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Excerpt: "Pardon me for asking, but who gave Standard & Poor's the authority to tell America how much debt it has to shed, and how?"

Portrait, Robert Reich, Chicago Humanities Festival. (photo: Public Domain)
Portrait, Robert Reich, Chicago Humanities Festival. (photo: Public Domain)



Downgrading the US

By Robert Reich, Robert Reich's Blog

06 August 11

 

tandard & 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 US because it doesn't think we're on track to reduce the nation's debt enough to satisfy S&P - and we're not doing it in a way S&P prefers.

Here's what S&P said: "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." S&P also blames what it considers to be weakened "effectiveness, stability, and predictability" of US 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.

Had S&P done its job and warned investors how much risk Wall Street was taking on, the housing and debt bubbles wouldn't have become so large – and their bursts wouldn't have brought down much of the economy. You and I and other taxpayers wouldn't have had to bail out Wall Street; millions of Americans would now be working now instead of collecting unemployment insurance; the government wouldn't have had to inject the economy with a massive stimulus to save millions of other jobs; and far more tax revenue would now be pouring into the Treasury from individuals and businesses doing better than they are now.

In other words, had Standard & Poor's done its job over the last decade, today's budget deficit would be far smaller and the nation's future debt wouldn't look so menacing.

We'd all be better off had S&P done the job it was supposed to do, then. We've paid a hefty price for its nonfeasance.

A pity S&P is not even doing its job now. We'll be paying another hefty price for its malfeasance today.


Robert Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written thirteen books, including "The Work of Nations," "Locked in the Cabinet," "Supercapitalism" and his latest book, "AFTERSHOCK: The Next Economy and America's Future." His 'Marketplace' commentaries can be found on publicradio.com and iTunes.

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+101 # PGreen 2011-08-06 20:26
Under the (original?) Dodd-Frank, ratings agencies like S&P can theoretically be held accountable for their assessments of securities issuance. This was enacted due to their failure (as Reich writes) to assess in a responsible manner, and to help prevent another financial crisis. S&P wasn't happy about it, preferring to sell their assessments without consequence. Naturally, Wall Street and (especially) the R's in the House have been trying to eliminate or water down this bill since its passage. It has been suggested that this U.S bond downgrade is a warning from the ratings agency. They are saying in effect to the government, "You can't hold us accountable-- we'll downgrade your bonds." In the absence of government's willingness to play tough with them, the credit agencies apparently have had little to fear.
 
 
+72 # Gurka 2011-08-06 22:29
How come S&P are still in business?
 
 
+31 # Virginia 2011-08-07 05:42
Rating companies are mad 'cause "dey got took" in the securitization scheme. In the heat of the subprime mortgage bonanza rating companies, who were working both sides of the fence for huge fees, got suckered into over-rating bonds. Courts are barely cutting them loose. If Congress would do their job and regulate derivatives investors might come back to the poker table. Until then, the government will remain in a financial tilt just like the millions of Americans in foreclosure.
 
 
+7 # Cynthia 2011-08-07 08:02
Good point, Virginia.
 
 
+8 # Lucille Arneson 2011-08-07 07:50
Who are the principals making decisions at S&P?
 
 
-29 # DaveM 2011-08-06 22:10
Standard & Poor is merely applying the same actuarial treatment to the U.S. that it would to any business. Remember that a credit rating is not a measure of one's ability to pay today, but an assessment of the risk that a debtor might not be able to pay in the future. The United States is headed in the same direction as every other concern that has gone bankrupt. We may reverse the course at some point, but those who handle the taxpayer's dollars are doing an increasingly poor job and they should no more be rewarded for it than were all those bankers who ran their firms into the ground.

Wait a minute, those people were rewarded rather generously, weren't they?
 
 
+85 # ABen 2011-08-07 01:32
Dave,
I have an insight for you--a sovereign government is not a business, it doesn't produce anything to sell and it doesn't have customers. The two reasons that government exists are to protect the citizens of the country and promote the general welfare of those citizens. Of course good accounting principles are needed to keep the books straight, but government is not designed to turn a profit. Promoting the general welfare often puts government at odds with entities (corporations, banks) that are motivated purely by profit. In times of extremus ( recession, natural disaster, war), governments must take actions that in no way reflect those of a for-profit corporation. To do so, it uses resources from the general society to carry out those actions. If you want an example of a government trying to operate like a business, take a look at the Bush Admin's response to Hurricane Katrina and how well that served the citizens of New Orleans. Any government that operates on the principle of turning a profit will inevitably end up being Fascist in nature. Think about that.
 
 
+23 # jimbeama 2011-08-07 10:14
ABen, perfectly put. This is the truth to the lie that has been promoted for over 30 years, that government should be run like a business (this is the first step toward fascism). Similarly the false analogy to the economics of a family is repeatedly used. Only a government can control it's income. Neither a family nor a business can raise money (not through debt) on demand.
 
