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Archive for August, 2011

Missouri Mom Tells Off S&P


Lucy Nobbe from Kirkwood, Missouri decided to take matters into her own hands. She rented a plane and a banner and flew over Standard & Poor’s Manhattan offices Tuesday with this message: “Thanks for the downgrade- you should all be fired.”

Representing the outrage felt by tens of millions of Americans over S&P’s downgrade of the United States to AA+ status last Friday, Lucy had enough. She says she initially planned to fly over the Capitol building with the same message for our nation’s gridlocked lawmakers, but realized airspace restrictions over Washington, D.C. would have resulted in an escort from F16 jet fighters and an interview with the Secret Service so she did the next best thing.

To many, many people, S&P’s actions last week smacks them as deeply unpatriotic. The symbolic downgrade has helped send the nation’s and the world’s stock markets into turmoil and caused millions of people sleepless nights as they watch their 401K’s sink into oblivion. S&P then promptly downgraded Freddie Mac and Fannie Mae, which should now make it more expensive for people to get home loans in an already depressed housing market. And they’re not done yet as S&P has now embarked on a downgrading spree; targeting states, counties and municipalities across the nation.

And even if S&P’s message about a dysfunctional American political system was painfully true- their mission is supposed to be grading companies and countries on their credit-worthiness. As their actions helped cause the markets to tank, their own case for the downgrade was belied by the fact the entire world went to the safest haven they could find- the very U.S. Treasuries S&P had just said were unreliable.

As it was there were two parts to S&P’s downgrade message; one economic and one about the political gridlock in DC. As they got the math wrong and overstated the size of the debt by $2 trillion, they admitted their error, dropped the economic argument and presented only the political one.

We don’t need to get into the fact S&P had given Enron a AAA rating until just about the day they went bankrupt, gave sterling ratings to companies who held worthless subprime mortgage loans four years ago, and missed the European debt crisis until it was well underway. It’s more primal than all that. They downgraded America.

And Lucy Nobbe, a single mom and broker who knows a thing or two about finance ended up spending $900 to rent the plane and the banner and make her voice heard over the offices of Standard & Poor’s, speaking for millions of others who continue to scratch their heads at the gridlock and the insanity of it all.

Downgrading America


S&P may have questionable moral authority in downgrading the U.S. from its AAA rating but they have pointed out that if Republicans don’t back down from their anti-tax fervor and Democrats continue to maintain entitlement programs without significant reform- the gridlock will continue to kill us.

There are two other ratings agencies who still give the U.S. a AAA rating, Moody’s and Fitch. Both warn that may change but have also said they put less weight than S&P does on the politics of gridlock. But ironically, the political reaction to the S&P downgrade may change their minds on that. Instead of taking the downgrade as a warning shot across the bow, both sides have come out swinging against one another in response, making the very point S&P highlighted that these intractable political positions make us a riskier investment.

There are indications that the “Super” congressional committee of a dozen lawmakers representing the House and Senate will be every bit as deadlocked as the larger bodies were just last week. Standard and Poor’s and their fellow ratings agencies may have played a significant hand in our current crisis by handing out completely undeserved sterling ratings to the instigators of the subprime lending catastrophe four years ago, but they’re right to express serious concern about the state of our “take no prisoners” political climate.

But a downgrade may be taking it all a step too far. The U.S. economy, anemic as it is, is still way better off than it was, say in 2008 in the midst of the banking crisis and we didn’t get downgraded then. Downgrading the U.S. now carries the risk that interest rates will rise and make paying off debt an even more expensive task, not to mention the ripple effect on an already struggling economy as rates potentially rise for everything from small business lending to auto, credit card, and student loans.

It happened, though, and here we are. If the Congressional “Super” committee finds a spine and a sudden spirit of compromise, we’ll be alright. Given the toxic political environment of the moment, I wouldn’t exactly give that likelihood a sterling, risk-free AAA rating

Economic Choices: Between Terrible and Worse

August 3, 2011 1 comment


Can we be realistic here? The debt ceiling “compromise” signed into law Tuesday fixes nothing and ensures continuing uncertainty in financial markets and more ideological warfare in the months ahead. But congratulations Washington for putting the matches away and not burning the house down.

As all sides hold their noses while they get a good look at this really ugly baby, here’s what has not been accomplished.

Deficit Reduction: A little bit- but not much. $2.4 trillion over ten years against a $14 trillion debt with most of the cuts still to be determined by a “Super” committee of 12 angry, feuding lawmakers who start meeting around Thanksgiving. This ought to give us that much more to be grateful for.

Reduction in Entitlement Programs: They’re responsible for most of the debt but even the draconian cuts that automatically take place if our angry, feuding lawmakers can’t come to an agreement- don’t address Social Security, Medicaid or Medicare recipients. Some think this a good thing with a reeling economy causing so much misery but for a so-called attempt to bring spending in line, not a smart move to ignore consideration of the major contributors to the national debt.

Revenue: Two major commissions that set about to solve deficit-spending in the past year both came to identical conclusions. It cannot be accomplished by cutting alone. This is not about partisanship- it’s about math. There were plenty of Republicans on both these panels who endorsed the concept of raising revenue as a part of balancing budgets. See this column in the Washington Post that discusses these commissions and their discoveries. Alan Greenspan, one of the last human beings on the planet you would expect to favor tax increases is now in favor of exactly that. Blogged about it a few months ago.

Rational Process: We will forever more be holding future extensions of the nation’s debt ceiling hostage to the ideological flavors and fights of the day. This has nothing to do with party. Other than whichever party is out of the White House will, from now on, be pushing the nation’s economy to the brink in order to extract whatever it can from perpetually horrified future Presidents, Democrats and Republicans alike.

The Current Economic Mess: The 1,000 point Dow Jones meltdown that would have been expected had the debt ceiling not been passed was replaced instead by a 265 point meltdown out of fears stoked by today’s weak and struggling economy that the debt ceiling agreement does little to address.

But in the end, was it a good thing the debt ceiling bill passed? Well, as Alan Greenspan put it so eloquently in September of 2010, “Our choice is not between good and bad but between terrible and worse.”