Aside from hysterical laughter, here are the key points:
- Obviously the US isn’t even close to insolvent. The gold in Fort Knox is held on the books at $37/ounce, for example. Most Federal lands are held on the books at 19th century valuations. Not to mention that the US’s debt is denominated in its own currency, which means it could simply be printed, and that the US government has a lot of unused room to tax, should it ever deign to use that on people with money, as opposed to those without.
- As everyone is pointing out, the idea that S&P, who rated all the subprime trash as AAA, has any credibility, is a joke.
- However, Obama and Democrats refused to destroy S&P when they had the opportunity and every reason to do so. The submprime crisis could not have been nearly as bad without S&P and the other rating’s agencies rating trash AAA so that investors who must buy AAA by law could do so. To put it simply, S&P engaged in systematic fraud. They, like everyone on Wall Street and in the major banks, have not been indicted for this. The choice to not indict is policy. Obama’s policy.
- If Obama did not want this to happen, it would not happen. Could you imagine what LBJ, Nixon or Truman (or, hell, Bush Jr.) would have done if a rating’s agency tried this? The President has the necessary tools to utterly destroy S&P and every senior analyst working for them. You could use terrorism statutes or RICO, just as two examples. Send the FBI into their offices, seize all the assets of both the company and everyone working for it, and then got through their records. I guarantee, as absolutely as the sun will rise tomorrow morning, that there is enough evidence of fraud in those records to put them away for life. In the meantime, RICO laws are used to seize all the assets of everyone involved, meaning they will be using public defenders (don’t like a bad law? Use it against real people.) When S&P informed the White House they were going to downgrade, the White House could have quietly let them know what the consequences would be.
- The US has effectively unlimited drawing rights from the IMF. Those drawing rights mean that if any of the core economies have an AAA rating, in effect, so does the US. (ie. if Germany is AAA, so is America.)
- S&P knows all this. They are doing this because they know the President and Congress and the real people in the oligarchy want it done. Remember, a downgrade increases rates, and that is a direct increase to their income. And they know the US can pay, they aren’t fooled by idiotic talk about a default. The US may default at some point, but that will be a political decision.
- This is another manufactured crisis, on top of the original manufactured debt ceiling crisis. The oligarchy wants the opportunity to buy federal assets at dimes on the dollar. They believe they don’t need the poor or middle class anymore, so they are good with getting rid of SS and Medicare. And Obama is, as he always has been, onside with this.
These people, are, however, playing with fire. Just because it’s a crisis that didn’t have to happen, a crisis, that is manufactured as another looting opportunity, doesn’t mean that it won’t have real consequences.
hm
The downgrade is pure BS, no doubt. But how could Obama shut down a private entity without being branded a fascist by Fox/WSJ? It seems any endrun like terrorism or RICO would produce a permanent political vulnerability. Even the threat of consequences would be leaked to Fox for sure.
As for the reasons why the downgrade came, I don’t think this is part of an intentional conspiracy to loot. It smells a little of politics and reeks of self-preservation, especially since the SEC was thinking about indicting S&P and Moody’s back in June. Now any pursuit of those civil fraud charges will be painted as revenge for the downgrade.
anon2525
Additional points:
1) If gov’t. debt is downgraded, then so are all of the institutions that hold that debt. S&P will be downgrading all of the large banks on Monday, right?
2) The U.S. Attorney General is a cabinet position that has the legal responsibility to prosecute those who break the law. Everyone knew who AG Alberto Gonzalez was (“I don’t recall…”). When was the last time AG Eric Holder prosecuted someone? Does he even show up at work? Will he ever prosecute Rove for his politicizing the U.S. attorneys general offices? Holder is a long-time D.C. creature (he served somewhere in the Clinton admin.) He is part of the class of people that are incompetent and corrupt. Obama has not accomplished all of his failure alone.
Jean Paul Marat
Relax… its coming to the USA. It may take some more time and a few more moves, but there will be bankster heads on a pike. Its all been played once before 476 AD.
Ghostwheel
Thank you so much, Ian, for standing for sanity in an insane world.
The media, the Fortune 500, the President, and the majority of Congress and the Supreme Court are all so far beyond the pale on so much it beggars the imagination.
