Was S&P right on mortgage bonds or US credit rating?

Salt Jones

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Is the lowering of the U.S. credit rating as valid as the AAA credit rating for trillions of dollars in mortgage bonds?
 
hey, they were imho one of the indicted co-conspirators of the whole mess.......well, not that anyone was indicted but you get the drift.
 
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hey, they were imho one of the indicted co-conspirators of the whole mess.......well, not that anyone was indicted but you get the drift.

I've read "House of Cards" and "13 Bankers", plus countless articles on mortgage bonds, tranches, CDOs, CDS, AIG and the rating agencies. I agree with you 100%.
 
Granny says dey got it wrong...
:eusa_eh:
Rating downgrade: Did S&P get it right?
August 7, 2011: A credit rating is an informed opinion. Nothing more. Nothing less.
That helps explain why one major credit rating agency -- Standard & Poor's -- has downgraded the United States, while another -- Moody's -- has chosen to affirm its credit rating with caveats. Both agencies had the same essential set of facts about U.S. debt: There's a lot of it now. There's a lot more of it to come. And there's very little in the way of actual policy today that looks likely to seriously change that outlook. Where the agencies differ, however, is in their degree of skepticism that Congress will follow through on meaningful debt reduction.

S&P is pessimistic. It points to the reckless debt ceiling debate, which artificially tied the longer term need to reduce the debt with the immediate need to raise the borrowing limit to ensure the United States makes good on all its bills. "The political brinksmanship 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." S&P said Friday in downgrading the United States to AA+ from AAA.

In some ways, it's easy to see why S&P is so pessimistic. Throughout the struggle to raise the debt ceiling, some lawmakers repeatedly suggested it would be better to risk default and not raise the ceiling until Congress passed a spending-cuts-only plan to reduce debt. "We clearly pose more of a risk to investors than we did previously. We're the only developed nation in the world that talks openly about default," said Donald Marron, a former acting director of the Congressional Budget Office.

The deal that lawmakers eventually struck did remove the risk that the United States would default by raising the debt ceiling. It also called for at least $2.1 trillion in debt reduction over a decade. More than half of those cuts will be determined by a new joint committee in Congress. If the committee process fails, automatic cuts of $1.2 trillion would be triggered.

MORE

See also:

S&P rating: How to get back to AAA
August 8, 2011: President Obama and lawmakers should seize the opportunity to start making real changes to reduce the debt, budget expert Maya MacGuineas argues.
Oh, AAA credit rating -- we never knew how much we loved you until we lost you. Just one more chance, please! It's like a bad breakup. The warning signs were there. He starts to nitpick and then complain so much more than when the romance began. Remember when you could do no wrong? He went along when you demanded all the luxuries in life even though you couldn't afford them. What's a few overextended credit cards when you are having a good time?

And then, he started issuing those self-important warnings? Who does he think he is? But you never really believed he would walk. Just like that. And he even has the nerve to compare you unfavorably to German, Canadian, British and French girls (all of whom were still rated AAA in his book). The indignity of it all. No question: This hurts. But still you can't let go. What will it take to get him back?

Pick a fiscal goal: We know where we need to get. The rating agencies have made it clear, as have other outside groups (including the Peterson-Pew Commission on Budget Reform, on which I served). Here it is: We need to generate enough savings to stabilize the federal debt so that it is no longer growing faster than the economy.

I wish I could say the goal was to "balance the budget." It's clearly a better bumper stick slogan than "stabilize the debt." But the truth is that we are so far from balance it will probably take decades to get there. So stabilize the debt it is. It would be best to get it back to about 60% of GDP (historically, it has been below 40%). But that might be tough in the next decade. The outer limit should be 65%, and that will take at least $4 trillion to $5 trillion in savings over the next decade. Nothing less will suffice.

Put a multiyear plan in place:
 
Some things they were dead on


Hill: S&P credit rating analysis values spending cuts more than tax revenue



The decision by Standard & Poor's to downgrade the U.S. credit rating to "AA+" at once laments the possibility that cuts to entitlement programs will not materialize and the decreasing likelihood of new tax revenues. But it appears to give more weight to the need for more spending cuts, as it warns that a further credit rating downgrade is in the cards if the U.S. does not trim spending.

In contrast, while the report indicates that new tax revenues would help mitigate the debt crisis, failing to find these revenues does not immediately put the U.S. at risk of another downgrade.

Specifically, the report warns directly that a further downgrade to "AA" status could occur within the next two years if there is "less reduction in spending"
 
They had no choice if they wanted to do ANYTHING to even begin to restore their credibility after the criminal lack of truthfullness in the mortgage ponzi scheme.
 
Good question. I highly doubt that question is going to affect interest rates though.
 
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They had no choice if they wanted to do ANYTHING to even begin to restore their credibility after the criminal lack of truthfullness in the mortgage ponzi scheme.

You have to remember that while the Mortgage secuirty shennanigans were going on, there was a huge incentive to look the other way, as everyone invlolved was winning. usually in a scheme like that somone is losing during it. Here all the losing happened after the bubble burst, not during the good times.

The investment banks made money on fees, and thier inflated stock prices
The regular banks made money on increased mortgage fees
The real estate people made money on multiple house flips and inflated fees due to high prices
Local governments made money on increased property taxes due to inflated prices
The Federal government made money off income taxes on all those bonuses
People who didn't qualify for mortgages got them to buy houses
Insurance compaines made money on the default swap fees

No losers, everyone won, and S&P and all the others drank the kool-aid.
 
Blind Pig Finds Acorn

They got it right but for the wrong reasons. Obama unsustainable $Trillion plus deficits plus the de facto bankruptcies of SocSec and Medicare would have been the correct answer
 
hey, they were imho one of the indicted co-conspirators of the whole mess.......well, not that anyone was indicted but you get the drift.


Bingo.

They were right in the middle of that mess and gave it their AAA rating.

I was watching the news last night and some of the coutries with AAA ratings are unbelievable. Jeeze.
 

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