 
+4 # Dave2 2011-08-08 09:08
"...Neither a family nor a business can raise money (not through debt) on demand."
I generally agree, and I'm neither a businessman nor an economist, but it seems to me that a country, like a business, when in financial straits, still has to not only streamline and economize, but also quickly allocate - invest - some of its resources - while it still has them - to smart, select improvements in the services (&/or products) it provides, if it hopes to survive in the long term. Of course, the R's, as S&P's cited, on page four of their report as the reason why they changed their assessment of the U.S. ability to pay & play, "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" ..the R's have deliberately kept revenues off the table for a reason: starve the beast, reduce the govt. to a small, obedient servant to the ruling corporate capitalist class and turn over the crumbs that are left to Wall St. in the form of profit motivated, privatized and very inadequate services. And as the m. media continue to peddle the story "both sides were unwilling to negotiate & compromise," we let them get clean away with it. So we all share in the shame & blame, seems to me...
 
 
+2 # rf 2011-08-07 11:17
The government, much like the CEOs that got rich, will get rich just as soon as they are out of office...whiche ver office that may be...Palin, for instance, is now rich. If something smells like a rose...
 
 
+63 # Ralph Averill 2011-08-07 05:04
Read the article! Those bankers couldn't have run their firms, (and the economy in general,) into the ground without the help of S&P, Moody's, and Fitch. The rating agencies gave AAA ratings to junk bonds! They helped a handful of sociopathic fund managers become obscenely rich on the backs of individuals, municipalities, pension funds, banks, insurance companies, etc. (and the taxpayers who bailed them out,) who bought what they thought were high grade investment instruments that turned out to be worthless gargage.
Now S&P is contributing to the problems they created by driving up the cost of credit for everyone; individuals, companies, governments. Everyone. they have effectively put the brakes on whatever weak economic recovery is occurring. These firms should be out of business, their executives should be in jail!
 
 
+29 # PGreen 2011-08-07 05:46
Given that US treasuries are still the safest investment out there and still the backbone of the world economy, don't you think that S&P should be made to justify this rating? (Their assessment could be evaluated according to both their own criteria and the industries.) And if they are found to be making this judgment for reasons that have no relative financial merit-- that have much to do with politics and financial policy but little to do with risk-- shouldn't they be assessed a penalty, one that falls heavily on the executives in the agency?
Wait a minute, those people were rewarded rather generously, weren't they? :)
 
 
+46 # J.Lindsley 2011-08-06 22:30
The news just keeps getting worse.
And Democrats non-fighters....
wars are not won on reasonableness
and THIS is a WAR with the GOPTBP.

Chagrin in extremis
 
 
+81 # Reductio Ad Absurdum 2011-08-06 22:39
In other words, S & P (read rightwing conservative financial institution) is economically extorting the American government, just like the Republicans did during the debt-ceiling debacle.

Well, I for one know who poses a grave threat to America's financial — and therefore, STRATEGIC — security. You go easy on these crooks, and they rob you even more. IT'S NOT TOO LATE TO PUT THEM IN JAIL FOR THEI(R CRIMES.
 
 
+104 # jcadams 2011-08-06 23:01
THE S&P DOWNGRADE HAS NOTHING TO DO WITH THAT FIRM’S TECHNICAL ASSESSMENT OF US CREDITWORTHINES S. BUT IT HAS EVERYTHING TO DO WITH POLITICS. AND PLACING BLAME ON THE DEMOCRATS AND PRESIDENT OBAMA. --- IN HOPES OF HELPING THE REPUBLICANS IN 2012. REMEMBER, S&P IS ONE OF THE KEY FIRMS THAT TOOK BIG FEES AND THEN BLESSED THE COOKED BOOKS ON THE DERIVITIVES AND CDO’S THAT WERE FULL OF TOXIC MORTGAGES. S&P IS ONE OF THE KEY FIRMS DIRECTLY RESPONSIBLE FOR THE MELTDOWN THAT BEGAN IN 2008.
 
 
+20 # Ellen 2011-08-06 23:24
It looks to me like they're blaming Republicans. Cf. bottom of page 4

http://www.ft.com/intl/cms/af2c4fac-bfc2-11e0-90d5-00144feabdc0.pdf

"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."
 
 
+11 # Cynthia 2011-08-07 10:26
Good eye, Ellen! I missed that. You saved me from jumping off the paranoia cliff, and it reinforces my impression when the stocks fell after passage, that even the financial community realizes it is irresponsible to address shortfalls without revenue increases. We need a new House majority.
 
 
+22 # NanFan 2011-08-07 03:10
JCADAMS ~

My thinking exactly...the up-to-the-midni ght-hour silence by them was deafening and totally calculated, just as this sudden Saturday downgrade was. And it smacks of pure Republican propaganda the size and intent of which we haven't seen since the big H. in WWII Germany vilified anyone who wasn't Aryan.

The whole fiasco is one Big Lie after another, with corporate Repubs and Tea "baggers" pulling the strings.

I'm sick to death, because regardless, America is in the toilet and it just got flushed.

N.
 
 
+13 # FatCharley 2011-08-07 05:48
Spot on, jcadams!! You have identified the "elephant in the room" and described its wreckage.
 
 
-10 # TGMisanthrope 2011-08-07 09:49
It's hard to take you seriously when you yell, regardless of your position.
 
 
+29 # MashingTheGas 2011-08-06 23:05
Correct me if I'm wrong, but didn't S&P rate all those defaulted CDOs made up of high-risk sub-prime loans as AAA? Remember those? The ones that AIG backed all the credit default swaps on?

Why is S&P afforded any credibility after permitting the outright fraud that brought our economy to the brink of disaster?
 
