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Saturday, August 6, 2011

Standard & Poor’s has been wrong before. But they’re right now.

Posted at 08:21 AM ET, 08/06/2011

Standard Poor’s decision to downgrade the United States has led to a lot of criticism of Standard Poor’s. The White House called their performance, which included a miscalculation of about $2 trillion, “amateur hour.” Rep. Barney Frank was even less sparing. “These are some of the people who have the worst records of incompetence and irresponsibility around,” he told Rachel Maddow last night. They are trying to “justify their reputation.”
All of this is true. Standard Poor’s didn’t just miss the bubble. They helped cause it. They were paid by the banks to award their AAA-stamp of approval to all manner of financial products that were anything but riskless -- which, ironically, makes them an accessory to the resulting explosion of U.S. debt. You’ve heard the old joke about chutzpah being a young man who murders his parents and then pleads for leniency because he’s an orphan? S&P has chutzpah. All the credit-rating agencies do. It’s built into their business, which requires them to assess the stability of markets they helped crash. It’s long been my position that the credit-rating agency model is broken and, at times, dangerous, and investors need to pay less attention to their pronouncements.
But that doesn’t make Standard Poor’s wrong in this particular case. “The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges,” they explained in the statement accompanying Friday’s decision. After Republicans in Congress spent three months weighing whether or not to default on our debt and Senate Minority Leader Mitch McConnell said that paying our bills would never again be a foregone conclusion, can anyone really argue with that? After every Republican presidential candidate save Jon Huntsman either remained silent on, or flatly opposed, the deal to raise the debt ceiling, can anyone really say that U.S. debt is completely riskless? That there’s no chance of a political miscalculation, and if there is such a chance, that they can perfectly predict the outcome of the ensuing chaos?
In Washington, it’s almost trite to say that the political system is broken. It’s been clear for some time that things really are different, that norms and procedures that once kept fractious congresses functioning have eroded with terrifying speed. If anything, S&P is, as usual, noticing the deterioration too late. But that doesn’t mean the deterioration is not real, or that it should be ignored. Too often, the pressure in Washington is from interest groups and activists and political consultants who are, perhaps without meaning to, pushing towards further dysfunction. Those of us in Washington who would like to see the government work have long wondered when the business community and other entities who need a functioning political system would begin exerting a countervailing force. Perhaps it begins now. If not, then this may be the first of many downgrades to come.

LaHood shifts gears, presses Senate to accept House FAA bill

By Keith Laing - 08/02/11 04:08 PM ET
Saying it was the only way to avert a month-long shutdown of the Federal Aviation Administration, Transportation Secretary Ray LaHood said Tuesday that the Senate should accept a House version of a short-term funding bill for the agency despite provisions it finds objectionable.
The announcement was a marked shift for LaHood, who as recently as Monday was pushing the House to adopt a "clean" bill for the FAA that did not have cuts to subsidies for rural air service the Senate had resisted passing for two weeks.

But with the House having adjourned until Sept. 7, LaHood said the Senate should take what it can get. "We need the Senate to pass the House bill, before they go on their vacations, to put 4,000 people back to work and 70,000 construction workers," LaHood said on a conference call.
LaHood said that if the Senate passed the House bill before lawmakers left for their recess, President Obama would sign it, ending the 11-day impasse that has led to 4,000 FAA workers being furloughed since July 23.
Senate Majority Leader Harry Reid (D-Nev.) indicated Tuesday that he would be OK with the Senate passing the House FAA bill, though one of three airports targeted in the Essential Air Service cuts by the House is in his home state of Nevada.
"We learned with this big deal ... sometimes you have to step back and find out what's best for the country and not be bound by some of your own personal issues," Reid said Tuesday. "And I'm willing to give that up. I hope the other senators will do the same."
But Reid told senators Tuesday they could start going home, meaning he would need unanimous consent to take up the House FAA bill. All hearings in the Senate were postponed Tuesday afternoon.


The office of Sen. Jay Rockefeller (D-W.Va.), who is the chairman of the Senate Commerce, Science and Transportation Committee, would not comment on the possibility of the upper chamber accepting the House FAA bill. But the senator's office also would not rule it out, which is by itself a big change in posture since before the shutdown began.
LaHood took it a step further Tuesday afternoon, saying outright that it was "time for the Senate to take action, which they can do today, and the president will sign it.”
"The only legislative fix at the moment, given the fact that the House has gone home, is for the Senate to pass the House bill," he said.
LaHood has previously argued that the House should save the EAS provisions for the longer FAA bill, calling instead for the chamber to adopt a "clean" short-term extension through September. But he did not mention the word "clean" Tuesday as he implored the Senate to accept the House bill as is so the FAA would be funded through Sept. 16, a week after the chamber plans to return from recess.
Rockefeller has previously said the House's position on the FAA was "not policy. This is pettiness.”
“It’s the typical ‘my way or the highway’ that has become the mantra of House Republicans,' ” he said on the floor of the Senate last week, accusing House Transportation Committee Chairman John Mica (R-Fla.) of doing the bidding of Delta Airlines in pushing for the labor provision that has bogged down the long-term FAA bill.
“I wish I could understand why the desires of one company … matters more than thousands who have been furloughed,” he said.
Rockefeller's office said the senator would comment on the ongoing FAA negotiations Tuesday afternoon.

Former Top White House Economist: One-In-Three Chance Of Double-Dip Recession

Larry Summers and President Barack Obama
In a Wednesday Washington Post op-ed, Larry Summers issues his most dire public warnings about the economy since leaving the White House.
"With growth at less than 1 percent in the first half of this year, the economy is effectively at a stall and facing the prospects of shocks from a European financial crisis that is decidedly not under control, spikes in oil prices and declines in business and household confidence," Summers writes. "The indicators suggest that the economy has at least a 1-in-3 chance of falling back into recession if nothing new is done to raise demand and spur growth."
Democrats' legislative options are limited. But Summers suggests they should push to renew a one-year payroll tax holiday Obama signed late last year. Not doing so would amount, essentially to anti-stimulus. But Obama's been advocating a renewed payroll holiday, to no avail. Most recently, he angled to renew the holiday as part of the debt limit deal -- but the final legislation did no such thing.