Jewish World Review August 9, 2011 / 9 Menachem-Av, 5771
S&P mixes credit ratings with politics
By Dan K. Thomasson
http://www.JewishWorldReview.com | So the folks that helped bring you the worst financial crisis since the Great Depression have struck again. This time the super rating agency Standard and Poor’s has decided to knock down the credit worthiness of the United States in what appears to be a blatantly political move.
The faceless company about which the average American, including this one, knows little or nothing has done so admittedly because it didn’t like the debate in Congress over raising the nation’s debt limit. Well, who in hell did? But some of us realize Congress only works, if it works at all, when the wolf is inhaling for the final breath that blows down the house. That’s the way this democracy always has functioned or not functioned.
But where do these guys get off in the first place? Should they even be factoring politics into these decisions that most of us, including any number of experts, always believed were based on financial considerations alone? Well, we are being told that in rating sovereign institutions politics has always played a role, which raises another question as to why they should have such power. We regulate them, for crying out loud!
Not even considered in their decision was the recent debt limit hike. The two other major rating agencies, Moody’s and Fitch, have not followed suit, acknowledging the financial position of other AAA rated nations are not unlike that of the United States.
Just a cursory examination of the role played by credit rating organizations such as S&P in the horrors of 2008 shows that Americans lost billions of dollars when they paid attention to their Triple A ratings on securities full of toxic mortgages. Now S&P has set itself up as the non-elected overseer of America’s political stability well into the future.
Why should we be surprised? They have warned us for months they might take this action. The arrogance of it is almost overwhelming. Can one imagine some S&P guy named John Chambers that no one except a few financial wonks ever heard of justified his sovereign rating committee’s action by citing the fact Congress waited “until the midnight hour” to break the stalemate. Has this guy been living under a pile of Wall Street ticker tape for most of his life? Crisis is the name of the congressional game.
One might consider the downgrade to AA+ as some sort of retribution for the fact Congress adopted a bill that required new regulations that would seriously lessen the role of these agencies in the market by reducing bank reliance on the ratings. Congress has not been happy about the slowness with which federal bank regulators have drafted the regulations and could now speed up the process.
Few Americans were pleased at the debacle that took place on Capitol Hill between recalcitrant Republicans and Democrats over raising the debt limit. In fact a recent poll showed that 82 percent of Americans disapproved of the way Congress has responded to the huge deficit. The so-called tea party members in the GOP House majority have lost considerable public support with their refusal to compromise, according to the polls. Overall, the Congress probably should be downgraded to a minus rating.
But that is for the American people to decide not some self-anointed financial geniuses who profited handsomely during the lead up to the recession by handing out high ratings on shaky mortgage deals. The recent agreement that temporarily ended the debt crisis requires the establishment of a super committee of 12 members equally divided between Republicans and Democrats to attack the deficit problem with recommendations by year’s end.
To expect much from that may be more than a little optimistic, given the climate on the Hill with an election approaching. On the other hand, there is a certainty that House and Senate members going home for this August recess are going to hear about it from constituents who want the turmoil ended. Hopefully they will return willing to compromise.
How much impact the S&P decision will have on the nation’s shaky economic health will depend somewhat on whether this country and the world overreacts to one rating agency that decided to stick its nose into politics.
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