 
+12 # epcraig 2011-08-06 23:09
Is S&P's downgrade having any effect?
It shouldn't, they have proven their ratings useless repeatedly. What fools paid them for their AA+ rating and why should they be believed?
 
 
0 # Anna Van Z 2011-08-07 07:50
Apparently it is...see this from
Cryptogon.
 
 
+1 # Anna Van Z 2011-08-07 09:28
Oops, the link didn't work. See
http://cryptogon.com/?p=23967
 
 
+3 # photonracer 2011-08-07 15:22
Quoting epcraig:
Is S&P's downgrade having any effect?
It shouldn't, they have proven their ratings useless repeatedly. What fools paid them for their AA+ rating and why should they be believed?

epcraig!! Excellent question. The answer to that would expose too many principals! Wonderfully perceptive. Follow the money. We already know through their triple A ratings in the mortgage debacle that they are incompetent. Who pays them to judge and who in the hell should pay them any attention? Not me.
 
 
+15 # tahoevalleylines 2011-08-06 23:13
And who gave Chase Bank et al authority to cripple over 1 million underwater home owners by refusing to grant appropriate adjustment on terms so the homes would not be foreclosed?

And why to firms & individuals hoarding capital have moral cover and tax exemptions even as the USA economic death spiral gains momentum? It's late... good night all!
 
 
+12 # MashingTheGas 2011-08-06 23:25
Someone correct me if I'm wrong here, but isn't this the same company that rated the CDOs made up of crappy high-risk sub-prime loans as AAA? Remember those? The financial instruments that AIG sold all those credit default swaps on that blew up in their (our) faces and brought our economy to its knees?

Now tell me why we give their opinion any weight......... ...
 
 
+7 # Archie1954 2011-08-06 23:39
The answer to your question of course is all the creditors! They are the ones that relied on the S&P credit rating to decide whether or not to lend to the US in the first place and at what interest rate.
 
 
+19 # angelfish 2011-08-06 23:42
S&P lost ALL credibility with their incompetent mishandling and mis-rating of the financial products that caused us to go "belly up" to begin with! WHO the Hell are THEY to "down grade" ANYBODY, let alone our Country? Why can't WE "down grade" THEM? They're just another legal American Terrorist Tool used by the THUGs whose main desire is for the Obama Administration to be "one term".
 
 
+18 # gary matteson 2011-08-07 00:28
This all reminds me of Naomi Klein's "Shock Doctrine" thesis, except in this case there is no 'crisis', just an attempt at one with the recent Debt Ceiling Kabuki Theatre Spectacle.
S&P is playing World Bank to an increasingly weakened USA that has been betrayed by its own corrupt, Wall Street controlled government.
Feels like Greece to me.
 
 
+9 # Ron MacQuarrie 2011-08-07 01:05
What gives them the right? It's the same tactic that the GOP is using to attack the Obama administration: you do the deed; blame it on the "other guy". Profit.
 
 
+14 # Scottsj 2011-08-07 01:14
What am I missing: In S&P's research update, on page 4, it stated: "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." Isn't that blaming the Republicans? S&P is assumming the government will overturn existing law to keep the Bush tax cuts in place because of the Republican hostage taking and Obama's wooing of the center-right. So it may be blaming Obama and the Republicans.
 
 
0 # Cynthia 2011-08-07 10:31
Sorry, Scott. Don't know where the "Ellen" came from.
 
 
0 # Cynthia 2011-08-07 10:35
Aha. Ellen above made the same point. And it is an excellent one.
 
 
+18 # hms 2011-08-07 01:54
Anyone still have any doubt who controls things in this country? It's has already been taken over by the corporations and banks and they are getting super arrogant as this example illustrates. The rats are now starting to come out of their holes in the daytime--not fearing they will be seen.

The question is when are going to stop putting up with this?
 
 
+15 # NanFan 2011-08-07 03:03
I love you Dr. Reich, but regardless; it's done.

Tank! We've just been sent to the principal's office for outrageous behavior and we're about to be expelled.

Thank you Boehner and his ilk. Our dollar is now worthless.

Enjoy your jobs, Congress. They won't be yours for long, this we promise!

N.
 
 
+1 # Cynthia 2011-08-07 10:50
Hear! Here!
 
 
+9 # PAJohn 2011-08-07 05:32
Who are S&P? That's been answered adequately above.
Has anyone noticed what Thom Hartmann recently pointed out, that on p. 4 of the S&P report the Republican party is specifically cited for failing to allow debt reducing measures such as taxing the wealthy?
I thought that was a rather constructive observation, tied to their reprimand.
 
 
+5 # Phyllis 2011-08-07 05:35
Looks like Nero, AKA the GOP, is fiddling again. Our government is burning to the ground and not a fireman in sight. Inflation is scorching us. Who is going to stand up??? Millions of us common folk erecting tents in every public square? Do we put our tax money in escrow until our politicians and administration stop this madness and start bringing culprits to trial? Tell me.
 
 
+2 # photonracer 2011-08-07 15:28
Quoting Phyllis:
Looks like Nero, AKA the GOP, is fiddling again. Our government is burning to the ground and not a fireman in sight. Inflation is scorching us. Who is going to stand up??? Millions of us common folk erecting tents in every public square? Do we put our tax money in escrow until our politicians and administration stop this madness and start bringing culprits to trial? Tell me.

