 11:34 PM, whereaminow (< 20) wrote:

You'll get the "ratings agencies are part of the free market!" line here at some point, so prep with this great article by Shedlock:

His take on ratings agencies is right on, about halfway down the page.

I had more articles saved on the ratings cartel, which is by no means a free market, but I can't find them right now.

David in Qatar

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#6) On April 20, 2011 at 7:53 AM, ChrisGraley (28.73) wrote:

OMG! Libertarian Fed! He said that with a straight face? A Libertarian Fed would have a sign on the door that said "gone fishing"

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#7) On April 20, 2011 at 10:05 AM, leohaas (29.35) wrote:

If it were up to me, the ratings agencies would be out of business. But surely you understand that they only provide an 'opinion' that is protected by the First Amendment, so there is nothing Congress can do to punish the agencies.

As usual, Washington is late to draw the right conclusion. No doubt articles and books leading to the same conculsion are aplenty. I can highly recommend 'The End of Wall Street' by Roger Lowenstein. It contains a chapter dedicated to the role of the ratings agencies in the financial collapse.

PS.  I have been told Preparation H helps...

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#8) On April 20, 2011 at 1:52 PM, Imperial1964 (95.59) wrote:

By now we should all be used to being screwed by Congress and the ratings agencies.

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#9) On April 20, 2011 at 5:59 PM, rfaramir (28.71) wrote:

"When did you know?" Watergate-sized scandal detected!

"Why aren't you announcing a punishment for these ratings agencies if you know a crime has been commited?" A) Because they are complicit: CRA. B) The announcement IS the punishment, as it is a threat to end their government privilege. Their privilege ought to be ended forthwith, anyway. No threats needed, just liberty to pay whomever we wish to evaluate securities, not just those anointed by the corrupt overseers.

"Are you to inept to act on the crime that you just announced or too corrupt?" OR??? The answer is "Yes, both."

"Just checked my birth certificate and I'm sure I wasn't born yesterday" They're working on making all healthcare government-based, so you won't be able to trust that, either, soon.

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#10) On April 21, 2011 at 3:30 PM, ChrisGraley (28.73) wrote:

Very good stuff rfaramir

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