S&P: "Further Downgrade Possible"

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    Aug 08, 2011 1:46 PM GMT
    http://hosted.ap.org/dynamic/stories/U/US_US_DEBT_RATING_CHAMBERS?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2011-08-07-11-03-40

    A Standard & Poor's official says there is a 1 in 3 chance that the U.S. credit rating could be downgraded another notch if conditions erode over the next six to 24 months.

    The credit rating agency's managing director, John Chambers, tells ABC's "This Week" that if the fiscal position of the U.S. deteriorates further, or if political gridlock tightens even more, a further downgrade is possible.


    The S&P may be overly optimistic that there is the political will by America's current leaders to deal with the real problems - it's absurd that there are those at the Whitehouse who blame the downgrade on teapartiers - as if the people who argue for maintaining the credit card limit are the ones to blame for the drunken spending:

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    Aug 08, 2011 2:35 PM GMT
    It's becoming clear that S&P isn't just incompetent but also a purposefully engaging in a politically motivated attack against US sovereignty.

    The DOJ should issue arrest warrants immediately.
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    Aug 08, 2011 2:45 PM GMT
    SB - Not surprising since you support "capitalism" even when it's obvious that the "corporations" are engaged in criminal behavior, as S&P is now.
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    Aug 08, 2011 3:01 PM GMT
    Christian73 saidSB - Not surprising since you support "capitalism" even when it's obvious that the "corporations" are engaged in criminal behavior, as S&P is now.

    My dear Christian: You do realize by now there are a few right-wing agents here, whose mission is to disrupt this gay site, make it fail if they can, and win over some of us to their right-wing views?

    I used to think the best response was to counter their propaganda, their intention that others might read & believe. I never thought I could change their minds, since they are here on a mission. Rather, I thought I might neutralize their propaganda.

    But now I think the best response is to ignore them. Most of the other guys here do, and when you reply to them, no matter how well (and you are among the best), it just bumps them to the top of the thread, and gives them more exposure, which is their goal.

    Rather, let their right-wing pasted posts die, by not responding to them. The small clique that is here will try to keep these posts going, but I see no benefit in helping them. Most of us know who they are -- seeing a thread with these guys posting to each other will tell us what it is, that we can ignore it.

    Let's just ignore these troublemakers, OK?
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    Aug 08, 2011 3:03 PM GMT
    Art_Deco said
    Christian73 saidSB - Not surprising since you support "capitalism" even when it's obvious that the "corporations" are engaged in criminal behavior, as S&P is now.

    My dear Christian: You do realize by now there are a few right-wing agents here, whose mission is to disrupt this gay site, make it fail if they can, and win over some of us to their right-wing views?

    I used to think the best response was to counter their propaganda, that other might read & believe. I never thought I could change their minds, since they are here on a mission.

    But now I think the best response is to ignore them. Most of the other guys here do, and when you reply to them, no matter how well (and you are among the best), it just bumps them to the top of the thread, and gives them more exposure, which is their goal.

    Rather, let their right-wing pasted posts die, by not responding to them. The small clique that is here will try to keep these posts going, but I see no benefit in helping them. Most of us know who they are -- seeing a thread with these guys posting to each other will tell us what it is, that we can ignore it.

    Let's just ignore these troublemakers, OK?


    Being an agent and all, I suppose it would be better if you kept your head in the sand.
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    Aug 08, 2011 3:05 PM GMT
    Christian73 saidIt's becoming clear that S&P isn't just incompetent but also a purposefully engaging in a politically motivated attack against US sovereignty.

    The DOJ should issue arrest warrants immediately.


    Right. I don't see how their rating is anywhere near politically motivated or incompetent - in fact, arguably this could have been done a lot sooner given the long term finance issues.
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    Aug 08, 2011 3:22 PM GMT
    riddler78 said
    Christian73 saidIt's becoming clear that S&P isn't just incompetent but also a purposefully engaging in a politically motivated attack against US sovereignty.

    The DOJ should issue arrest warrants immediately.


    Right. I don't see how their rating is anywhere near politically motivated or incompetent - in fact, arguably this could have been done a lot sooner given the long term finance issues.