Yes Phyllis a protest tent city might influence our recalcitrant fellow voters to see how they need to step up and get involved. The tent cities need to be at ever state capital steps and in D.C. I personally believe physically removing the current congress is a high priority option.
 
 
0 # NanFan 2011-08-09 05:17
Quoting Phyllis:
Who is going to stand up??? Millions of us common folk erecting tents in every public square?


That's exactly what they're doing in Spain right now, and have been for months: tent cities in every major city -- Madrid, Barcelona, Valencia -- located in the heart of the government areas. They're doing this at GREAT risk of being beaten in the streets, which they have been, as recently as yesterday.

But...and this is a HUGE BUT...they are NOT going away; they are hungry, bloodied, and crying, and they are not stopping till the corrupt government goes away, one-by-one...an d it is, albeit slowly.

This tenacity is a sight for sore U.S. eyes, blinded for too long by the bought-and-paid -for Republican right-wing...an d, yes, some power-elite Dems, as well!

What do you do? You pull "a Spain," Phyllis; you organize "an Egypt": leave your home and peacefully (but loudly and conspicuously) sit-in in every government location you can.

Start a movement. Nothing to lose; haven't you lost enough? And more to come without a sturdy fight. It's like lava powering down to the town below after the volcano above it has erupted its putrid fire and fumes.

To the barricades!

N.
 
 
+9 # Isar 2011-08-07 06:00
I suspect there WILL be more "ligitimized" agencies like S&P who will make proclamations that are anti-Obama's policy. After all, who do you think sits on their Boards? Remember the GOP's main goal is to do EVERYTHING and ANYTHING to bring down this presidency. He must be made to look worse than Dubya, and though that is very challenging, the Republicans will try hard. They have to erase the memory of Dubya's disastrous presidency, and they want us to forget that DUBYA is responsible for our economic troubles and the 9% unemployment. Maybe if they can make this president look "worser" we will just forget about George W. Bush, right? I don't think so. We will keep shouting it from the roof tops that President Obama inherited this mess. Yes, we know they Republicans are tired of hearing it....but we must NEVER get tired of reminding them. In reflection, we probably should have let McCain win the last election. In fact, with Florida's help, we could have had another Supreme Court elected President. However, McCain/Palin would have allowed the banks to fail and we would all be standing in bread lines today. So....I don't know. I'll say this, Obama (though he has disappointed us Progressives) has grace and style. He takes it on the chin and smiles. His mother had a wonderful influence on him. Never let them see you sweat!
 
 
+8 # stonecutter 2011-08-07 06:10
You remember Harvey Keitel's role in "Pulp Ficton" as Winston Wolf the "Cleaner", the guy called in to supervise the cleanup of a blood-soaked car and the killers themselves, after a shooting inside their car? When he's done, the killers and the car are spotless, the body hidden in the trunk, the car off to be crushed at the junkyard, as if nothing ever happened. Everyone goes to breakfast.

S&P is the alpha "Wolf" of Wall Street.It crawls up the scamming butts of too-big-to-fail banks and scrubs down the walls and floors of every deal with its "rating assessments", making it smell like daffodils for the gullible suckers all over the planet who actually STILL "trust" these charlatans. If it's not trust, what the hell is it?

Then there's the apologists like DaveM above who explain the "actuarial treatment" S&P is "merely applying" as if we're all third graders at the Disneyworld School of Economics. More BS for the suckers. More reliance on the fact that this "actuarial" stuff, to 99% of the potential customer pool, is like fine print in insurance contracts, only on steroids.

If you haven't yet reached the correct conclusion, here it is: THE GAME IS RIGGED. It's no different than the casino roulette wheel that can be stopped at will by the croupier, with his hidden foot pedal, on any number at any time ("Casablanca"). Good luck.
 
 
+7 # Bruce Gruber 2011-08-07 06:40
Same crowd of oracles who rated mortgage backed securities and city and state bonds and virtually any other gamble in which peoples' money could be absorbed and expended behind walls of privacy where insider deals flourish and losses are shrugged off as 'market' decisions ... the same 'market' in which your investor/profes sional hedges against the advice he has just given to you (and paying only 15% tax [maybe]on his gambled m(b)illions. Try that with YOUR winning lottery ticket!
 
 
+5 # joan wohlner 2011-08-07 06:59
The USA seems unable to understand the severity of the situation. Note this article. Blaming Standard and Poor and not taking the debt seriously is an example. Whether or not Standard and Poor downgraded USA the inabilaty of the government to act together for the best of the country was shown to the world in the days before the debt ceiling was raised. The USA downgraded itself before the world. What Standard and Poor thinks is irerelevant. USA must get its house in order.
 
 
+9 # Bruce Gruber 2011-08-07 07:07
republished from "Michael Moore | The Day the Middle Class Died‏"

Public financing of political campaigns is the core principle if we are to return to representative democracy. One (wo)man, one dollar, one vote! Hillary's 'vast conservative conspiracy' was accurate insomuch as vast sums of money were channeled into misinformation campaigns to negatively bend minds. The Supremes, in 'Citizens United v." (a typical RePug misnomer) did guarantee "one man, one vote" simultaneously with "one million corporate person dollars, one million misinformed votes".

I wonder how much hedge fund investing Scalia, Roberts, Alito and Thomas's wife Ginnie had riding on the negative outcome of that amazing leap of judicial invention ... and what S&P analyzed in terms of value-added nature and stability of our AAA world leadership by example.
 
