S&P threatens to cut U.S. credit rating

[RandomGuy]

Um, wow. Someone at Standard and Poor has got some nuts.

A downgrade on U.S.A. sovereign debt would be...

http://thewe.name/thewei/&_/images7/nuclear_bombs/atmosphere_nuclear_bomb_test.jpe

kinda bad, if I may understate it somewhat.--RG


NEW YORK (Reuters) – Standard & Poor's threatened on Monday to downgrade the United States' prized AAA credit rating unless the Obama administration and Congress find a way to slash the yawning federal budget deficit within two years.

S&P, which assigns ratings to guide investors on the risks involved in buying debt instruments, slapped a negative outlook on the country's top-notch credit rating and said there's at least a one-in-three chance that it could eventually cut it.

A downgrade, which would leave Germany and France with a higher rating, would erode the status of the United States as the world's most powerful economy and the dollar's role as the dominant global currency.

If investors start demanding higher returns for holding riskier U.S. debt, the rise in bond yields would crank up borrowing costs for consumers and businesses. That would threaten to hurt the economy as it recovers from the worst recession since World War II.

"This new warning highlights the need for the U.S. to take better control of its fiscal destiny if it is to avoid higher borrowing costs and maintain its central role at the core of the global economy," said Mohamed El-Erian, chief executive at PIMCO, which oversees $1.2 trillion in assets and has a short position on U.S. government debt.

Major U.S. stock indexes fell than 1 percent on the day. Longer-dated government bond prices initially fell but recovered in afternoon trade, while the dollar rose....

http://news.yahoo.com/s/nm/us_ratings_usa_sp

--------------------------------------------------

This is probably a good thing, if somewhat unlikely at the moment. (stress on the last part)

Good because it adds some urgency to the negotiations on the 2012 budget, that might provide some poltical cover for the teahadists to allow some modest tax increases, and Dems to modify the social safety nets.

[coyotes_geek]

The threat of the downgrade is certainly deserved. We're on an unsustainable course and our two political factions still haven't shown any sign whatsoever of being able to work together like adults.

The shot across the bow has been fired. Hopefully our elected leaders get the message.

[LnGrrrR]

Cue the "raising taxes won't help our debt!" chant.

[boutons_deux]

2 bullshit wars, Repug tax cuts, conservatives' deregulation of finance, the criminal Banksters' Great Depression, etc, etc, will do that to a country.

For years, the ratings agencies criminally LIED when stamping toxic shit as AAA and defrauded investors who trusted the agencies' ratings.

NOW the ratings want to (accommodate the VRWC and) tell the truth about US rating to provoke another financial shock for capitalism to exploit?

I'm sure Wall St has all its bets placed on the ratings' agencies downgrading US.

Lest we forget how the Repugs/VWRC got us into this mess:

http://www.cbpp.org/images/cms//12-16-09bud-rev6-28-10-f1.jpg

http://www.cbpp.org/cms/index.cfm?fa=view&id=3036

[ManuBalboa]

Jokes on them. We can't even pay off the interest now.

[EVAY]

I read somewhere over the weekend that both debt rating agencies were trying to get the politicians to stop threatening not to raise the debt ceiling...telling Boehner specifically that he can't just threaten that sort of thing without engendering real financial panic worldwide.

I think this is, as CG says, 'the shot across the bow'.

[Marcus Bryant]

It's time for these politicians to exhibit the character and courage they claim to possess every election and increase tax collections and cut spending.

[boutons_deux]

"It's time for these politicians to exhibit the character and courage"

you really are a naive jerk.

DC is nothing but money grubbing corruption, there isn't any character or courage, if there ever was any.

[Marcus Bryant]

Cynicism mistaken for naivety, part mmmmmccccxxxxiv.

Oh, and "GFY."

[boutons_deux]

Name the Repugs and Dems (it will take both) who have character and courage (and legislative power) to increase tax collections.

else, GFY

[Marcus Bryant]

Nothing gets by you.

[greyforest]

S&P is based out of the USA, so it'll kindly be reminded by its government to keep the AAA rating.

[Winehole23]

Coburn and Levin threatened both ratings agencies with referral to DOJ last week, S&P just reminded Congress it still has an arrow left in its quiver.

S&P will eventually lose the pissing contest but is capable of significant mischief. Withdrawing the threat of criminal referral is the likely price of withdrawing the threat to the US credit rating.

[Winehole23]

I'll admit, I find the fact that a rating agency is threatening the US government unsettling.

[Winehole23]

Similar to what I felt when PIMCO announced it was getting out of US Treasuries.

[LnGrrrR]

I'll admit, I find the fact that a rating agency is threatening the US government unsettling.

