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BlueStateMan On August - 8 - 2011

S&P CEO Deven Sharma; Moody's CEO Raymond McDaniel; Fitch CEO Steven Joynt

Although Standard & Poors publicly stated reasons behind their decision to downgrade the credit rating of the United States from “AAA” to “AA+” were correct in as much as the handling of the phony debt-ceiling crisis, it was also illustrative of a serious systemic problem existent in the Republican Party.

As S&P wrote in their release:

“The political brinksmanship [of the GOP] of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.”

“It appears that for now, new revenues have dropped down on the menu of policy options.”

“The act contains no measures to raise taxes or otherwise enhance revenues”.

“Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 [Bush] tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues.”

Succinct and without reservation… all well and good (if you could call it that)… yet one wonders where they were just a short time ago when they were lobbying Congress and the Obama Administration to relax (translate: “ignore”) the provisions of the “DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT”… a piece of legislation that was spurred by, amongst other things, the malfeasance of (you guessed it) STANDARD & POORS and the two other large credit rating agencies.

“Conflict of interest” anyone??

The derivates market collapse was amplified by these VERY ratings agencies which rated complex subprime vehicles like CDOs  and SIVs VERY HIGHLY…

JUST like they gave THAILAND an INVESTMENT GRADE RATING until 5 months AFTER the Asian financial crisis…

JUST like they gave ENRON investment grades until DAYS before its BANKRUPTCY…

Just like …  hell, S&P actually thought that the “Alan Keyes/Mike Gravel ’08” ticket would win the White House (would YOU take advice from such a gaggle of delusionals?).

How common were their poor ratings?

Over 90% of the AAA ratings given to subprime securities in 2006 and 2007 were later DOWNGRADED TO JUNK STATUS.  These rapid, last-minute downgrades shattered investor confidence and triggered the market collapse.

Moody’s, Fitch and S&P KNEW these products didn’t deserve high ratings and that providing them was something between NEGLIGENCE and FRAUD, but, apparently money calms the conscience.

Moody’s and S&P were PAID TO RATE PRODUCTS by the VERY FIRMS who would PROFIT from their ratings.

No high ratings, no business.

This “conflict of interest” became a “confluence of opportunity” as most conversations between the issuers and the raters went like this:

“I want to sell this pile of SHIT.  I’ll give you a million dollars to decide what it’s worth.”

“Hey everybody!  Hurry up and buy this lumpy brown gold!”

It’s just like when ARTHUR ANDERSON was paid by ENRON to audit and approve Enron’s accounting scams.

Two differences: Arthur Andersen was DISSOLVED for being an ACCOMPLICE TO FRAUD and when Enron eventually collapsed, it only ruined Houston.

Even still.. even after the downgrade, their lobbyists are scurrying around Washington like tidal wave of cockroaches trying to castrate the safeguards that would have prevented the collapse.

For those who need a “refresher”, here’s a brief recap of the major provisions of “Dodd-Frank” which was enacted last year when the Democrats still controlled the House of Representatives:

1. Ends Too Big to Fail Bailouts:

Ends the possibility that taxpayers will be asked to write a check to bail out financial firms that threaten the economy by: creating a safe way to liquidate failed financial firms; imposing tough new capital and leverage requirements that make it undesirable to get too big; updating the Fed’s authority to allow system-wide support but no longer prop up individual firms; and establishing rigorous standards and supervision to protect the economy and American consumers, investors and businesses.

2. Advance Warning System:

Creates a council to identify and address systemic risks posed by large, complex companies, products, and activities before they threaten the stability of the economy.

3. Transparency & Accountability for Exotic Instruments:

Eliminates loopholes that allow risky and abusive practices to go on unnoticed and unregulated — including loopholes for over-the-counter derivatives, asset-backed securities, hedge funds, mortgage brokers and payday lenders.

4. Executive Compensation and Corporate Governance:

Provides shareholders with a say on pay and corporate affairs with a non-binding vote on executive compensation and golden parachutes.

5. Protects Investors:

Provides tough new rules for transparency and accountability for credit rating agencies to protect investors and businesses.