 
+4 # Robert Nicholas 2011-08-07 07:20
As with all good Auditors, S&P came in and stabbed all of the wounded.
 
 
+1 # MidwestTom 2011-08-07 07:25
Maybe the fact that without change, within a decade the interest on the national debt will exceed the defense budget, played into S&P's decision.
 
 
+4 # Cynthia 2011-08-07 08:10
That would certainly be an element of a reasonable decision, were it not for the points that the article makes about S&P's other behavior that seems to savor of inconstancy. Now, those arguments might look different if S&P had responded favorably to an increase in revenue for our Federal Government, from closing loopholes and letting the ostensibly temporary tax cuts expire. Had S&P still downgraded the US, as one suspects they would, the article and the posters would be correct as to motive.
 
 
+12 # Citizen Mike 2011-08-07 07:31
So S&P thinks it is a branch of our government, a "Corporate Congress"? Time for the Justice Dept to go after all the details of S&P's malfeasance and fraud, which created that horrid housing bubble. An IRS audit of S&P would be right on target now, too.
 
 
+19 # aljoschu 2011-08-07 08:05
Pardon me for asking, but who gave Standard & Poor's and these other Wall Street leeches the authority to tell Europe that the Greeces' or the Portugueses' creditworthines s is worth trash?

Had S&P done its job and warned investors how much risk Wall Street was taking on, the economic decline of the European rim states (not to speak of so-called third world countries) would never have been so dramatic.

S&P's intrusion into the politics of the rest of the world is equal to nothing less than economic warfare.

Dear Americans, are you aware of this?
Now, since S&P are pointing their destructive weaponry at your own economy you guys wake up and shout "Fire!".

America, wake up! And learn that the devastations you are allowing to be done to the rest of the world is turning back home to hit your own sacrosanct bloody country, your own people!
 
 
+6 # Ajijico 2011-08-07 08:15
I can't help but wonder if the people at S&P who made the decision have a connection to one or the other of our political parties.
 
 
+8 # pgobrien 2011-08-07 08:17
This is the way the IMF and World Bank have regularly treated countries with less clout than the US. So now, they're twisting the arm of the US to restructure our economy to suit them. Hmmmm. Nervy, do you think? Will they get away with it? Will be cave?
 
 
+1 # photonracer 2011-08-07 15:32
Yes because this has been a prepaid service.
 
 
+7 # lindasutton 2011-08-07 08:36
Had S&P had CONSEQUENCES for its FAILURE, perhaps it would not have CONTINUED as before. This is a direct result of the administration' s not prosecuting those who CAUSED the financial instituions to fail. And, yes, Clinton bears responsibility for his signing of the removal of Glass-Steigel (sp?).
 
 
-1 # lnason@umassd.edu 2011-08-07 09:04
In response to Reich's question, who gave S&P the power to tell us how much debt we can bear, the answer is the federal government. It is the federal government that established the cartel of S&P, Moody, and Fitch to be the only legal assessors of creditworthines s for all governmental (that is virtually all significant) financial transactions.

Of course, this governmentally- established cartel completely missed the housing bubble so one must have concerns about their integrity, diligence, or competence. But our spending trajectory is clearly unsustainable so the downgrade seems perfectly reasonable. Would you loan money to someone who told you that they planned to continue spending until they defaulted?

Lee Nason
New Bedford, Massachusetts
 
 
0 # billy bob 2011-08-09 01:20
The only threat of "default" was coming from people who felt like intentionally defaulting. This has nothing to do with borrowing. It has EVERYTHING to do with electing teabagging maniacs who are intent on destroying the United States and assume they'll be "raptured" before they face any consequences for their actions. This is like having your lights turned off because you don't "believe" in light bills.

I agree we should never have given them the power to make these decisions though. I just disagree with your assesment that our 200 year old debt has anything to do with it.
 
 
+6 # RNF123 2011-08-07 09:04
It is also time to mention that Warren Buffet (Berkshire Hathaway) owns millions of shares of Moody's, the other major rating agency along with Fitch. Buffett has been dumping his shares the past year but is still holding on to most of his stock in spite of the fact that Moody's rates bonds and stocks held in his portfolio which would be adversely affected by another downgrade and is a clear conflict of interest. The Democrats should use the downgrade to go after the Teaparty as the report states that the failure to raise revenues is one of the reasons for the downgrade as well as the decline in the economy in the US. Conservatives did not allow tax increases or revenues to become part of the debt reduction bill, the stock market is caving in and they should be held responsible. The downgrade should be embraced not attacked by the Dems and uses as election bait against the opposition. The President erred immediately when he attacked S and P. While their past record was not perfect, nor were the other agencies, it is making a statement about the political dysfunction in Washington and failure to reach compromise.
 
 
+4 # Cynthia 2011-08-07 10:43
Did you read Ellen and Scott's observation (actual observation, not just commenting) above? Whatever they did before, they are not in jail, and their statement quoted by Ellen and Scott, from page 4, was quite reasonable. Any sensible person could see that the situation required increased revenues. Required. That's true. Blame the House, change the House.
 
