Moody’s Plays the Market
Posted: December 14, 2010 Filed under: Catfood Commission, Equity Markets, Global Financial Crisis, legislation, The Great Recession | Tags: Debt Ceiling, Moody's, Obama-McConnell Tax plan, Steven Hess, US soverign debt ratings 22 Comments
I mentioned in my thread on Tax Pandering last night that the rating company Moody’s is threatening to downgrade the U.S.’s credit rating over the Obama-McConnell Tax plan. Well, it seems a few folks have noticed a very interesting situation. Richard Smith at Naked Capitalism and Jane Hamsher at FDL notice a distinct change in message from Moody’s based on prior statement a week before. Also, Scarecrow at FDL has a related post up now.
It basically looks like they were for it before they were against it. This is odd and can only come under the heading of something’s rotten in Wall Street.
I’ve been down on Moody’s since they played such a major contributing role to the Financial Crisis by rating mortgage investment trash AAA. I’ve believe that it is only through lobbying and influence that they have managed to avoid legal and financial responsibility for their role in the entire debacle. Both Moody’s and Standard and Poor’s put their AAA+ ratings on trash. High ratings indicated to the market that the investments were safe so that many pension plans invested in what was essentially a junk bond level investment. They even highly rated subprime tranches. I’ve always felt there was a massive fraud investigation out there or at the very least a class action law suit but it’s never happened. My guess is they are highly connected to the current White House.
So, this week’s actions of note is that they seemed to have changed their tune from what they were saying prior to the cloture vote this week. On December 7th–via Scarecrow’s link to Jane–we can see Moody’s approach to reckless tax policy was simply “No Problem”. This comes from Bloomberg.
“The extension of the current tax rates is for a temporary period of two years and we think that if that’s all there is to it — it does not have ratings implications,” Steven Hess, senior credit officer at Moody’s in New York, said in an interview today. “We have a stable outlook. We don’t feel it will get changed downward in the next year or two.”
A week later, the same Steven Hess puts out a completely different vibe to The Hill. This is the message I read when I wrote my post last night.
“From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth. Unless there are offsetting measures, the package will be credit negative for the US and increase the likelihood of a negative outlook on the US government’s Aaa rating during the next two years,” Moody’s analyst Steven Hess writes.
So, reasonable minds would like to know what changed Mr. Hess’ mind so quickly? Was it that he was greasing the vote before the cloture vote and now he’s setting us up for something else since this horrible tax plan looks like it will pass? Richard Smith snarks in the affirmative.
A cynic might think that the Dec 7th report was Moody’s putting all its credibility behind the deal to extend the tax cuts, while the Dec 12th report was Moody’s putting all its credibility behind a move to ensure Obama got no political credit for it, once the deal, that they had implicitly supported a week earlier, was looking much more certain. That type of maneuver will have a familiar feel to the bedraggled Obama, one suspects.
Scarecrow talks about how these ‘impermanent’ tax cuts shouldn’t rattle any markets. The analysis is spot on so actual financial/economic analysis can’t possibly be the reason for the announcements and the change of heart.
For the umpteenth time, the US, unlike the suffering Ireland, Portugal, Spain, etc in the Euro zone, has its own currency and fiat money. It can’t be forced to default. Unless the people who run the country are complete idiots [insert news stories here], and refuse to use the tools and powers they have, the US is not at any risk of defaulting on its debt.
Moreover, the tax package is for two years. If one assumes that’s it, then there is no long-term structural deficit to cause us problems in the long run.
Richard Smith goes into some detail and argues that Moody’s can’t possibly be taken seriously by any one in the market any more because of the aforementioned subprime market crisis. Moody’s had tingling legs aplenty during the lead up time for both Countrywide and Bank of America who wouldn’t even exist today if it weren’t for congressional and white house largess using tax payer money.
Moody’s words can still probably move some markets. But, I think more importantly, it can move Congress Critterz and enable them to do all kinds of things.
So, what is the deal here? Well, this is the hypothesis of both Bostonboomer and me. It’s future cover for the upcoming Obama Tax ‘simplification’ plan and his plan to slash the budget–make that the part that impacts you and me and not Halliburton–when government gets shut down by the Republicans. My guess is the Hess statement will be brought up during the sturm and drang over increasing the debt ceiling once we bump into it early next year.
I’m pretty convinced of this. I’ll point to a CSM op ed for some back up on that.
Obama tax deal could start an era like Reagan’s
The Obama tax plan, if passed, would build trust between Republicans and Democrats. The next step could be tax simplification. The Reagan-era reforms provided helpful lessons.When it comes to tax reform, is Barack Obama another Ronald Reagan?
That seems to be the way President Obama is painting his political role over the next two years.
Like Reagan in the 1980s, Mr. Obama hopes to find a bipartisan consensus with Congress for simplifying the tax code.
His first big step toward that goal was to negotiate a deal with the newly empowered Republicans on extending the Bush-era tax rates. He also endorsed some ideas from his deficit-cutting commission, especially those aimed at eliminating most tax deductions, credits, and exemptions. And he has instructed aides to prepare tax-reform proposals.
