Some thoughts on the S&P

First and foremost-they are in no position to judge. These are the same goons who who rated subprime-backed securities as just fine and dandy. Now they think they they are qualified to pass judgement on US fiscal policy? Really?

Second, as has widely been reported-they had their numbers wildly wrong. But they went ahead with the down grade anyway.  That should cause a serious observer-which leaves out virtually all of the tri corner hat wearing brigade of thugs-to question the accuracy of their other judgements.

That all said-as Felix Salmon points out over at Reuters, there is a valid gem of truth in what they are saying. 1) The GOP through its continued intransigence and willingness to hold sacrosanct promise to Grover Norquist, while not holding true on promises to the average American-has turned its back on the easiest and most viable of deficit solutions:repeal of the poorly thought out and horrible Bush tax cuts. 2) They can see what the rest of us can too-there is a certain segment of our politics today that is hell bent on destroying the economy and destroying average Americans-just so they can destroy and delegitimize Barak Obama. Dennis, over at John Cole’s place summed up their view point rather nicely:

This is especially true of the Republican Party which has been taken over by neo-Confederates. Like their fore-bearers of old, this modern Republcan Confederate Party would rather blow up the Nation than compromise on any item that might harm the oligarchs running the con. Then, as now, it was about money and the right of the few to steal the labor of others while passing on the cost of their corruption to the majority. Then, as now, they built their political world view upon a foundation of magical thinking, fear and hate. And then, as now, they would do anything and everything to destroy the President of the United States. Then it was Abraham Lincoln. Now it is Barack Obama.

I had an email the other day from Dan, a BJ reader, who mentioned that the current debt crisis was “economic Fort Sumter” for our 21st Century Republcan Confederate Party. There is some truth to that. The first half of 1861 was a time when Confederates were convinced that they shit gold and spat fire. They were certain that when they acted the rest of the Nation and the World would follow their script. Compromise—or even giving President Lincoln a fair hearing—was out of the question. The only path was the path of Confederate fantasy and so the War came. Shots were fired on Fort Sumter, but things did not go according to plan.

History repeats as an echo with Wingnutopia and the Confederates in the 112th Congress. Once again, they are convinced that their fantasies are bold and true and that they must tear the Nation apart to “save it”. This time, the hostage isn’t a Fort in Charleston Harbor—it is the economy. Once again, they are convince if they pull the trigger, everybody will fall in line. These modern Confederates are just as crazy as their 1861 role models. You can tell how crazy they are by their auto-hostility to any hint of compromise—especially if the compromise has anything to do with that Black man in the White House.

As I have pointed out before, the batshit crazy folks leading the charge,  by and large, think they themselves have nothing to lose as a result of the ensuing economic carnage. They see themselves as safe in their jobs and homes-and truly believe that nothing bad will happen to them as a result of their own stupidity. Behaving irresponsibly though, will finally stick it to the “moochers” who they truly view as “stealing from them” since they view tax revenues as organized theft-rather than the pooling of resources for the purposes of accomplishing a greater good for the common populace. It is one reason they are so fixated on tax cuts-tax cuts for the rich. Tax cuts for ordinary workers, many of whom will be those hated lucky duckies whose incomes are too low to pay income tax, are if anything something tebaggers dislike.

Which brings us back to the S& P and its clear language chastising the GOP for failing to consider tax cut repeal: “We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.”  Felix Salmon , however points out the fear of irrational behavior on the part of our government runs much deeper than that-because some people just love to play with matches:

Firstly, talk of debt-to-GDP ratios and the like is a distraction. You can gussy up your downgrade rationale with as many numbers as you like, but at heart it’s a political decision, not an econometric one.

Secondly, the US does not deserve a triple-A rating, and the reason has nothing whatsoever to do with its debt ratios. America’s ability to pay is neither here nor there: the problem is its willingness to pay. And there’s a serious constituency of powerful people in Congress who are perfectly willing and even eager to drive the US into default. The Tea Party is fully cognizant that it has been given a bazooka, and it’s just itching to pull the trigger. There’s no good reason to believe that won’t happen at some point.