6. Enforces Regulations on the Books:

Strengthens oversight and empowers regulators to aggressively pursue financial fraud, conflicts of interest and manipulation of the system that benefits special interests at the expense of American families and businesses.

7. CREATE A STRONG CONSUMER FINANCIAL PROTECTION WATCHDOG;

(a) The Consumer Financial Protection Bureau:

Independent Head: Led by an independent director appointed by the President and confirmed by the Senate.  (This WAS to be Liz Warren.. but the the GOP House quashed her appointment).

(b) Independent Budget:

Dedicated budget paid by the Federal Reserve system.

(c) Independent Rule Writing:

Able to autonomously write rules for consumer protections governing all financial institutions – banks and non-banks – offering consumer financial services or products.

(d) Examination and Enforcement:

Authority to examine and enforce regulations for banks and credit unions with assets of over $10 billion and all mortgage-related businesses (lenders, servicers, mortgage brokers, and foreclosure scam operators), payday      lenders, and student lenders as well as other non- bank financial companies that are large, such as debt collectors and consumer reporting agencies. Banks and Credit Unions with assets of $10 billion or less will be examined for consumer complaints by the appropriate regulator.

(e) Consumer Protections:

Consolidates and strengthens consumer protection responsibilities currently handled by the Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Deposit Insurance Corporation, Federal Reserve, National Credit Union Administration, the Department of Housing and Urban Development, and Federal Trade Commission.

Heavens to BETSY!!!

We can’t have any of THAT, can we… why it’s.. it’s  {{{{gasp}}}} SOCIALISM!!!!

As Bernie Sanders quipped, “”I find it interesting to see S&P so vigilant now in downgrading the U.S. credit rating. Where were they four years ago when they, and other credit rating agencies, helped cause this horrendous recession by providing AAA ratings to worthless sub-prime mortgage securities on behalf of Wall Street investment firms”?

Well… they were busy colluding with the Bush Administration to extend the tax-cuts for the rich, the “Investment Banks”, hedge fund managers, sub-prime lenders, derivatives pushers and other credit ratings outfits like Moodys and Fitch to bilk the WORLD ECONOMY out of  TRILLIONS.

They succeeded.

33 Responses so far.

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  1. BlueStateMan says:

    ADDENDUM:

    William Black, former bank regulator and attorney specializing in white-collar crime says it best.

    “Standard & Poors and their sister organizations were absolutely essential in creating this crisis by giving AAA ratings to stuff that was called in the trade, “toxic waste”… and which the trade organization, The Mortgage Bankers Association’s Anti-Fraud Unit called “Liars Loans”.. an open invitation to the fraudsters. They sad that 90% of these ‘Liars Loans’ were fraudulent.

    By 2006 in the United States, roughly 1% of these were “Liars Loans”.. and S&P, Fitch, Moody’s all gave “AAA” ratings to every single one of the top installments of those issuances.

    So if you don’t understand those lies by S&P, you don’t understand the crisis itself.

    Attorney General Holder has continued Bush Attorney General Caseys policy that you can defraud the United States of America with impunity if you are politically powerful and make large political contributions. It was fraud and it is prosecutable.

    In the Savings & Loan crisis which was caused for very similar actions, we were able to convict over 1000 elite business people on felony charges and it is a scandal that we haven’t done it here in this instance.

    How do we fix this?

    The first thing we need to do is to stop lying.

    When this crisis hit we didn’t just bail them out, we hid it off the balance sheets.

    We own, for example, 79.9% of Fannie and Freddie so we don’t have to consolidate their debt into the United States for recognition purposes.. and that is a pure scam.

    Instead, we changed accounting rules so the banks didn’t have to recognize these losses… which only allowed losses to fester and made them bigger… meaning that you have all of these major zombie institutions like Bank of America going around committing one fraud after another in the foreclosure process.

    So now, you’ve got pervasive fraud that caused the crisis.. and the government responds to this fraud with it’s own fraud… lying about things as well…. Geithner going around for 3 years now roughly saying “Boy, I solved the entire crisis by using smoke and mirrors”.

