Late Night: Moody’s Reviewing Downgrade of U.S. Credit Rating; Obama Slaps Down Eric Cantor.

Posted: July 13, 2011 | Author: | Filed under: Republican politics, Surreality, U.S. Economy, U.S. Politics | Tags: , , , , , , , | 11 Comments

Eric Cantor

Bloomberg:

The U.S., rated Aaa since 1917, was put on review for the first time since 1995 on concern the debt threshold will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes even though the risk remains low, Moody’s said in a statement yesterday. The rating would likely be reduced to the Aa range and there is no assurance that Moody’s would return its top rating even if a default is quickly cured.

President Barack Obama is considering summoning congressional leaders to Camp David this weekend to work on a plan to raise the debt ceiling after yesterday’s negotiations on a deficit-cutting plan of at least $2 trillion stalled, according to two people familiar with the matter. A failure to raise the debt limit that causes a default may lead to slower economic growth and another financial crisis.

“It’s obviously very serious in so many different ways,” said James Caron, head of U.S. interest-rate strategy at Morgan Stanley in New York, one of 20 primary dealers that trade bonds with the Federal Reserve. “Most people still believe there will be some type of an agreement struck to avoid all this stuff, and that’s what the market’s banking on.”

Meanwhile, according to the NYT, Fed Chairman Ben Bernanke

warned on Wednesday of a “huge financial calamity” if President Obama and the Republicans cannot agree on a budget deal that allows the federal debt ceiling to be increased. Moody’s, the ratings agency, threatened a credit downgrade, citing a “rising possibility” that no deal would be reached before the government’s borrowing authority hits its limit on Aug. 2.

The one piece of good news is that President Obama may be finally waking up to the reality that Republicans are totally insane and there is no point in negotiating with them.

the latest bipartisan negotiating session on Wednesday evening ended in heightened tension, if not outright discord. Republicans said Mr. Obama had abruptly walked out in an agitated state; Democrats described the president as having summed up with an impassioned case for action before bringing the meeting to a close and leaving.

Politico has a better description of what happened–basically, Obama told lit into Eric Cantor and brought him up short for once.

When Cantor said the two sides were too far apart to get a deal that could pass the House by the Treasury Department’s Aug. 2 deadline — and that he would consider moving a short-term debt-limit increase alongside smaller spending cuts — Obama began to lecture him.

“Eric, don’t call my bluff,” the president said, warning Cantor that he would take his case “to the American people.” He told Cantor that no other president — not Ronald Reagan, the president said — would sit through such negotiations.

That’s Cantor’s version. Democratic sources said that

“Cantor’s account of tonight’s meeting is completely overblown. For someone who knows how to walk out of a meeting, you’d think he’d know it when he saw it,” a Democratic aide said. “Cantor rudely interrupted the president three times to advocate for short-term debt ceiling increases while the president was wrapping the meeting. This is just more juvenile behavior from him and Boehner needs to rein him in, and let the grown-ups get to work.”

Now here’s the kicker:

“Obama lit him up. Cantor sat in stunned silence,” said an official in the meeting. “It was incredible. If the public saw Obama he would win in a landslide.”

Maybe Obama really does have some balls guts? Maybe it just took a snot-nosed squirrely creep like Cantor to get a rise out of him. It does seem that for once Obama has managed to force the Republicans into a corner by offering cuts in Medicare and Social Security and then threatening not to write checks in August.

Stay tuned. There will be more discussions at the White House tomorrow afternoon. Maybe it’s time for Obama to do the the Chicago way. The heck with bipartisanship–time for some major arm-twisting. Just raise the frickin’ debt ceiling and be done with it.

Friday Reads

Posted: January 14, 2011 | Author: | Filed under: Bailout Blues, commercial banking, Corporate Crime, FBI raids, morning reads | Tags: , , , , , , , , , , , , , | 39 Comments

Good Morning!

I want to open with a letter from the First Lady to American Parents on the White House Blog. You could tell that FLOTUS was obviously moved by the murder of a young girl so like her own children at the memorial service night before last. I have to say, Michelle has a heart that embraces children. She has turned this into a teaching moment. I haven’t found many inspiring words out there concerning the Tuscon tragedy.  These are inspiring words.

We can teach our children that here in America, we embrace each other, and support each other, in times of crisis.  And we can help them do that in their own small way – whether it’s by sending a letter, or saying a prayer, or just keeping the victims and their families in their thoughts.

We can teach them the value of tolerance – the practice of assuming the best, rather than the worst, about those around us.  We can teach them to give others the benefit of the doubt, particularly those with whom they disagree.

We can also teach our children about the tremendous sacrifices made by the men and women who serve our country and by their families.  We can explain to them that although we might not always agree with those who represent us, anyone who enters public life does so because they love their country and want to serve it.

It’s just really too bad that we all can’t grow up up in families like the Huxtables, and the Nelsons, and the Lopez family on TV.  There probably would be fewer Manson families as a result. We also don’t have frames for families with surnames like Wu or Ahmadi or Gupta or lots of others.   A lot of families are not in places where effective communication is possible.  It’s easy to want to embrace those neighbors that look like the Huxtables, the Nelsons and the Lopez family.  However, are those the families that really need our help and concern?

So what’s up with our Plutocratic overlords today? Read the rest of this entry »

Moody’s Plays the Market

Posted: December 14, 2010 | Author: | Filed under: Catfood Commission, Equity Markets, Global Financial Crisis, legislation, The Great Recession | Tags: , , , , | 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.