 
0 # Dave2 2011-08-08 09:15
Quoting Cynthia:
Did you read Ellen and Scott's observation (actual observation, not just commenting) above? Whatever they did before, they are not in jail, and their statement quoted by Ellen and Scott, from page 4, was quite reasonable. Any sensible person could see that the situation required increased revenues. Required. That's true. Blame the House, change the House.

Why, Cynthia is no one else on this page (or any other I've seen so far) noticing page four? Because the mainstream media redirected their attention to their storyline, "They all do it; we were downgraded by S&P's because BOTH sides refused to negotiate in good faith & compromise"? It worked, didn't it. We oughtta be calling & writing all their newsrooms - the Right would be - and getting them to change their tune too, were the shoe on the other foot. This makes me nuts about the Left.
 
 
0 # Dave2 2011-08-08 09:26
Why, Cynthia, is no one on this or any other page I've seen, noticing what S&P's said on page four, except you & me, citing "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" as the reason for their downgrade? Because the m. media re-directed their attention to their false storyline, "they all do it; S&P's downgraded us because BOTH sides were unwilling to negotiate in good faith a& compromise"? It worked, didn't it. And most of their consumers will believe that, and we on the Left will let them get away with it, instead of calling & writing their newsrooms annd demanding a correction. S&P's Report is only 8-pages long, for cryin' out loud - this ain't the healthcare bill, "too unwieldy to review & critique" or anything like that...
 
 
+3 # Cynthia 2011-08-07 10:52
I heartily agree.
 
 
+16 # harbormon 2011-08-07 09:05
I am surprised no one has mentioned the fact that the head of S&P's Sovereign Debt Rating Division publically stated during their late night attack on the US Government that they had "informed" other key organizations prior to their official announcement. That could explain the Thursday and Friday Bond sell offs that defied conventional and technical wisdom. So they took the time to give a "heads up" to their Wall Street bretheran before their announcement to the rest of us so the fat cats could do some damage control for their bigger client's accounts. This is insider trading at its very worst and should be grounds for an SEC investigation alone, let alone their miserable and highly politicized justification for the downgrade in the first place. Martha Stewart went to jail for much, much less than this widely televised and inadvertent public admission of guilt.
 
 
+5 # cdcl44@yahoo.com 2011-08-07 09:37
If our interest rates go up on the word of S & P,let's refuse to pay the creditors the extra interest. There will be a number of people who can't afford for the interest rates to go up; they will declare bankruptcy. Not only should S & P go before Congress just like other financial institutions to justify their findings, but the GOP must publicly be held accountable for their unequal tax policies and state valid reasons why the wealthiest should not pay their fair share of taxes.
 
 
+7 # VSweet 2011-08-07 09:37
The American people are too SILENT, and passive. We are allowing the S & P's to be our voice.

They will not stop until the American people become united as one voice for our nation.
 
 
+4 # Isar 2011-08-07 10:41
If interest rates go up, the rich get rich and the poor get poorer. The rich don't need car loans and house loans. Their money will just earn more interest, right? Their golden rule, "Never touch the Principal"....a nd they are living in Golden Times...their principal just keeps getting bigger and bigger because we give them all the tax breaks. Gosh...it must be nice to be rich. YES...I'm envious of them....even though they are mean-spirited SOB's....If I were rich enough, do you think I would CARE what the poor people think? (Well....actual ly I would because I couldn't live with myself. How can we enjoy an expensive meal in a posh restaurant when those emaciated children are starving in Somalia?)....Bu t...the Republicans continue to eat their Pate fois Gras...sipping $50.00 bottles of Merlot... Reminds me of the song from "Camelot"...Kin g Arthur sings.."What do the simple folk do?"
 
 
+3 # John Talbutt 2011-08-07 10:45
Reich is spot on. It is heartening that many commentators are wise to the con. Otherwise this bullshit becomes self fullfilling.
S&P did the same thing to NYC in the seventies. At first Moody's criticized S&P'a downgrade of NYC but two years later was forced to follow suit. This ended the era of progressive mayors such as Wagner, Lindsay and Beame.
 
 
+2 # Activista 2011-08-07 10:47
"S&P gave triple-A ratings to some of the Street's riskiest packages of mortgage-backed securities "
S&P is banksters tool - higher interest, higher profit.
Note: it would be nice if Mr. Reich saw main cause of the USA bankruptcy - MILITARISM.
 
 
+3 # fredboy 2011-08-07 10:56
If you or I had done this, there would be national outrage.
If Wall Street does it, it's OK.
It is as if Wall Street and the GOP are trying to destroy America.
 
 
+3 # reiverpacific 2011-08-07 11:14
I'm a small business owner and a financial dolt. That's why I have an accountant, to steer me away from certain reefs and advise me -but he can only do so much if I chose to screw up!
Isn't this where the S. & P. should stop -advisory capacity only?
Aren't the Department of Revenue and the Dep't of Consumer Affairs the main bodies of guidance for the Government, and the IRS the collectors?
I really want to know here, from some of you folks who understand such indices and their functions. Finance is my achilles heel and the kind of stock-market oriented lingo attached to all my readings about S. & P. is like trying to read Basque or Welsh to someone like y'rs truly. So no smart-ass remarks please (especially from the Right-leaning contributors) -I humbly request information, not jibes, and most R.S.N. contributors are at least willing to provide knowledgeable information based on personal research
and/or experience.
I will share though, that I consider the whole credit system in the US a sham!
Three PRIVATE agencies cover the whole country, financed by banks and tilted towards favoring them, with no recourse, often bad information and lousy, seldom updated record-keeping, which can destroy a person or business financially for years or for ever, often due to, but with no allowance for, happenstance or personal, no-fault misfortune.
 