    S&P and other rating agencies have long engaged in political motivated "ratings" and "warnings" for at least the 20 years.

    Matt StollerIn the early 2000s, several states attempted to rein in an increasingly obvious predatory mortgage lending wave. These laws, pushed by consumer advocates, would have threatened the highly profitable mortgage securitization pipeline.

    S&P used its power to destroy this threat. Josh Rosner and Gretchen Morgenson told the story in Reckless Endangerment.

    Standard & Poor’s was the most aggressive of the three agencies, however. And on January 16, 2003, four days after the Georgia General Assembly convened, it dropped a bombshell. Because of the state’s new Fair Lending Act, S&P said that it would no longer allow mortgage loans originated in Georgia to be placed in mortgage securities that it rated. Moody’s and Fitch soon followed with similar warnings.


    It was a critical blow. S&P’s move meant Georgia lenders would have no access to the securitization money machine; they would either have to keep the loans they made on their own books, or sell them one by one to other institutions. In turn, they made it clear to the public that there would be fewer mortgages funded, dashing “the dream” of homeownership.

    It was an untenable situation for the lenders who had grown addicted to the securitization money spigot. With S&P shutting it off to abusive lenders, it was only a matter of time before the Fair Lending Act was dead.

    To Brennan and other consumer advocates, it was a shocking and devastating moment in the battle against predatory lending. “We were stunned when we saw the press release,” Brennan said. “We thought, where does this come from?”

    Standard & Poor’s said it was taking action because the new law created liability for any institution that participated in a securitization containing a loan that might be considered predatory. If a Wall Street firm purchased loans that ran afoul of the law and placed them in a mortgage pool, the firm could be liable under the law. Ditto for investors who bought into the pools.

    “Transaction parties in securitizations, including depositors, issuers and servicers, might all be subject to penalties for violations under the Georgia Fair Lending Act,” S&P’s press release explained.

    It ended with a warning: “Standard & Poor’s will continue to monitor this and other pending predatory lending legislation.” In other words, any states that might have been considering strengthening their predatory lending laws as Georgia did should beware.

    That press release is here. S&P was aggressively killing mortgage servicing regulation and rules to prevent fraudulent or predatory mortgage lending.

    This is far from the only time S&P has thrown its weight around to advance its financial interests. My favorite story about S&P is how its parent company, publisher McGraw-Hill, tried to cancel Barry Ritholz’s book because he wrote unfavorably about the ratings agencies. When I was on Capitol hill, I actually brought this story up to an S&P lobbyist. She told me about how Ritholz got his facts wrong, that the company has a Chinese wall between the ratings agency and the publisher, and that, besides, he was just a blogger. That’s S&P for you.

    Naomi Klein wrote about S&P and Moody’s being used by Canadian bankers in the early 1990s to threaten a downgrade of that country unless unemployment insurance and health care were slashed. Incidentally, there was an aggressive high end tax cut campaign going on at the time.


    And investors are fleeing the market and going into US Treasuries, so apparently S&P's ratings don't carry much weight.
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    Aug 08, 2011 3:36 PM GMT
    Christian73 said
    riddler78 said
    Christian73 saidIt's becoming clear that S&P isn't just incompetent but also a purposefully engaging in a politically motivated attack against US sovereignty.

    The DOJ should issue arrest warrants immediately.


    Right. I don't see how their rating is anywhere near politically motivated or incompetent - in fact, arguably this could have been done a lot sooner given the long term finance issues.


    S&P and other rating agencies have long engaged in political motivated "ratings" and "warnings" for at least the 20 years.

    Matt StollerIn the early 2000s, several states attempted to rein in an increasingly obvious predatory mortgage lending wave. These laws, pushed by consumer advocates, would have threatened the highly profitable mortgage securitization pipeline.

    S&P used its power to destroy this threat. Josh Rosner and Gretchen Morgenson told the story in Reckless Endangerment.

    Standard & Poor’s was the most aggressive of the three agencies, however. And on January 16, 2003, four days after the Georgia General Assembly convened, it dropped a bombshell. Because of the state’s new Fair Lending Act, S&P said that it would no longer allow mortgage loans originated in Georgia to be placed in mortgage securities that it rated. Moody’s and Fitch soon followed with similar warnings.