    Well, the markets are telling us you didn’t solve the problem.

    We need to remember that the original Stimulus Bill had one of rarest of rarities… a good republican idea.. adopted by President Obama.

    “Revenue Sharing”.

    Everybody knew that there was a crisis coming and it was critical that the Federal Government to fund it.

    That was in the Bill.

    Republicans and BlueDog Democrats insisted on killing it…. and in typical milquetoast tradition, The Obama Administration gave up without a fight.

    In a single day.”

    • Emerald1943 says:

      Thanks, BSM! This is pretty complicated stuff to my feeble brain. But you did mention something that has bothered me for a long time, Eric Holder. He has been a huge disappointment.

      On several different occasions and on several different cases, he has announced investigtions or special prosecutors. Then….crickets again! Nothing ever happens except letting people off the hook.

      Remember when it was discovered that someone at the CIA had destroyed those torture videotapes? Nothing happened except a little Friday afternoon announcement that there would be no prosecutions.

      There were a number of things like this. IMO, he has really fallen down on the job. I thought he would be a good man but he has done next to nothing as AG!

  2. SueInCa says:

    Two differences: Arthur Andersen was DISSOLVED for being an ACCOMPLICE TO FRAUD and when Enron eventually collapsed, it only ruined Houston.

    Actually, BSM Arthur Anderson was merely morphed into Anderson with 200 employees in Chicago. They mainly handle the myriad of lawsuits that evolved out of the Enron scandal. Accenture which separated from AA in 2001 on New years day is alive and well with 225,000 employees in 120 countries.
    Arthur Anderson’s conviction was overturned by the supreme court leaving them open to re-establishing their business however the damage to their reputation was too deep.

    Enron on the other hand ruined more than Houston. PG&E on the west coast had to file for Bankruptcy protection because of Enron.

  3. SueInCa says:

    It is really very simple. S&P does what is advantageous to them. Don’t be surprised if some of their BOD or Management team are positioned to win on this downgrade. One of them is Linda Koch Lorimer who left Sprint after a class action filing charging fidiciary neglect with regard to company stock plans. What better place to go next than Yale? The breeding ground for republicans.

    It is amazing to me the MSM wants to make themselves look so stupid not to make the connection to S&P during the housing bubble and S&P now. HP finally picked up on it today.

  4. ADONAI says:

    Still not worried.

    America is too big to fail.

    • BlueStateMan says:

      It isn’t too big to turn to shit.

      • ADONAI says:

        It is too big to stay there for very long.

        • BlueStateMan says:

          See:

          British Empire
          Mongol Empire
          Russian Empire
          Spanish Empire
          Qing Empire, China
          Yuan Dynasty
          Umayyad Caliphate
          Second French Colonial Empire
          Abbasid Caliphate
          Portuguese Empire
          Rashidun Caliphate
          Empire of Brazil
          Achaemenid Empire, Persia
          Japanese Empire
          Han Empire, China
          Ming Empire, China
          Roman Empire
          Nazi Germany
          Empire of Alexander

          • Khirad says:

            And alas, many of those places are still alive and kicking under new, better management.

          • ADONAI says:

            We’re not an empire. Or a Caliphate.

            We’re a democratic republic. We control our future. Not the whims of a mad tyrant.

            • BlueStateMan says:

              I’m not seeking it… I’m making an observation.

            • ADONAI says:

              If that’s your view, then why do you care so much?

              And I didn’t put democratic republic in quotation marks.

              Cause we actually are one. Not an imitation.

              You seek to take power from the hands of the people. I fight to give them more.

            • BlueStateMan says:

              We control nothing, my friend… we are the ones who ARE controlled.

              Weimar Germany was a “democratic republic” as well.

  5. BlueStateMan says:

    oldpol2..

    They are still colluding (now more than ever.. albeit in a ‘stealth mode’ that the B-1 would be envious of).

    … and this is EXACTLY what the neocons / neolibs wanted to happen.