Why? They're just cutting out the middleman :lol

[Winehole23]

Portends ill for the country IMO.

[boutons_deux]

Nothing gets by you.

So you can't name the Repugs and Dems of courage and character (and legislative votes) to raise taxes?

I'm cynical? You're a bullshitter of fantasies.

[coyotes_geek]

Coburn and Levin threatened both ratings agencies with referral to DOJ last week, S&P just reminded Congress it still has an arrow left in its quiver.

S&P will eventually lose the pissing contest but is capable of significant mischief. Withdrawing the threat of criminal referral is the likely price of withdrawing the threat to the US credit rating.

I'm not so sure S&P will lose. After all, the criticisms of the ratings agencies are over how loose they were with favorable ratings. Seems like S&P has a ready made retort to Congress of "we're just doing what you told us to".


I'll admit, I find the fact that a rating agency is threatening the US government unsettling.

The status quo needs to be unsettled.

[TeyshaBlue]

Cynicism mistaken for naivety, part mmmmmccccxxxxiv.

Oh, and "GFY."

Zero Sum defeatism is easier than thinking for boutonski.

[TeyshaBlue]

The status quo needs to be unsettled.

If not completely obliterated.

[Wild Cobra]

[I]Um, wow. Someone at Standard and Poor has got some nuts.

Yes, but it needs to happen rather than fleeing from the truth.

[Wild Cobra]

Lest we forget how the Repugs/VWRC got us into this mess:

http://www.cbpp.org/images/cms//12-16-09bud-rev6-28-10-f1.jpg

It cracks me up everything you bring in that propaganda.

Just how much merit does "based on CBO estimates" have?

[Wild Cobra]

I'll admit, I find the fact that a rating agency is threatening the US government unsettling.

There has been talk on conservative radio for some time now that this would have to happen. I believe it will if we cannot get a serious reduction in deficit spending, and soon. Won't have another budget outline for some time, so we need more tax payers entering the job market.

Anyone see that happening any time soon?

[Winehole23]

I'm not so sure S&P will lose. After all, the criticisms of the ratings agencies are over how loose they were with favorable ratings. Seems like S&P has a ready made retort to Congress of "we're just doing what you told us to". Ready retort of the government: we'll prosecute.

The status quo needs to be unsettled.Sure. Still feels creepy tho, and there are possible downsides.

[TeyshaBlue]

Ready retort of the government: we'll prosecute.
Sure. Still feels creepy tho, and there are possible downsides.

Swapping one set of problems for another most likely. I'm still game.

[MannyIsGod]

You guys are crazy if you think this has to do with the deficit and not the debt ceiling and the fact that the ratings agencies are fraudsters. This pretty much the financial sector reminding the gov who is boss.

[Winehole23]

This pretty much the financial sector reminding the gov who is boss.That is one of the things that bothers me about it.

[Wild Cobra]

You guys are crazy if you think this has to do with the deficit and not the debt ceiling and the fact that the ratings agencies are fraudsters. This pretty much the financial sector reminding the gov who is boss.
No, in this case, they see that government bonds may face a problem of not being a safe investment. I think they are true to their business. Bonds are rated by risk, and USA government bonds are becoming risky. They stopped deserving a AAA rating long ago, but if anything, were afraid to degrade them before.

[Wild Cobra]

That is one of the things that bothers me about it.
How are they boss?

It is a rating of how safe a bond investment is.

Are you saying that US bonds are completely safe from losing value over time?

[coyotes_geek]

Ready retort of the government: we'll prosecute.

So who blinks first? S&P in the face of potential prosecution, or Congress in the face of having to deal with the ramifications of a downgrade?


Sure. Still feels creepy tho, and there are possible downsides.

There's going to be a downside no matter what we do. The most painful downside will result from doing nothing.

[MannyIsGod]

S&P gains nothing out of dropping the rating and actually hurts itself. Ill believe their threats when that changes.

[boutons_deux]

The ratings agencies are financed by Wall St.

I have no doubt S&P is doing exactly as they are paid to do.

[Wild Cobra]

The ratings agencies are financed by Wall St.

I have no doubt S&P is doing exactly as they are paid to do.
Another conspiracy theory?

[coyotes_geek]

S&P gains nothing out of dropping the rating and actually hurts itself. Ill believe their threats when that changes.

S&P gets paid to provide a rating regardless of what that rating is. Downgrading U.S. debt doesn't hurt them in the least.

[Winehole23]

So who blinks first? S&P in the face of potential prosecution, or Congress in the face of having to deal with the ramifications of a downgrade? S&P I would guess.

