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Jane Hamsher is right about S&P playing politics

Jane Hamsher is right about S&P playing politics

Not often that I praise Jane Hamsher, but she is right that S&P improperly has injected itself into the political process:

Standard and Poors is evidently meeting with high-stakes gamblers and letting them know where to place their bets as they manipulate the global economy.

But they are also playing a much more sinister game.  Like a cat toying with a mouse, they are also inserting themselves in the political process and setting themselves up to be kingmaker in the 2012 election….

I don’t care whether you’re rabidly pro- or anti-Obama, a Republican or a Democrat or an Independent or a Green or none of the above.  What S&P and the other CRAs are doing right now is completely illegal and outside the boundaries of their own codes of conduct.  They’re acting as Wall Street’s tasers in Shock Doctrine 2.0, and making themselves the key player in determining what happens not only with the 2012 election but with the world’s economic future.  They are playing a very dangerous game with the world economy that could have devastating consequences for all of us, regardless of what your partisan identification is.

Maybe you’re a Republican and you say “so what, too bad for Obama.”  But what they do to one side today they will most certainly do to the other side tomorrow.  And I would be saying the exact same thing no matter who was in the White House.

Does anyone really want to see an organization have that kind of power over the political process?

Some history [July 2008]:

Government officials said Tuesday that the country’s three largest credit raters failed in their reviews of subprime mortgage-backed securities.

In a press conference in Washington, D.C., on Tuesday, U.S. Securities and Exchange Commission Chairman Christopher Cox said that the agency’s 10-month examination found failures by the three largest firms – Standard & Poor’s, Moody’s Investors Service (MCO) and Fitch Ratings (FIM).

“After an extensive examination of the adequacy of the credit ratings agencies … we uncovered serious shortcomings in these firms,” said Cox.

S&P should stay out of politics and stick to what it knows best (assuming there is something that it knows best).

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Even the Pres Of S&P said today specifically that “our analysts do not believe there will be a default”. Rep. Conseco SLAMS Mr Parma, accusing him directly (by question) of entering the debate late for a political reason.
CSPAN will not let embedding on the video but it starts at 2hr 35min. transcript and video link is here and it is POWERFUL. http://ow.ly/5OX53

    Milhouse in reply to PoliticsSouth. | July 27, 2011 at 5:42 pm

    Nobody believes there will be a default this year; there can’t be, unless Obama deliberately decides to violate the constitution yet again. But nobody in his right mind does not worry about a future default, if there is not a serious reduction in spending. And no responsible rating agency can continue to give US debt a top rating while such a concern exists.

    retire05 in reply to PoliticsSouth. | July 27, 2011 at 9:42 pm

    Francisco Canseco is a very, VERY smart man. He also defeated that idiot, Ciro Rodriquez, in a district where all counties border the US/Mexico border, which is almost solidly Democrat.

    Canseco’s victory brings sweet revenge since Ciro Rodriquez, with the help of La Raza and ACORN defeated the brilliant, and honest, Henry Bonilla. It was later proven by the Texas Attorney General’s office that there was rampant vote “mining” in those counties, with one woman testifying that she had “mined” votes before 2010, and had done so for the Ciro Rodriquez campaign.

    Canseco added two new Texas Republicans to the U.S. Congress, the other being Bill Flores, another Hispanic.

How is it illegal? Isn’t it specifically protected by the first amendment?

S&P and Moodys got all beat up for not saying enough about those subprime loans, so now they go on defense over US securities and they are doing the wrong thing ?
The US doesn’t need to default to lose it’s AAA bond rating. I just needs to have it’s government act irresponsibly.

    Milhouse in reply to Neo. | July 27, 2011 at 5:45 pm

    Exactly. The socialist Hamsher is blasting them for now doing precisely what they were blasted for not doing a few years ago. And had they done it a few years ago she’d have blasted them for it then. I don’t understand why the good prof can’t see through that.

I agree with Hamsher on the broad point that this is troubling, but as others point out, I don’t believe that they are doing anything “illegal.” Also, they can issue all the credit ratings they want, it doesn’t mean the market will acknowledge them. Indeed, as an individual investor, a credit downgrade would be a tremendous opportunity. The USA is nowhere near insolvency, so a downgrade would mean higher yields on bonds and bills that have the same security. Win-win (except for the big institutional investors who are more concerned with capital appreciation than with yields, which is why they are huddling nervously with S&P and Moody’s).