And the final punchline is … it wouldn’t be too terribly difficult to put our ship back into order even this late in the game.
Oh, wait. I forgot. the oligarchy and the masses are on two separate ships. No need for them to waste resources getting ours in order, eh?
guest
I agree with hm and disagree with point #4. If the president tried to shut down S&P the Robert Mugabe comparison shrieking would be endless. On the other hand, I don’t necessarily think this was something that especially upsets the president or is contrary to his wishes.
Felix Salmon makes some good points about this, contrary to Ian’s point #1. This isn’t about solvency, it’s about the likelihood of default, which is undeniably a distinct possibility at some point in near-future debt ceiling hostage situations.
None of which gives the president, congress or the rating agencies any credibility. When no one has credibility and everyone is thoroughly corrupt, it’s really hard to argue about who acted on what motives (deliberate or reckless or deliberately reckless). In the end, I think the downgrade is appropriate, and given that fact, retaliation by president looking-forward-not-backwards would both out of character and nakedly obvious in it’s motivations. And there would be hell to pay.
anon2525
They are doing this because they know the President and Congress and the real people in the oligarchy want it done.
All a continuation of the 2000 election intervention. “If we can get away with this, what else can we get away with?” “Oh, hey, there’s no more Soviet Union, remember?” Attack a country. Attack another. Torture. Kidnap and torture. Spy on everyone. Lock people up forever on no charge. Torture them. Cut taxes on the wealthy. Cut them again. Steal another election. Run fraud in every country that has any money. Defund the regulators. Bail out our buddies when their fraud scheme crashes. Pretend it wasn’t fraud. Rig the markets. Force everyone to buy “insurance.” Attack an ally. Attack another country….
Ian Welsh
Is Fox ever going to say good things about Obama? Who cares what they say? It is true that if you go after S&P like that you probably also have to take out the money-center banks and Wall Street (or they’ll take you out), but so what? The power is there, for the first President who wants to use it. And I’m willing to be it’ll be popular. Remember, the reason you do them all at once is so most of their money, which is their leverage is frozen or seized.
RICO statutes, let alone terrorism laws, are really really abusive in America. You don’t have to prove shit, for years, and in the meantime all assets are frozen. And there isn’t a major bank in American (with the possible exception of Goldman) that isn’t insolvent, so you can shut them down any time you want through the FDIC. And when those banks are shut down, GS goes insolvent too, since it loses its counterparties.
The power is all there, all that is required is use the laws on the books, and enforce the laws on the books.
Ian Welsh
Hell to pay as compared to what? If one more ratings agency downgrades, do you know what happens to the world, let alone the US? Bend over and kiss your ass goodbye. This is a pure power play. We are not dealing with economics any more, we are dealing with naked power. And at the end of the day, the US has the men with the guns.
You folks need to stop worrying about what people say. Having bad things said is not the danger here, the danger is not being able to find enough food to feed yourself or your families.
anon2525
This isn’t about solvency, it’s about the likelihood of default, which is undeniably a distinct possibility at some point in near-future debt ceiling hostage situations.
Then S&P should downgrade all of the nations (China, Japan, Saudia Arabia, etc.) and banks that hold significant u.s. debt. Otherwise, it is a lie and a crime.
Default would have to be a choice. There is no reason–none–that the u.s. cannot pay off any and all debts denominated in its currency. It’s arguable that default would, in fact, be unconstitutional. But then I cannot even list all of the ways in which people in the u.s. gov’t. violate their oath to uphold the constitution and the laws of the country.
hm
How do you bust the banks at this point without massive contagion? Seems like a nuclear option, no? One that relies on the assumption that armageddon is inevitable?
As for what people say, I wouldn’t care normally, but painting Obama as a Kenyan Muslim socialist radical has been an incredibly effective political strategy. Pull a RICO and suddenly Glenn Beck becomes a mainstream hero.
If Obama wanted to, he could have exercised real leadership before the midterms, and it would have been popular. But he was either indecisive, a coward, or a fool, or all three, and now he is totally short-stacked.
(I think the SEC should go ahead with the civil fraud charges anyway.)
Notorious P.A.T.