 
+3 # RNF123 2011-08-07 18:00
You seem to understand the current situation quite well. As a corporate/tax lawyer, a business owner and a financial adviser, I have a unique perspective on these issues. S and P and the other two major ratings agencies were dead wrong about the last recession and mortgage meltdown. That does not mean that they are always wrong. There are certain inherent conflicts about these agencies which are essentially monopolies. The companies and bonds they rate are also the ones that support them with income. Warren Buffet, to my knowledge, is the single largest shareholder in Moody's and has been selling his shares over the past year. He has millions of shares in Moody's. It would severely damage his holdings if they also downgraded the US debt. The other issue is that the Democrats should use this downgrade to their advantage as there were many reasons for the downgrade but mostly it was a result of deadlock in Washington, the failure to reach a good compromise with tax revenues included in the package along with tax cuts and the effect of deficit cutting during a recession that appears to be longer and deeper than first believed. Without some tax revenue, this myth of deficit reduction and a balanced budget remains a myth. The markets reacted ahead of time. The banks are not lending to small businesses and that is why unemployment remains high. You are clear on the basics.
 
 
0 # reiverpacific 2011-08-08 01:40
Thanks "RNF123" -all clarifications gratefully acknowledged, even if I have to read 'em through a couple of times to get the full picture -but that's just me and my limited capacity for absorbing same.
 
 
0 # Dave2 2011-08-08 08:40
re: "...the Democrats should use this downgrade to their advantage as there were many reasons for the downgrade but mostly it was a result of deadlock in Washington, the failure to reach a good compromise with tax revenues included in the package along with tax cuts and the effect of deficit cutting during a recession that appears to be longer and deeper than first believed" - Right. And on page four of S&P's Report, bottom o' the page, they clearly blame the Republicans: "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" and all the m. media peddle the storyline, "S&P's downgraded us because both sides were unwilling to negotiate and compromise" - the old "they all do it" argument - and we, the Left, all let them dis-inform the entire country and not call them on it, rendering all this closed circuit jibber-jabber mental masturbation - entertainment at best. The Right would be screaming - and getting their way again - if the shoe were on the other foot.
 
 
+3 # Peg B 2011-08-07 11:29
The rating by S&P smells of a conspiracy against those of us in the middle class who are aghast at the House Chairman's rediculous agenda, INCLUDING THE HOPE THAT OUR PRESIDENT OBAMA WILL NOT BE RE-ELECTED. I sent a donatiion to President Obama for his birthday. Peg
 
 
+3 # feanorr 2011-08-07 11:32
Actually, the ONLY reason S&P did it, is because they found a way to make money off of downgrading US credit.
 
 
+1 # head out the window 2011-08-07 11:59
Thanks Robert, I was wondering when someone would point that out.
 
 
+3 # stephen miller 2011-08-07 12:03
The lesson is you have to play hardball when there's been an economic collapse due to corruption and fraud. Obama didn't, and now these agencies, which should have been charged with corruption at the outset, are confident they can push everyone around,even governments, even the US government. In the Eurozone, in the US in 2011, it's starting to look like these crooks are out to weaken governments across the board. So they can rule.
 
 
+5 # drush 2011-08-07 13:20
Blow back, The IMF (US ran) has done this for 50 years to 3rd world countries. So here we are the barbarians at our foot steps and they are US. We have become what we turned much of the world into. Selling our commons for nothing, cutting services that make a culture etc.
Our exceptional position is gone, we need to abandon our Empire, its wars and learn to flourish as a culture and a people.
 
 
+1 # Dave2 2011-08-07 14:26
Back to the original point made by Robert Reich, why S&P's downgraded our rate (if anyone reads this, this far down..): Robert Reich is right saying, "because it doesn't think we're on track to reduce the nation's debt enough to satisfy S&P & we're not doing it in a way S&P prefers" but there is another critical sentence in S&P's Report that he overlooked & that the mainstream media doesn't want you to focus on. It's this very critical sentence at the end of page four (4), and everyone needs to read it and understand it and all that it portends: "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." (caps mine, for emphasis)Instea d, it is being reported with the storyline, "S&P's downgraded us because because they perceive that both sides were unwilling to compromise thereby rendering the U.S. federal govt. dysfunctional & not deserving of a AAA rating." THAT is a completely different storyline than S&P's, wherein they fix the blame unequivocally on the Republicans. All this jawboning is nice, but here's something we can DO: Call, write TV & print newsrooms and demand they correct this dis-information . If we don't, the Repuglies will be back soon with the same gun, holding it to our heads again. Saddle up, Liberal hordes!
 
 
+1 # Dave2 2011-08-07 14:28
Here is a link to an excellent article discussing "The Sentence" on Page Four - it also links directly to S&P's Report itself:

http://www.opednews.com/articles/Mainstream-Media-Ignores-S-by-Thom-Hartmann-110806-861.html
 
 
0 # Dave2 2011-08-08 08:24
[quote name="Dave2"]He re is a link to an excellent article discussing "The Sentence" on Page Four - it also links directly to S&P's Report itself:

Okay, two days out with this media story in which they hand a smoking gun to us that is reality based, not just the usual rhetoric based nuance argument, and the Left yawns. Maybe there's a reason I'm overlooking, something I'm missing or naive about - I'm not an economist afterall. But I do understand messaging pretty well, and this is how the Right constantly beats the living hell out of us all - the - time. They would beating the media with a thing like this until their ears bled and they changed their tune. And all things considered, I hate to say it, but this tells me why we continue to lose and will continue losing.
 