The most painful downside will result from doing nothing.You underestimate the capacity of the US Congress to bollix things up.

The clarion call of reform was wrong respecting health care reform. Doing nothing would have been much preferable to the reform we got.

I'd be interested to see the analysis showing that "doing nothing" is the most painful medicine. For example, wouldn't doing nothing ostensibly include allowing the Bush/Obama tax cuts to expire?

[MannyIsGod]

S&P gets paid to provide a rating regardless of what that rating is. Downgrading U.S. debt doesn't hurt them in the least.

Downgrading the us debt hurts the entire world. As the us goes the rest of the world goes.

[Wild Cobra]

Downgrading the us debt hurts the entire world. As the us goes the rest of the world goes.
Are you suggesting the S&P lie? Who would trust their other ratings then?

[Winehole23]

Are you saying that US bonds are completely safe from losing value over time?Nope. But there are visible cracks in the catbird seat.

[Wild Cobra]

Nope. But there are visible cracks in the catbird seat.
No reason not to downgrade a bond when it needs a downgrade.

[boutons_deux]

Another conspiracy theory?

Try to keep up.

Wall St pays the rating agencies for ratings on the shit Wall St sells.

A HUGE conflict of interest, and, yes, a conspiracy.

Well documented when toxic mortgages hit the news a couple years ago.

You're typically naive if you think the ratings agencies are impartial umpires calling balls and strikes according to rigid, sacred rules. The working assumption is the entire financial system is corrupt, gamed.

[coyotes_geek]

S&P I would guess.

Perhaps. Although it seems S&P has already rung the bell that can't be un-rung.



You underestimate the capacity of the US Congress to bollix things up.

The clarion call of reform was wrong respecting health care reform. Doing nothing would have been much preferable to the reform we got.

I'd be interested to see the analysis showing that "doing nothing" is the most painful medicine. For example, wouldn't doing nothing ostensibly include allowing the Bush/Obama tax cuts to expire?

Fair points. I'll rephrase to say that the biggest downside lies along the path we are currently following.


Downgrading the us debt hurts the entire world. As the us goes the rest of the world goes.

So should ratings agencies base their ratings off of financial realities, or off of what the perceived impacts of a ratings change might be?

Bonus question: Which approach do you think ratings agencies were using leading up to the financial meltdown?

[Wild Cobra]

Try to keep up.

Wall St pays the rating agencies for ratings on the shit Wall St sells.

A HUGE conflict of interest, and, yes, a conspiracy.

Well documented when toxic mortgages hit the news a couple years ago.

You're typically naive if you think the ratings agencies are impartial umpires calling balls and strikes according to rigid, sacred rules. The working assumption is the entire financial system is corrupt, gamed.
Yep...

A conspiracy theory.

[Winehole23]

No reason not to downgrade a bond when it needs a downgrade.I agree. Please pardon me if I do not celebrate it.

[CosmicCowboy]

This train has been going by for a long time. The S&P downgrade is the caboose. Moody's and S&P are always late to the party. They had Enron rated great right up until 2 weeks before they imploded even though the stock price had gone into the tank. A ratings downgrade isn't the beginning, it's the fat lady warming up.

[MannyIsGod]

Are you suggesting the S&P lie? Who would trust their other ratings then?

They absolutely lie. Check their ratings prior to the financial crisis of either the US firms or the securities themselves that caused the collapse.

[MannyIsGod]

So should ratings agencies base their ratings off of financial realities, or off of what the perceived impacts of a ratings change might be?

Bonus question: Which approach do you think ratings agencies were using leading up to the financial meltdown?

The same approach they are using now. I firmly believe ratings agencies should operate differently, CG. Thats not the point. We can talk about what S&P should do but we're talking about what they WILL do.

[Wild Cobra]

They absolutely lie. Check their ratings prior to the financial crisis of either the US firms or the securities themselves that caused the collapse.
They base their ratings on the information they have. They don't know how to properly use crystal balls. Just how do you suggest they know in advance, criminal activities of reporting and operational practices?

[CosmicCowboy]

They base their ratings on the information they have. They don't know how to properly use crystal balls.

I am gonna side with Manny on this one, at least on securities issues. There is a real conflict of interest in the ratings agencies being paid to rate products by the people that produce the products.

[Wild Cobra]

I am gonna side with Manny on this one, at least on securities issues. There is a real conflict of interest in the ratings agencies being paid to rate products by the people that produce the products.
I know that corruption can exist, but I don't think it's the commonplace. How many people are paid to rate how many bond producers? It has to be several thousand. Of course some can be paid off.