    The Plutocrats and Oligarchs have been hoarding as much currency as possible without re-injecting any into circulation, deliberately depressing our economy while simultaneously offshoring as many American jobs as possible.

    The goal?

    The virtual elimination of the middle class and its replacement with a permanent underclass comprised of indentured servants… mired in debt without a snowballs chance in hell of ever getting out of it… the greatest gap between rich and poor since the Gilded Age.

    All the while continuing their concerted efforts to bust as many unions (both public and private) as they possibly can.

    Milton Freidmans wettest of dreams.

    They’re almost there… but the momentum is now being stymied by their perennial Achilles Heel… overreaching and underestimating the breaking point of a populace that has little left to lose.

    History has never been subtle as to the results… as many heads-on-pikes could testify to (if they still had tongues).

    http://freerangetalk.com/2011/08/declining-union-membership-contributes-to-rising-income-inequality-study-finds/

    • Emerald1943 says:

      BSM, I am praying for the people of Wisconsin! It will be the most wonderful schadenfreude if the Dems can take back their state legislature!

      Then, on to January…and Walker’s recall!

      • BlueStateMan says:

        ,, and then on to NOVEMBER when Wisconsin will jettison Paul Ryan.. and the country will relegate the baggers back to their requisite cesspools.

  6. jkkFL says:

    BSM, I have one small bone to pick with your post- the rest is subject to opinion- and I won’t go there..
    “and when Enron eventually collapsed, it only ruined Houston.”
    My IRA and Fidelity Magellan fund managed to beam me to Houston, then- because I took hits in increments of $6- 13,000 in just a few months.
    The Enron debacle took more of a toll in 2001, than just “Houston”.. and if you ask around you will find many more unwilling ‘participants’.

    • choicelady says:

      I agree -- it was a debacle for California, especially the San Diego area, where they had hornswoggled both utilities AND legislators into crowning them as sole suppliers. That was part of the trial, BSM, that proved Ken Lay guilty of fraud among other things. It’s on the record that they laughed all the way to the bank about the mass destruction the heaped on CA. Nationwide as jkkFL notes, the collapse did grievous harm to tens of thousands of investors. The immediate huge job losses may have hit only Houston, but there were ripple effects of many kinds that brought major destruction to millions of lives.

    • BlueStateMan says:

      Also… the data I supplied describing the behavior of the ratings agencies is well established, right to the point that the Italian authorities have literally raided S&P there for more evidence in their investigation of their malfeasance and fraud.

      “Dodd-Frank” is not opinion, it is fact.

    • BlueStateMan says:

      Indeed.

      I should have been clearer in the fact that my “Houston” bit was metaphor in that what was “ruined” was there place as the ‘solar plexus’ of the energy industry.

  7. Emerald1943 says:

    Good morning, BSM!

    Thanks for posting all this good information!

    As I see it, all these terrible regulations are VERY GOOD for the American people! Protection for the consumer from the Wall Street/banker sharks…now who could argue with that??

    Oh, I forgot who sits in the Congress! :-(

    And again, President Obama gets absolutely NO credit for the things he’s trying so hard to do. When ever will the American people wake the hell up? I guess it’s hard to do with the thugs controlling the message!

    My #1 question…when will the White House come out swinging? When does the LEFT grab the microphone away from the rethugs to pound this kind of information into the heads of the sheep?? The recent rethug budget is just a prime example where a little education went a long way. When the tea partiers were made aware of Paul Ryan’s attempt to destroy Medicare, many of them changed their tune! “Get your government hands off my Medicare” indeed!

    Also, in the debt ceiling debate, once the people found out that the President did not “cave in” and give away the store in that deal, the outcry died off (although there are still some nay-sayers out there, bashing him for their own political reasons).

    At this point in his term with such drastic problems to solve, the President needs a “Department of Voter Education”. He promised transparency and has been keeping that promise by posting on the White House website. But getting people to actually READ it is another story. Many voters only get their information from FUX News and we can see how well that works. They are fed a daily diet of lies and distortions, just accepting the spoon-feeding like infants! We need our own voice from the LEFT, a voice that could break down these complex issues so that the average voter could understand them.