The Republicans have already shown that they are willing to shut down government over the pending debt ceiling issue. This despite the fact we’ve basically got wars going on on four fronts: Iraq, Afghanistan, Pakistan and Yeman.
It’s all about who’s in the White House. One of the last bills the 110th Congress passed under the Bush Administration contained an increase in the debt, and 33 Republicans voted for it. Just a few months later, right after the Obama Administration took power, only 2 Republicans voted in favor of a bill raising the debt limit. Now, in these two examples, the debt limit provisions were attached to larger bills — TARP and the Stimulus Act — but, take a look at the historical data and the trend is borne out.
Speaking with unusual candor after the most recent debt limit vote, Rep. Michael Simpson [R, ID-2] said that it wasn’t the minority party’s responsibility to vote for raising the debt limit and called such votes “the burden of the majority.” It’s not clear how the Democratic majority will pull this off next session over what will likely be unanimous Republican opposition. David Waldman at Congress Matters suggests that the Democrats take up filibuster reform first, possibly in the lame duck session, so they can do it with 51 votes.
Obama appears to dislike conflict and taking Democratic-principled stands. I can only imagine what concessions are being planned at this very moment to deal with how the Congress will deal with raising the debt limit. Obama caved in on inheritance taxes, caved in on extending tax breaks to millionaires and billionaires, and he’s added pork goodies to the Dubya tax extensions like ‘grants’ to ethanol growers and equipment write off benefits for some one. I say some one because it’s sure not due to our current Industrial Production Capacity or the lack of corporate profits right now. We’re being bribed with 13 months of extended unemployment benefits and a social security payroll holiday that every one appears to dislike and find suspicious. The question is, for what?
We may truly be on the verge of another era of Reagan’s VooDoo economics пятилетка. This is a folly that we cannot afford. Even David Stockman and Bruce Bartlett–architects of Reaganomics–know these policies are detrimental to the U.S. economy and will be detrimental to all but the very rich among us. All this tax crap is pandering and manipulation. It has no basis in economic theory or past economic data. This has to be more of the Starve the Beast Republican Holy Grail enabled by a President who would rather go to a party hosted by Michelle than stick around and deal with questions of policy. I am sure this will be used to foist the nonsense from the Cat Food Commission on us all. I am simply bereft of hope for the future of this country.
update: A few minutes after I posted this, DDay at FDL has another germane post up: ‘Corker Assembles Debt Limit Shock Doctrine Team’. He must be thinking what BB and I are thinking. Corker is demanding cuts to ALL social programs in exchange for a yes vote to lift the debt ceiling.
The single most important thing that House Democrats could demand, in exchange for the tax cut bill’s passage, is an increase of the debt limit inside the package. It would in effect protect whatever stimulus you might get out of the bill, and deny Republicans another hostage-taking event.
peej
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Mona (aka Wonk the Vote)
Sky Dancing 
What’s the Greek?/Russian? word?
It’s the russian word for their Five year economic plans.
Thank you.
I feel like a dolt.
you shouldn’t … I took Russian in College and Russian History, etc. I had planned to work for the UN at some point. The version not using Cyrillic would be: Pyatiletka
Oh, OK. 🙂 I thought of working in the U.N. too. I grew up in NY, went on a field trip to the U.N. in elementary school, was a passenger in my father’s car driving past the U.N. building on the FDR Drive about a million times growing up. Had a young friend one summer whose father was a member of India’s diplomatic delegation to the U.N. Also, though I’m a native speaker only of English, I was very good in foreign languages and really enjoyed studying French in junior high school, getting close to 100% perfect grades in it. Then I went to a small Lutheran high school which didn’t offer French, only German and Latin, and took German because it is a spoken language, but was never as interested in it as I was in French. (Actually, I’m sorry I didn’t take Latin.) Then in college I got all involved in studying biology and chemistry and didn’t continue my language studies, which I really regret.
These people have no consciences. To cut social programs when you know there is an increased need is morally bankrupt.
Corker is up for re election too.
If the Dems were smart they’d be fielding his candidate now and having him speak out about how many TN voters will be suffering as a result of Corker’s intent to cut funding.
Yea, if they were smart. Hahahaha.
It is sure gonna be a bumpy 10 years or so with these clowns in charge. Because I doubt the effects of what they are doing will be gone in 10 years, maybe even 20.
In TN alone 1.2 million children are dependant on Medicaid. In 2009 over 1/2 a million people were on food stamps. 20,000 children in Head Start would suffer after we gave tax breaks to the top 2%. Unemployment is 9.4% Foreclosures are up.
I was reading how many states were behind in processing unemployment, food stamps, etc. this year. I was wondering if it was just Louisiana. It’s appalling!!!
The sad thing is that I suspect the Dems will go along with this hoping they can use it as political one upmanship rather than fighting it tooth and nail. No. I suspect they’ll wring their hands at the “heartlessness and hypocrisy” all the while declaring “we can do absolutely nothing to stop it and it is all the mean ol’ Republicans fault. Just you watch now that the GOP is in charge of the House how much 10-12 dems in coordination with the pugs get passed.