 
0 # BradFromSalem 2011-08-08 12:31
Dave2,

I just stumbled on your remarks. And no, I did not see or hear about 'the sentence'. But I did hear enough to get that point. Of course, I thought it may have been my prejudice towards the dire need to raise revenues that caused me to make that interpretation.

Still, even though I agree with their logic; I still think they have no right dictating to the USA how to run our Corporation, I mean nation.
 
 
+1 # propsguy 2011-08-07 15:05
S & P deliberately did not accurately assess the risk of mortgage backed securities because their pals at the bank stood to profit by the false high rating. now they are down grading the US because their friends at the bank will all profit when we have to pay higher interest rates, when they slash social spending to reduce the debt because, god forbid, we can't ask a zillionaire to part with a penny. this was all part of a plan
 
 
+1 # L Teitelbaum 2011-08-07 15:33
I hope that President Obama holds his ground & lets the Bush tax cuts expire. Its the least he can do to get us back on the right fiscal track. Len
 
 
+2 # Dr. T. Lenoir 2011-08-07 16:00
We have go to be alert to the takeover of our financial system by corporations, banks and Republican friends. Capitalism unrestrained, by government is killing American. President Obama is the scapegoat, but he is very slow in recognizing it. Get with it Mr. President, they are after you!
 
 
0 # cycleman60 2011-08-07 19:34
I think S&P is sticking it's nose where it doesn't belong. Who are they to scold the U.S. how to handle their debt? They, now have become a political parasite in our affairs coming off from the political arena. There was no default and U.S. resolved the issue as present.
 
 
0 # sharsand 2011-08-08 06:15
As one in retirement, I lost much of my money invested in so-called AAA bonds rated by S&P, bonds of American Air, Lehman Brothers, Bear Stearns, and more. Add this to the AAA rating S&P gae subprime garbage combined with some quality products and sold all over the world as prime investments, and you know the rest of the story. These people got huge paymemts from those they rated. Perhaps some of them should serve time rather than acting as a rating agency.
 
 
0 # dkonstruction 2011-08-08 11:11
This (Moody's) is an American company that has downgraded our creidt rating during wartime. this makes it harder (more expensive) for the US to borrow and thus, since it is wartime, affects our national security. It also no doubt gives "aid and comfort" to "the enemy." In other words, this is an act of treason. As a result, the company should be nationalized and their owners/board of directors should tried and convicted of treason and be subject to the same punishment Bradley Manning is subject..i.e., Death! since i'm against the death penalty i will settle for life in prison (preferably in Guantanemo until it is closed) with no chance of parole.
 
 
0 # dkonstruction 2011-08-08 11:32
sorry, meant S&P not Moody's in prior post
 
 
0 # Downgrades. 2011-08-08 12:40
Upgrade-Downgrade-Society/Nation

1. 330-250 BC- Greeks
2. c.250 BC-150 AD- Romans
3. c.500-1204- Byzantium
4. 1000s-c.1500- Venice
5. c.1470-1600- Portugal
6. 1585-c.1785- Holland
7. c.1650-1950- England
8. c.1900- USA

Is anybody beginning to see a pattern here?
Something kind of like a parasite or illuminati moving from place to place, like a carrpet-bagger with their bag of tricks- except that the trick is capturing and running the entire monetary & economic system?...Until its time to move on to the next point (typically to the) West?

Did They put something in the water (giving everyone in these 'formerly golden' societies brain damage?)... or rather, more simply, just put something in the currency?

Question: Why do citizens still put up with the scam, after at least 8 or so known rounds of this game from history?
Do they think that the Money-Masters are G*d- maybe subconsciously, just deep-down, a little?

Prof. Reich, or anyone, please.
 
 
0 # Elder Berry 2011-08-09 00:50
Downgrades: Read historical analysis by Spengler, Toynbee, and Quigley. Growth, empire, and collapse. Predictable cycles.

Quigley in the 1960s predicted that China was going to be the eventual threat to our dominance, not the Soviets. Why? It's all in his theory, which is developed from and builds on the other two:

Some "instrument" appears that causes the growth and dominance of a society/culture /civilization. However, as it grows the instrument gradually perverts the mechanisms of the society to serve itself. The society no longer enjoys the fruits of its expansion, which are being siphoned off and used up by the instrument, so the society suffers and eventually declines.
 
 
0 # billy bob 2011-08-09 01:16
Doesn't the S & P have a conflict of interest?
 
 
0 # billy bob 2011-08-09 01:22
What if we cut the military and ended the several endless colonial wars?
 
 
0 # Ellen Isaacs 2011-08-09 19:47
Clear and logical argument. Exactly: didn't s&p rate those lousy derivatives and bundled bad mortgages that resulted in the meltdown?!
 
 
0 # Sewall-Mueller 2011-08-11 14:52
AGAIN, we are at the mercy of a WHIM!!!
 

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