“But how could Obama shut down a private entity without being branded a fascist by Fox/WSJ? ”
Again with “the media is enemy #1”? Don’t people ever get tired of this?
A person who doesn’t do what should be done because they are afraid of being criticized by a media outlet is beyond pathetic.
I would think that with Rupert Murdoch being raked over the coals, forced to fire trusted consiglieres and close down one of his precious newspapers, that this idea people have of him as a modern-day Zeus would diminish, but I guess I’d be wrong.
anon2525
“But how could Obama shut down a private entity without being branded a fascist by Fox/WSJ?”
I would think that with Rupert Murdoch being raked over the coals, forced to fire trusted consiglieres and close down one of his precious newspapers…
And there is Shirley Sherrod, ACORN, their general reputation as a house organ for the republs, and so on. Who would take them seriously? Besides the craven obama-ites who took them seriously in those previous incidents, I mean.
Ian Welsh
The FDIC taken over banks just keep lending, and if there’s any problems along the way, the Fed just steps in and does the lending directly. If they can bail banks out for trillions, they can keep businesses and ordinary people running just fine. I wrote about how to do this extensively in 2008 and early 09 (mostly at FDL.)
The banks ARE the problem. They must be taken over or neutered. The economy will not have a sustained recovery till they do. Period.
groo
@Hm
…being branded a fascist by Fox/WSJ? …
probably you meant ‘communist’.
A ‘fascist’ he is already.
“…Spanish Falangist leader José Antonio Primo de Rivera said: “basically the Right stands for the maintenance of an economic structure, albeit an unjust one, while the Left stands for the attempt to subvert that economic structure, even though the subversion thereof would entail the destruction of much that was worthwhile”. …”
(wikipedia-fascism)
Anyway.
Its a word which has so many meanings now that it is not of much value.
Putting my stragetist hat on:
The downgrade is just a signal from the PTB that the ‘compromise’ is insufficient. More push to austerity is needed.
Btw, this is the same in all western nations in trouble.
There seems to be an ‘invisible hand’ in the background, and its not the mythical market-force.
Connect the dots
a) no tax increase on the rich
b) no (significant) cut in military spending
c) no closing of tax loopholes for corporations and HNW individuals (tax-holiday scam)
d) privatization as ‘solution’
and you see …
Well, its not that the emperor has no clothes, but that the wolf in sheep-clothing has to be reconstructed by the frightened child, by adding up all the attributes (big mouth , big teeth), and the wolf just does some -ahem- explaining, why he looks the way he does.
So much for the wisdom of fairy tales.
Actually its a pack of wolfes, and they prey in concert.
It is the darkness, the hiding, which is the equivalent of the sheep-cloth, where the frightened prey looks into the darkness, to interpret some eyes glowing, as an attribute of the whole, and occasionally happily goes to sleep, convinced it is only a halluzination.
There has been a very thorough investigation by some German investigative journalist, as to WHO OWNS the rating agencies, which probably is unknown in the US, and rivals some of Matt Taibbis best works.
It is mostly French (Moodys, but I have to look) and US banks and corporations.
So its NOT some independent institutions, who do the rating, but some tightly aligned corporate and financial interest, who have, as their sockpuppets, the rating agencies.
If there is some interest, I would do make some translations of the core findings.
groo
Note.
I apologize for the use of drastic/colourful metaphors, but I see no other way (for me).
One can do more bad than good by using the wrong metaphors.
My other persona is quite rational.
See e.g. my rational peer Stuart Staniford .
http://earlywarn.blogspot.com/
Different minds have different approaches to the -hopefully- same conclusion.
Which is not a point, but an area of human inhabitability.
The inverse of that one can find in Tarkovsky ‘Stalker’.
Tarkovsky actually anticipated Tschernobyl.
That which Tarkovsky did NOT anticipate is the inverse, which gains more and mor probability:
a mostly uninhabitable planet, ‘explored’ by the rich and powerful from their cozy homes.
Some islands, which they have acquired.
Being tourists into dangerous territories, and their mindset even extracts some pleasure out of that.
This is the potential (near and quite far) future.
Reducing 99% of the global population to zoo-animals.
And if it maximizes pleasure, why not shoot some of them down.
‘God’ is definitely on their side.
Same as it ever was.