It’s bad dinner theater. They have little to no skin in the game since like the CEOs of this country they get paid regardless of their performance and they all have their golden parachutes.
The vaunted tax deal also contains a cut in funding for food stamps now. Isn’t that lovely? The very poor have become America’s piggy bank.
The tax deal should not pass at all. All the Bush tax cuts should be allowed to expire and we should go back to the Clinton era rates.
I was on my way to bed and was reading your analysis. Shouldn’t have done it. I am now expecting to have nightmares from the scenario.
We are heading toward the shoals with no safety nets in place. It can only get worse come January when these morons really start to do their “dirty little deeds” as promised.
If this were a Tom Clancy thriller no one would believe the plot that is unfolding right in front of our faces. A weak president, a heartless congress, a corporatist cabal, and a clueless nation all woven together in a race to the bottom.
There are just some really really bad connections between this White House and Wall Street Financiers. It’s like they all read Marx and decided to play by the worst of his criticisms of Capitalism. I would’ve never thought Das Kapital would be relevant again.
Looking at what Moody’s is doing, if any legislators are planning to vote yes on the Obama Republican tax plan just to secure a bit of stimulus, they should immediately rethink that. The pressure is going to be building to force cuts to the the Federal budget, apparently of unprecedented amounts.
Even the Repubs, I believe, would vote for extending unemployment comp up to 99 weeks. It would have taken a real Democratic president, an actual leadre to get them to also consider those over 99 weeks. But we’re not getting the latter anyway, so why give the bank away to the Uberwealthy????
Obama has also telegraphed that next year he will begin to try to implement the Cat Food Commission recommendations. He sees SocSec and Medicare as the big costly programs which must be cut. And that will be a main part of his tax “reform.” His words are chilling.
“Reform,” for Obama, means doing some kind of financial shit to the little people and protecting the wealthy. Or the banks. Or the Big Health Industry Players.
His praise for Reagan was apparently very genuine, and he sees himself as the next Reagan (but, damn, bad as Reagan was he never so peeviish), transforming US society along conservative lines.
FSM help us.
When I realized Obama had left out raising the debt ceiling when he was making his Great Giveaway Compromise with the Repubs, I figured he was actuallly saving it so he could tell the Dems that the mean Repubs wouldn’t raise the limit unless he promised to slash social safety net programs. Like SocSec, Medicare, Medicare, probably his new health program as well.
We voted for FDR, we got Hoover, and he’s becoming the Anti-FDR Incarnate.
What Obama is giving us is another giveaway to the Uberwealthy (top 1% gets 25% of the tax cuts), and then he’s going to plead poverty to make most of us give up even more.
Explains to me why he did nothing to help homeowners going underwater, etc., and why he’s done next to nothing to provide jobs, jobs, jobs.
His tax Republican tax plan is insane.
Kill the deal now!
The Republicans even said they’d extend the unemployment benefits for like 3 months if it was a straight up or down vote.
Actually, that’s an insult to Hoover. He did some good things with some of the flooding disasters that went on in the 20s.
Just heard that as of next year Medicaid in WA state will likely not pay for hospice, nor for outpatient medications except chemo, nor for outpatient physical, speech, or occupational therapies. We all sat in the meeting appalled, thinking of our patients having seizures, nightmares, suicidal depression … not to mention strokes and heart attacks.
Some made bitter jokes about having to keep patients in the hospital longer just to get them needed treatment. Yeah, that’ll really save money. s/ And that probably all we should do is write medical marijuana authorizations since the patients would have no Rx drug coverage. We don’t know for certain what the cuts will be — the state legislature is still considering — but the state’s in bad shape.
Meanwhile our Senators Murry & Cantwell voted Yes on the tax relief for rich people bill.
Exactly, their vote so disappointed me. I’m steaming about it.
And you know, the state government is going to be taxing medical marijuana.
What planet do these heartless cretins live on?
Don’t feel bad my piece of crap Senators voted for it too(Webb and Warner)
I told Webb’s office that I wanted to make sure that he didn’t come crawling to me come election time for money to get re elected.
Cantwell is up as well. You should do the same.
What I don’t understand is why some of the rich opposed to this plan don’t take out an ad buy. Make it simple. Show graphs like we’ve seen on progressive sites showing how much the rich are getting out of this deal and how little many are getting or being asked to give so the rich can have these cuts.
Anyway time to start looking for replacements for the dead weight.
Did anyone see this?
http://news.yahoo.com/s/dailycaller/20101214/pl_dailycaller/berniesanderstochallengeobamain2012;_ylt=Agd14La.4a9gGNamPrdnpPis0NUE;_ylu=X3oDMTFlbW5vcGg3BHBvcwM4MARzZWMDYWNjb3JkaW9uX3BvbGl0aWNzBHNsawNiZXJuaWVzYW5kZXI-
It’s inevitable that people are going to try to get him to run. The real left is very hungry for a real candidate. Bernie Sanders fits the bill, but like Pete De Fazio he’s old and/or ‘ugly’ (not that I think so of either).
If he runs, I’ll support him.