[Winehole23]

How many people are paid to rate how many bond producers?How many of them rated CDO risk "AAA" until summer 2007?

[CosmicCowboy]

I know that corruption can exist, but I don't think it's the commonplace. How many people are paid to rate how many bond producers? It has to be several thousand. Of course some can be paid off.

It's not individual bribery, it's systemic conflict of interest.

[EVAY]

You guys are crazy if you think this has to do with the deficit and not the debt ceiling and the fact that the ratings agencies are fraudsters. This pretty much the financial sector reminding the gov who is boss.

This.:toast

[MannyIsGod]

How many of them rated CDO risk "AAA" until summer 2007?

How many of them rated Bear Sterns and Lehman AA or better till the exact days of their collapse?

[CosmicCowboy]

You guys are crazy if you think this has to do with the deficit and not the debt ceiling and the fact that the ratings agencies are fraudsters. This pretty much the financial sector reminding the gov who is boss.

Naaa, this is a realistic assessment that the Republicans and Democrats are so far apart on negotiating a long term solution to solving the debt problem that it can't possibly be resolved until another election cycle goes by and one side or the other gains the upper hand...so this is an acknowledgement that they will kick the can down the road until at least 2013.

A realistic long term solution to the debt problem is going to require accepting the Holy Economic Trinity of Tax Revenue increases, Military spending cuts, and cuts in SS, Medicare and Medicaid.

All of the above...and based on the performance of the current two party system they will never get there...

[Capt Bringdown]

Questions for S&P on Its Potential Downgrade of U.S. Debt (http://www.cepr.net/index.php/blogs/cepr-blog/questions-for-sap-on-its-potential-downgrade-of-us-debt)

"The last time S&P was in the headlines it was for giving investment grade ratings to hundreds of billions of dollars of securities that were backed by subprime and ALT-A mortgages.

Serious people should ask what S&P has done to improve its ratings systems. Have they changed their procedures? Did the S&P analysts who gave AAA or other investment grade ratings to toxic junk get fired or at least get demoted? If not, should we assume that S&P used the same care in assigning a negative outlook to U.S. government debt as it did in assigning investment grade ratings to toxic assets?

Of course it was not just bad mortgage debt that stumped the S&P gang. It gave top quality investment grade ratings to Lehman until just before it imploded in the largest bankruptcy in history. The same was true of AIG, which would have faced a similar fate without a government rescue. Bear Stearns also had a top rating until the very end, as did Enron. In short, S&P has a quite a track record in missing the boat when it comes to assessing creditworthiness."

[boutons_deux]

The ratings agencies were paid by Wall St to LIE about ratings, so Wall St could sell toxic crap as AAA.

[MannyIsGod]

Apparently no one is paying attention to S&P.

https://lh4.googleusercontent.com/_VgJQTp0Bsf0/Ta2q0js8_lI/AAAAAAAAAeA/j4EOe1JUsrA/10year_s%26p.jpg

[RandomGuy]

A realistic long term solution to the debt problem is going to require accepting the Holy Economic Trinity of Tax Revenue increases, Military spending cuts, and cuts in SS, Medicare and Medicaid.


I think most everybody here acknowledges this as the necessary solution, save for a few iconoclasts at either end of the spectrum.

We should start a pool about how long the two parties will play politics on this before doing what is blindingly obvious to everybody else.

I just worry how much pressure the tea party bunch will put on resisting the tax part. They don't seem to be a flexible/pragmatic group.

[boutons_deux]

What pushed the ratings committee off the fence wasn't raw numbers. No one disputes the U.S. debt levels are too high. Both the Democratic White House and the Republican-led U.S. House agree on the need to slice about $4 trillion from the U.S. deficit over roughly a decade.

It was the poisonous politics in Washington that caused S&P to raise the red flag, interviews with S&P analysts over the past few days and its statement show. S&P since the late 1990s has added political risk to its evaluation of a country's credit.

President Barack Obama last Wednesday offered a starkly different plan from Republican House Budget Chairman Paul Ryan on how to reduce the gigantic $14.3 trillion debt load, one that has grown by about 60 percent in less than three years. There is little hard evidence the two sides are ready to reach agreement before the 2012 election.

"The gulf has never been wider," David Beers, the global head of Standard & Poor's sovereign ratings team, told Reuters Insider on Monday.

http://www.rawstory.com/rs/2011/04/21/political-rift-was-tipping-point-in-sp-warning/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheRawStory+%28The+Raw+Story% 29

S&P belongs to Wall St. They are a not disinterested, mathematical numbers umpire, but fundamentally conflicted in their interests in being paid by Wall St to provide investment ratings for the shit Wall St sells.