As an aside, I absolutely do not believe Hamsher when she writes this: “And I would be saying the exact same thing no matter who was in the White House.”

I don’t understand your concern with the credit rating agencies. They are not rating the debt ceiling or, to my knowledge, interjecting themselves into the debate. They are rating the US debt and our ability to readily service it. They were held at fault by our govenment for not doing the same with the financial institutions. So now that they are doing their job, they are felt to be political. That does not make much sense. If the govenment feels so threatened by the credit agencies, then do what the rest of us do, stop spending money. If you are a liberal, then you might say that we should raise taxes, but at this stage, even that would not be of significant benefit. You might say that they are trying to pick the next president. But, again, if Obama was caught robing a bank, is it the fault of the cops for bring charges?

I see your point, and I don’t disagree.. however:
The job of these three ratings agencies was to forecast and price this (our) debt long before now, based on assumptions. It becomes political when they will not render an opinion for fear of reprisal by either side. They should have had ratings out based on forecasts 2 quarters ago for this quarter, and let the gov’t know then what needed to be done to maintain our AAA rating.
There is STILL no agreement between the agencies on what will happen if (insert scenario).
That is political, my friend

MaggotAtBroadAndWall | July 27, 2011 at 8:04 pm

Without taking any formal actions, the ratings agencies have been jawboning for years that the U.S. credit rating was at risk. They finally put the government on negative credit watch this year. That got the attention of Congress, especially the Democrats who have been trying to pretend that the debt was not an issue. And now that Congress is finally acting, people want to know how much spending needs to shrink (or taxes raised) to avoid a donwgrade. They said the magic number was $4 trillion. Now with competing plans emerging, the Boehner plan and the Reid plan, S&P says they favor the Reid plan.

I guess I’m dense, but I don’t understand how this is political or inappropriate.

We would not be in the mess we are in had Moody’s and the S & P done due diligence in the subprime mortgage security arena. But they didn’t, did they. So hundreds of thousands of Americans lost their retirements, their homes, their 401(K) plans because of it.

Now they are injecting themselves in an area where they are creating fear, which sends a thrill up Obama’s leg.

Never before can I remember those two groups taking such a political stance.

    William A. Jacobson in reply to retire05. | July 27, 2011 at 9:27 pm

    Exactly, they have allowed if not instigated a whispering campaign in favor of Obama’s $4 trillion “grand bargain” as the only thing that will stave off a downgrade, but now admit that is not true after everyone believes it to be true thereby giving Obama cover for an eventjual downgrade:

    “Deven Sharma, the president of Standard & Poor’s, said at a Congressional hearing that Congress did not have to cut at least $4 trillion in spending to avoid a downgrade. But he declined to say how large the spending cuts would have to be.

    “There has to be a credible plan,” Mr. Sharma told a panel of the House Financial Services Committee, The A.P. reported.

    via NY Times

Donald Douglas | July 27, 2011 at 9:54 pm

Ah, William, I think you’ve got a thing for old Jane!

S&P, Moody’s and others rate bonds and other investments to aid investors. Investors are not obliged to pay any attention to their ratings and often don’t.

The fact that the agencies were wrong about mortgage backed securities and various CDOs puts them in good company with the issuers and buyers of these securities and government regulators of every political stripe from every advanced country. They are not soothsayers. To suggest that because they were wrong along with just about everyone else about the real estate financing market over a decade (while ignoring everything they got right about tens of thousands of companies, governments and credit structures over many decades), they should not be permitted to advance an opinion about the credit of the world’s most important creditor is just preposterous.

Anyway, you and Jane have it backwards: S&P would be allowing politics to influence its rating responsibility if it did NOT rate US Treasuries and downgrade their ratings as the real financial soundness of the US indicates.

If they did not own us, it would not matter.

When rating agencies kock us down to AA how long before POTUS finds a fed judge who will order AAA restored?

[…] point out obvious facts, such as: Jane Hamsher doesn’t know jack shit about economics.UPDATE: Professor William Jacobson says it’s a rare thing when he agrees with Jane Hamsher — and it’s a rare thing when Professor Jacobson is so clearly wrong. Let me quote this […]

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