Finally, it’s impossible to view any S&P downgrade without at the same time considering the highly fraught and complex relationship between the US government and the ratings agencies. The ratings agencies are reliant on the US government in many ways, and would be ill-advised to needlessly annoy the powers that be. On the other hand, the government has been criticizing them harshly for failing to downgrade mortgage-backed securities even when they could see that there were serious credit concerns. So by that measure they have to downgrade the US: the default concerns we saw during the debt-ceiling debate were real and can’t be ignored.[…]

Thus, there is a case for the S&P’s logic. Nothing, it seems, will get the attention of our radicalized group of tea swilling zealots. And the outlook for the next year is even more dismal-given the backdrop of a Presidential election and all the attendant craziness associated with one. You thought 2008 was bad? 2012 will make Palin’s lies and the hysteria associated with her rallies seem tame in comparison. Expect large numbers of monkey signs, an upward tick in the sales of confederate flags, and dynamite sales of “2nd Amendment solution” bumper stickers. It is only right for rational people to despair that the government will do anything useful long term. And if the GOP wins in 2012-they will set out with glee on the dismantling of any evidence of progress the country has made in the last 100 years-so adamant is their desire to return us all to the gilded age of 1896 and life expectancies of 48 years.

But such talk by S&P ignores the very real fact that they are biting the hand that feeds them. During the housing bubble they fed the beast that nearly destroyed us:

All of this is true. Standard Poor’s didn’t just miss the bubble. They helped cause it. They were paid by the banks to award their AAA-stamp of approval to all manner of financial products that were anything but riskless — which, ironically, makes them an accessory to the resulting explosion of U.S. debt. You’ve heard the old joke about chutzpah being a young man who murders his parents and then pleads for leniency because he’s an orphan? S&P has chutzpah. All the credit-rating agencies do. It’s built into their business, which requires them to assess the stability of markets they helped crash. It’s long been my position that the credit-rating agency model is broken and, at times, dangerous, and investors need to pay less attention to their pronouncements and policy needs to do deemphasize their role in the system.

Unfortunately what is done is done-and they will not undo it, no matter how much the adminstration whines about the faultiness of their model, the capriciousness with which they make decisions,  or their beholdeness to the wealthy who helped create this mess-and then were bailed out 100 cents on the dollar when they guessed wrong. And still, three years later-not one major investment banker is behind bars.

In the end though-we have only ourselves to blame. For not being informed enough to make intelligent decisions at the ballot box-which in turn allowed a bunch spoiled, fat, selfish children to take seats in a government they do not work for and most decidedly do not belong in. The results were predictable -and ones I have been warning my readers about since 2009. My favorite news magazine sums it up nicely:

Investors largely tuned out the debt-ceiling debate until its final days out of a belief based on long experience that for all the antics and rhetoric of the Tea Party, the people who actually run Capitol Hill would never compromise the country’s credit worthiness. After all, it was Mr Boehner who reminded his freshmen colleagues that on the debt ceiling they’d have to act like “adults.”

That is not what happened. As the fight dragged on, the leadership moved closer to the Tea Party, not the other way around. And they seem happy with the results. Why else would Mitch McConnell have promised on August 1^st to do exactly the same the next time the debt ceiling must be raised?

It is striking that the proponents of this strategy seem so oblivious to its impact. Our economy is lubricated by a sophisticated and stable credit market whose most vital component is also the most ephemeral: trust. As the crisis amply demonstrated, when trust erodes, the system freezes up. America has built a reputation for responsible and credible management of its finances over the centuries, and that reputation has been reduced to a political football, like a federal judgeship. Henceforth a foreign pension fund or central bank that once mindlessly ploughed his spare cash into Treasurys will have to think twice.

This actually could be a useful turning point-and a point from which the country goes forward intelligently. Sadly, we won’t. The 20% of us who true believers in selfishness-will not allow it. I’m not sure what it is going to take-short of a Louisville Slugger to the forehead or destroying them financially- to get their attention. They are that determined not to learn.