    It was a critical blow. S&P’s move meant Georgia lenders would have no access to the securitization money machine; they would either have to keep the loans they made on their own books, or sell them one by one to other institutions. In turn, they made it clear to the public that there would be fewer mortgages funded, dashing “the dream” of homeownership.

    It was an untenable situation for the lenders who had grown addicted to the securitization money spigot. With S&P shutting it off to abusive lenders, it was only a matter of time before the Fair Lending Act was dead.

    To Brennan and other consumer advocates, it was a shocking and devastating moment in the battle against predatory lending. “We were stunned when we saw the press release,” Brennan said. “We thought, where does this come from?”

    Standard & Poor’s said it was taking action because the new law created liability for any institution that participated in a securitization containing a loan that might be considered predatory. If a Wall Street firm purchased loans that ran afoul of the law and placed them in a mortgage pool, the firm could be liable under the law. Ditto for investors who bought into the pools.

    “Transaction parties in securitizations, including depositors, issuers and servicers, might all be subject to penalties for violations under the Georgia Fair Lending Act,” S&P’s press release explained.

    It ended with a warning: “Standard & Poor’s will continue to monitor this and other pending predatory lending legislation.” In other words, any states that might have been considering strengthening their predatory lending laws as Georgia did should beware.

    That press release is here. S&P was aggressively killing mortgage servicing regulation and rules to prevent fraudulent or predatory mortgage lending.

    This is far from the only time S&P has thrown its weight around to advance its financial interests. My favorite story about S&P is how its parent company, publisher McGraw-Hill, tried to cancel Barry Ritholz’s book because he wrote unfavorably about the ratings agencies. When I was on Capitol hill, I actually brought this story up to an S&P lobbyist. She told me about how Ritholz got his facts wrong, that the company has a Chinese wall between the ratings agency and the publisher, and that, besides, he was just a blogger. That’s S&P for you.

    Naomi Klein wrote about S&P and Moody’s being used by Canadian bankers in the early 1990s to threaten a downgrade of that country unless unemployment insurance and health care were slashed. Incidentally, there was an aggressive high end tax cut campaign going on at the time.


    And investors are fleeing the market and going into US Treasuries, so apparently S&P's ratings don't carry much weight.


    The risk was already built in on the debt - but it's the equities that are bearing the brunt as you would expect because of their higher risk. The ratings agencies are only a proxy for the underlying financial strength of a bond. They obviously sometimes get it wrong but to call it political is a bit juvenile. McGraw Hill didn't even realize the ratings was going to be issued and made a point of it in their surprise.
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    Aug 08, 2011 5:46 PM GMT
    riddler78 saidThe risk was already built in on the debt - but it's the equities that are bearing the brunt as you would expect because of their higher risk. The ratings agencies are only a proxy for the underlying financial strength of a bond. They obviously sometimes get it wrong but to call it political is a bit juvenile. McGraw Hill didn't even realize the ratings was going to be issued and made a point of it in their surprise.


    As in the article above, the ratings agencies - paid by those they're rating - have an incontrovertible conflict of interest. They further this conflict by engaging in political machinations, as they have done with Canada, Georgia and now the US.
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    Aug 08, 2011 6:22 PM GMT
    Christian73 said
    riddler78 saidThe risk was already built in on the debt - but it's the equities that are bearing the brunt as you would expect because of their higher risk. The ratings agencies are only a proxy for the underlying financial strength of a bond. They obviously sometimes get it wrong but to call it political is a bit juvenile. McGraw Hill didn't even realize the ratings was going to be issued and made a point of it in their surprise.


    As in the article above, the ratings agencies - paid by those they're rating - have an incontrovertible conflict of interest. They further this conflict by engaging in political machinations, as they have done with Canada, Georgia and now the US.


    Except that the markets don't really care about what you describe to be political machinations. It's not the ratings that result in the increase to interest rates (which really only legally affect what institutions are allowed to invest in only if they drop away from being "investment grade" - which is not the case here), the ratings are only a proxy.

    For corporate bonds they do get paid by those they're rating which can be a conflict. But at the same time just like accounting firms who are also paid to audit by the firms they are auditing, it is their reputation that is most valuable.