Its just a definition, of what an ‘animal’ is.
God and the superiors manage that.
Sorry.
How come, that I digressed from an S&P rating to the ‘meaning of life’ ?
That’s my problem.
Going back to my recluse, doing some weeping.
Tomorrow everything will be sunny again!
Lisa Simeone
Are you kidding? He’s too busy prosecuting whistleblowers, such as Tim DeChristopher, Bradley Manning, Carlos Montes, Tracy Molm, Hatem Abuddayeh, on and on, to be bothered with prosecuting actual criminals.
groo
This is a tiny part of an important article by investigative journalist Werner Rügemer , who calls himself „interventionist Philosopher“, a term I like a lot.
(http://de.wikipedia.org/wiki/Werner_R%C3%BCgemer)
OK. Lets start:
==============
—Rating agencies, a deeply corrupted system—
(Werner Rügemer, Junge Welt, 2010-10-11, original article behind a paywall)
Quick and dirty translation by me. Pardon any errors in detail.
So here it goes:
———-
…
Paul Krugman calls the ‘Agencies a ‘deeply corrupted system’.
Why do not only financial actors and private companies, but also states make themselves dependent from such a system?
Why do they not simply abandon them?
…part of the ‘new deal’ (>1930) was the establishment of the first regulatory body of the capitalist world,the SEC.
It gave licences to private entities (Wirtschaftsprüfungsgesellschaften,) whose task was to check the correctness of the bilancing of banks and corporations.
…
1975 the SEC licensed in a non-public-action (‘Verfahren’) seven agencies, from whom three agencies emerged — Standard & Poor’s, Moody’s and Fitch — als Nationally Recognised Statistical Rating Organisations (NRSRO). They therefore received a decisive and exclusive watchdog-function in the US-financial system.
At the same time the SEC weakened its own control function, and allowed the close commercial connection of the agencies to the creditors and emittents of securities.
From 1975 on, the rating agencies are paid by those who are evaluated.
…
…
in the course of ‘globalization’ the USA pressured for global functions of the three rating agencies.
In ‘Basel I’ it was determined, that securities (worldwide) would be valued by the three rating agencies. …
in Basel II (1999) the ratings became the global standard for the base capital of the banks, to avoid risky credits.
Since 2007 the EU makes itself dependent on the rating by the US-licensed agencies of their member states.
…
…
…
Are the agencies so independent as they pretend to be?
..
Who are the proprietors?
…
S&P belongs to McGraw hill.
…so lets follow that.
…S&P…
was bought 1966 by McGraw Hill, and was integrated into the largest network of institutional speculators of the world and Wall street Street (Blackrock, Capital World Investors, Fidelity, Vanguard, State Street, Morgan Stanley)
…
S&P closeley cooperates with governments, and, if needed, also against them.
So was McGraw Hill Chief Executive Harold McGraw advisor to GW Bush.
As the Obama government wanted to limit the speculation with commodities, S&P immediately helped the investors, to circumvent the new regulations on the spot-markets.
…
———————
Note:
This is just a small fraction of the whole. Maybe 10%-20%.
Morocco Bama
groo, you’re right on it….and please, please, please, don’t drop the metaphors. Life’s not worth living without them.
Reducing 99% of the global population to zoo-animals.
Yes, a nice twist on Vonnegut’s Slaughterhouse Five Tralfamadore sub-plot.
Except, it’s no longer metaphor. I have a theory about that. It’s my version of the Singularity. It’s where metaphor and reality merge, where satire and reality merge, where any derivative notion of reality is now reality…..they have merged as one, and rendered any derivative mechanisms redundant and irrelevant. In that sense, I suppose my vain atte,pts at satire are entirely useless, and a previous commentator is correct, what I deposited wasn’t satire because satire no longer has any meaning beyond the literal.
I’m sorry if this all sounds homophobic, I can’t help it, I’m a yucky, yucky homophobe. I know that about myself, and I have accepted it. My fear of beasteality overwhelms me at times. I know I shouldn’t fear it, that I should lay back and enjoy it, but I can’t help myself. I’m working on it, though, and with proper focus and determination, I know that one day I will come to accept beasteality as something to embrace and enjoy. 🙂
Morocco Bama
Exactly, Lisa, Holder has been quite active. I would hardly call him incompetent….nor corrupt. He is doing exactly what has been expected of him. These are his morals and scruples….or lack thereof. There was no corruption. Twas always this way.