    MSNBC does, in most cases, make an attempt to debunk the rethug lies, but they can only do so much. IMO, the President needs his entire cabinet out there, spreading the good word…the truth!

    ADDENDUM: The President is giving a statement in a few minutes. S&P deserves a harsh tongue-lashing for what they’ve done, but it’s extremely important that the people actually read and understand their comments about the cause of the downgrade…blame laid squarely at the feet of the Teabaggers!

    • BlueStateMan says:

      I can’t tell you how disappointed I am.. more every day as I come to grips that President Obama is behaving as a Milquetoast in handling these situations… his delusions that there are any redeeming qualities at all in those powers that oppose him and that there is some way to appeal to their ‘better nature’

      They have publicly stated that their sole mission is to destroy him.

      What more does he need?

      What WE need is another FDR…. instead, we seem to have ended up with Millard Filmore.

      • Emerald1943 says:

        BSM, I will probably get clobbered for this, but after this afternoon, I am having some serious doubts. Our stock market plunged 634 points today. Moody’s is now threatening to downgrade us. The rethugs gloat that they got “98% of everything they wanted” (when it actually was not such a bad deal), unemployment stubbornly refuses to come down because big business is sitting on their money, and what do we hear from the White House??? Crickets, pretty much.

        The rethug spin machine is 24/7 propaganda and the sheep believe everything they hear from FUX news. They slam the President for everything, and what do we hear from the White House??? There seems to be no push-back.

        I heard it reported over the weekend that the White House was extremely upset with S&P, but there was little in the President’s speech today that would indicate it. He mentioned them as “some rating agency” but basically let them off the hook, as he also did with the Baggers.

        I wrote about an hour ago that it is time for him to take the gloves off and to quit waiting for Congress to give him any cooperation. He is not going to get it. He really needs to come out strongly and lay his plans out for the American people to see. He needs to call on Congress to return from their vacations to work on the problems…and with all the righteous indignation he can muster! He should reflect what the American people are feeling right now…how dare those pompous asses take a five-week PAID vacation while 20 million people cannot find a job!!! He needs to call out the thugs in Congress for their obstruction of EVERYTHING he is trying to do to help the people.

        Then, after he presents his plans, if the thugs refuse to do a deal to get the American people back to work, he can sail through this next election with a huge win. Why he refuses to confront them I do not understand. If he thinks that by playing nice now that he will have an easier time of it in future negotiations, I believe he is sadly mistaken. It’s time for the President to play a little hardball!

  8. oldpol2 says:

    A question….Are they still colluding with the republicans? The WSJ bemoans the loss of stock value for McGraw-Hill, this morning. The question is is Terry McGraw willing to take a hit now to push the agenda for his republican friend, Mitt Romney.Is he willing to scare the heck out of the American people and the world at large to push for Republican control? You betcha, the Shock Doctrine at work!

    • BlueStateMan says:

      They are still colluding (now more than ever.. albeit in a ‘stealth mode’ that the B-1 would be envious of).

      … and this is EXACTLY what the neocons / neolibs wanted to happen.

      The Plutocrats and Oligarchs have been hoarding as much currency as possible without re-injecting any into circulation, deliberately depressing our economy while simultaneously offshoring as many American jobs as possible.

      The goal?

      The virtual elimination of the middle class and its replacement with a permanent underclass comprised of indentured servants… mired in debt without a snowballs chance in hell of ever getting out of it… the greatest gap between rich and poor since the Gilded Age.

      All the while continuing their concerted efforts to bust as many unions (both public and private) as they possibly can.

      Milton Freidmans wettest of dreams.

      They’re almost there… but the momentum is now being stymied by their perennial Achilles Heel… overreaching and underestimating the breaking point of a populace that has little left to lose.

      History has never been subtle as to the results… as many heads-on-pikes could testify to (if they still had tongues).

      http://freerangetalk.com/2011/08/declining-union-membership-contributes-to-rising-income-inequality-study-finds/


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