S&P’s Extortion Racket: Financial Armageddon Impending!

Yet again, the American public is being terrorized with threats of a looming financial crisis. Standard & Poor's Credit Ratings Services has demanded that the White House and Congress agree to savage budget cuts, arguing that anything less will result in a downgrading of the U.S. credit rating, which in turn will result in complete economic collapse. No time to deliberate. No time for rational analysis. We must act, and we must act now!

Aside from the fact that this is simply untrue, it is telling that S&P’s threat came just days after the U.S. Senate Permanent Subcommittee on Investigations released a report on the criminal activities of the banks and credit rating organizations (including S&P) that caused the 2008 stock market crash and global recession. According to the WSWS, the Subcommittee report said that S&P routinely gave AAA ratings to worthless securities after being paid by the Wall Street firms that benefited from the inflated ratings.

Even if S&P were innocent of wrongdoing, they are hardly a trustworthy source on the security of U.S. debt, considering their incompetence in predicting the mortgage debacle. Economist James K. Galbraith argues that S&P’s hysteria about the deficit is unwarranted considering that it is impossible for the U.S. to default on its loans since it can simply print more money (unlike individuals or members of common economies, like Greece, Spain, Ireland and Portugal). Furthermore, there is no consensus among the big three rating agencies that the U.S. is in any kind of trouble. For example, Fitch Ratings, based in Europe, saw little threat, saying that the likelihood of the U.S. failing to honor its debts “. . . is extremely low.”

Nevertheless, S&P threatened to lower the U.S. credit rating from "stable" to "negative" for U.S. Treasury bonds, if congress failed to reach an agreement on reducing the federal deficit by at least $4 trillion over the next decade. This could cause interest rates to rise, further depress the housing market and make it much more difficult for businesses to borrow. In other words, S&P is using extortion by threatening to deliberately crash the U.S. and global economies if Congress and President Obama fail to impose drastic cuts to social programs and services that will result in wage cuts, mass layoffs, the destruction of the social safety net, and the devastation of living standards for the majority of Americans.

This attack by S&P can be thought of as a preemptive strike by the rich in their class war against the rest of us. Consider that just days before the S&P threat was announced, a McClatchy-Marist poll (reported in the WSWS article) showed that voters supported raising taxes on incomes above $250,000, by a margin of 2-to-1, with 64% in favor and 33% opposed, while they opposed cutting Medicare and Medicaid by a 4-to-1 margin, with 80% opposed and only 18% in favor. The rich hate few things more than taxes. The demand for the deficit be closed by cutting social programs is not only intended to avert tax hikes on the wealthy, but also to create a little surplus that could be used to lower their taxes even further.

Like the initial “debate” on WMDs and going to war with Iraq, Democratic leaders have accepted S&Ps exaggerated analysis uncritically and rushed to reassure Wall Street that they were ready and willing to open this new front in the class war. Yet the absurdity of S&P’s claims should be as obvious to the Democrats as were the lies about Iraq’s nuclear capabilities. Consider that Congress has already approved lowering the corporate tax rate from 35% to 25%, which would add billions of dollars to the deficit. The L.A. Times reported that Obama and the Democrats also want to slash the current corporate tax rate. If they were truly concerned about the deficit, tax cuts would be unthinkable, while tax increases would be given serious consideration. (Nearly 33% of all federal tax dollars came from corporations in 1952. Last year it was only 8.9%).

It is also important to consider how the U.S. acquired its huge debt. According to the Center for Budget Policy and Priorities (as reported in the OB Rag), 49% of the budget deficit resulted from the Bush tax cuts, more than any other factor. The wealthiest 400 U.S. households pay an effective tax rate of around 16%, while those earning over $1million per year only pay around 22%, though they are all supposed to be paying 35% (and even this is much lower than when Reagan was in office). Contrary to Republican mythology, the U.S. has the second lowest tax rate of all industrialist nations, after Australia.

Modern School
http://modeducation.blogspot.com/

But I'm quite sure that most people won't read this piece or understand the implications if they do.

And that it is just opinion, and may be self-serving (by their own testimony)? Who profits from this opinion, and whose money are they getting?

Lots of books and reports on this, so why does anyone listen to them now? Stupid people.

I think they ought to change the name of the company to Graft and Liars' Rating Company.


http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405?print=true
">Here's a nice piece with part of their role in creating a pretend market.

Maybe they are still playing.

So they have a vested interest in convincing investors that the rating agencies are legitimate and worth believing. Therefore, they prop up the rating agencies with their clout.

The rating agencies claim that their ratings are 100% accurate, until the moment anyone tries to hold them accountable. It is only when anyone seeks accountability that suddenly their ratings are only just opinions.

During the sales pitches they weren't just opinions. According to their references their ratings almost certainly weren't described as just opinions. Everyone was hears nothing about how prestigious and oracle-like these companies are most of the time. Again, up until the moment anyone tries to actually hold them accountable.

The double talk should be used against them now that they have told congress under oath that their ratings are just opinions. Congress should require them to state in all advertising and publications that their ratings "are only opinions and have no predictive validity regarding the current value or credit worthiness of any subject or target."

Even the president (who earned more than a million dollars in 2010)
paid only 27% tax. He used every LEGALLY available deduction to lower his tax.

Unfortunately, the toady media we have will just parrot S&P's claim with no comment on the fact that the company is known to sell its ratings.

Their role in the last (still ongoing) take-down of our economy sort'a negates any credibility they may claim to have now - on this or any other subject.

the S&P never called for drastic cuts- what they said was that there were afraid that the status quo- deficits of 10% of GDP a year- would continue due to political fighting. They never said that spending needed to be cut specifically- all they said was the deficit needed to be cut- which can be done by overhauling the tax system.

But we do need to cut spending. We need to end the wars and find a way to control medicare costs.

S&P, like all other ratings agencies, were obviously in shameful dereliction of duty throughout the 2000s. They betrayed the public trust. However, the gravity of the pending repercussions of our national monetary policy shouldn't be ignored simply because we dislike the messenger. The people at the helm of our economy, both in government and private industry, are not our friends. Printing countless billions of dollars doesn't help average Americans; the escalating price of tangible commodities like gas, milk, and bread disproportionally hurts those already in need, but S&P doesn't care about them.

S&P DOES care about it's financier buddies. Our fraudulent economy was exposed in 2008, but we chose to simply paper over the faults with debt. We haven't indicted (ir)responsible parties, we haven't increased regulation in any meaningful way. Our complacency has let the Wall Street casino continue nearly uninterrupted for the past 3 years, and the new bubble market barely blinks at ruinous tsunamis, international civil uprisings, and war. S&P released this (rather tame) downgrade primarily as a warning to the Goldmans and JP Morgans of the world as a subtle hint that the party is almost over.

The world is beginning to understand that the United States has no intention of ever repaying our debt. It's only a matter of time before the spigot of Treasury auctions runs dry. Our politicians refuse to look beyond their next re-election cycle, and short of rioting in the streets as the Greeks are doing, average Americans have little recourse. S&P isn't trying to crash our economy with this message, we're going to accomplish that on our own.

... well said.

People were surprised to hear them confirm what they already suspected.