CanuckStuckInMuck
Ian,
How can a (mostly) reassuring post like this one of yours on which I’m commenting end up making me feel like I’m being dragged through the streets behind a stolen black SUV driven by Wall Street whores?
groo
second part:
…
The US of A had insisted on Basel II, but did not implement it themselves.
The goal: to institute the agencies as a global body of regulation, has been reached.
So the US of A and the financial actors ignited a second stage for the financial crisis.
Nothing harmed the good name of the agencies.
2001, with the Enron scandal, the company was protected by the Bush administration, with best ratings until four days of their bankruptcy.
…
The agencies got under pressure…
The SEC stated that it is not objective, but guided by their own profit-interests
//(note: this is the correct translation, but I doubt that anybody said that this bluntly)
But carefully read the wording in any case.
In the other case: Just trust me.//
Profit-oriented Regulation.
…2002 Sarbans-Oxley act
…
Credit Rating Agency Reform Act abounds in cheap rhethoric:
responsibility, transparency, competition etc.
From that on, the rating agencies have to undergo a formal procedure.
Before that, the SEC could hand out the licenses freehandedly.
Since 2007 seven agencies received a license.
But this did not change the dominance of the Big Three, who dominated 95% of the rating business.
——–
end of the second part.
Morocco Bama
It smells a little of politics and reeks of self-preservation, especially since the SEC was thinking about indicting S&P and Moody’s back in June. Now any pursuit of those civil fraud charges will be painted as revenge for the downgrade.
What? The SEC? Are you serious? You imply that the SEC is somehow above the fray in all of this? You have to be joking, right? The SEC is part of it, for Christ’s Sake. Think of them as the police in relation to the drug trade. They bully the easy targets or the threat to the Big Dog Crooks, and take their kickbacks accordingly. If we can’t agree on a basic fact like this, no change will ever come about. Institutions, Government or otherwise, have failed “Us”, but they haven’t failed their core mission which was always to fail us, yet pretend otherwise.
groo
…As a result is has to be stated, that the core error of the reform of the US-financial system by Roosevelt 1930 has been, to not instate a regulatory body by the state, but to leave it to private
self-regulation, and the connection to the banks.
The state is thus complicit.
The same applies to the private rating agencies, who got statelike authority during the new deal, and perverted it.
———-
end of the third part
This is as short as it is hard to swallow.
watch out!
It gets worse!
groo
it goes on:
Second:
the propagandists of deregulation themselves established a regulatory instance , which is both powerful and mighty and corrupt.Which shows, that the loudmouthed proponents of regulation in no way propose regulation, but push for a regulation, which they themselves can dominate.
Third:
The three Agencies are visibly and invisibly integrated into the network of US-financial actors, and therefore integrated as active elements of the capitalist crisis-centre.
———
end of the fourth part.
Hope You see the power of Rügemers argument, which is not mine.
I’m just the messenger.
Him not knowing yet. But this is not a copyright issue anyhow.
So I actually do not care, and he surely does not either.
Petro
emptywheel has some sobering thoughts, and interesting links, on this as well.
(‘Tho I’m sure most of us check in with her without my help…)
groo
The second most important agency:
Moodys.
…
It does not belong to a corporation like S&P, but is structured along the same pattern.
It operates not only out of financial tax havens (Delaware, Virgin Islands) , evaluates banks, Vermögensverwalter, States, but also sells advice.
The owners are partly the same as S&P: (Capital World Investors, Fidelity, Vanguard Group, State Street and Investmentbank Morgan Stanley).
Main proprietor is Warren Buffet.
…
Now to the third agency…
End of the fifth part.
groo
Fitch ratings.
The situation is somehow different…
It belongs to US-connected French big-capital, closely related to the french elite.
Fimalac, fouded by Marc Ladreit de Lacharrière, Absolvent of the Ecole Nationale d’Administration, with 74% of the shares and 87% of the voting rights.
Lacharrière was until 1991 Vizepresident of the french Concern L’ Oreal, member of the french central bank, Renault/Nissan, Supermarket-chain Casino Guichard Perrachon, TV-Conzern Canal Plus and presides the trust of Liliane Bettencourt. Several years president of the french Bilderberg-Sektion.
With ‘American Friends of the Louvre’ and ‘France Museums’ he wants to globalize french high culture (e.g. Louvre in Abu Dhabi).
You see?
End of the sixth part.
groo
Fimalac holds the majority on the Fitch group.
A minority belongs to the US corporation ‘Hearst’
Insofar the burgeois french Fimalac and the closed-mouth US-entity are both exponents of intransparency.
…
(sorry to interrupt, but I am only half-way through, and left a lot out already.)
There would be at least ten further installments on what is going on.
but…
You guess.
My 1st life.
but…
This is of such utter importance, that I actually challenge my 1rst life.
StewartM
anon2525:
All a continuation of the 2000 election intervention. “If we can get away with this, what else can we get away with?” “Oh, hey, there’s no more Soviet Union, remember?” Attack a country. Attack another. Torture. Kidnap and torture. Spy on everyone. Lock people up forever on no charge. Torture them. Cut taxes on the wealthy. Cut them again. Steal another election. Run fraud in every country that has any money. Defund the regulators. Bail out our buddies when their fraud scheme crashes. Pretend it wasn’t fraud. Rig the markets. Force everyone to buy “insurance.” Attack an ally. Attack another country….
The Soviets and Communism (for us, at least) could be reckoned a useful thing, because a competing vision of how the world should work (even though they didn’t practice what they preached) proved to be a useful check.
Even then, though, our oligarchs exacted a price in bloated defense budget.
-StewartM
Everythings Jake
Here’s a “shock” from a new report by the Brookings Institution:
“A key sector that is no longer expected to boost the recovery is government. “The metropolitan areas that suffered least since the beginning of the recession typically had increases in the number of government jobs,” the Brookings report states. Many state and local governments are shedding employees to cope with budget shortfalls.”
http://www.msnbc.msn.com/id/44022995/ns/business-us_business/
anon2525
Even then, though, our oligarchs exacted a price in bloated defense budget.
Then there were tax rates that required the oligarchs to pay for their military budget, and to pay for the cost of the military expenditures of the second world war. This is a clear distinction between the New Deal democrats who voted to go to war and pay for the cost afterwards and the bush/cheney republs who sent the military to attack other countries, but voted not only not to pay for the military operations, but to reduce the share that the oligarchs would pay for those operations.
Morocco Bama
Nice analysis from Lenin’s Tomb. Here’s a taste. It’s close….very close.
http://leninology.blogspot.com/2011/08/still-not-good-enough-apparently.html
There’s only one way out of this for us Plebes. Vote. We need to vote….at least fifteen times a day, on our knees with absolute contrition….and then maybe, just maybe, our votes will be answered.
The Truth Fairy
One thing the government could do immediately to help it’s citizens is to limit consumer credit interest to a maximum rate of 15%. This would be half of the common upper rate of 29.9% on most “high risk” or even nominal risk, cardholders. This would put more money in consumers pockets, help pay down the debt overhang fastr and not cost taxpayer as a whole a cent. 15% is still usury but it’s slightly higher than the default hazard rate.
anon2525
One thing the government could do immediately to help it’s citizens is to limit consumer credit interest to a maximum rate of 15%
Along these same lines, Ellen Brown has, among others, written proposals for setting up state banks in each of the states (at present, only North Dakota has such a bank). The interest from the loans that these banks make would be paid to the state instead of to private capital. The interest rates could be lower or comparable to private banks. This could be used to fund all state projects, saving the taxpayers of each state a considerable amount of money:
Public Banking Institute
guest
Ian Welsh PERMALINK*
August 6, 2011
Hell to pay as compared to what? If one more ratings agency downgrades, do you know what happens to the world, let alone the US? Bend over and kiss your ass goodbye.
***************************************
Hell to pay with the Versailles villagers (Mrs Greenspan et al). Not with me. And Obama is first and foremost concerned with his financial backers, and secondly with the “village” opinion makers. I don’t think they have the forethought to imagine the consequences we are heading for. And besides, they and their class will come out on top, no matter what.