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Wrong again, in many ways.

1. The banks aren't extorting anything. They are not getting any significant profit from this, only some small short term benefits from the origination of new mortgages. The interest rates they loan money at, and in particular the flatness of the yield curve is suppressing their normal profitability, quite severely. Meanwhile Americans taking loans to buy homes are making out like bandits with the low loan rates.

http://www.standardandpoors.com/ratings/articles/en/us/?articleType=HTML&assetID=1245346055206

2. It isn't particularly inflationary. Low interest rates increase money supplies a bit, yes, because of the loans. But the money printing is not because the money the Fed creates is held in reserve accounts at the Fed. It never goes into circulation. Why do you think inflation rate has been ZERO three out of the past four months?

http://online.wsj.com/article/SB10001424127887324081704578233751687277638.html

3. The government pays interest because of the loans it issues. It would ALWAYS pay interest regardless of whether the Fed bought the loans or not. What the Fed purchase does is a gift to the taxpayers because the resulting interest rates are much LOWER than would be the case in a free market.

The great thing about Detroit is that it is *always* on the comeback but never actually back. They built the "Renaissance" how long ago?

But, really, we are at rock bottom. Even though housing prices are way up, they are still just 80 percent of what they were in 2000. I bought a mansion in 2011 and now it is worth about $70k more than I paid for it (which was a pittance).

As long as you stay in the nice places of the metro area, this is a nice place to live and the most affordable. Just get used to 8 months of winter followed by muggy summer.

You know, we don't have to guess. S&P said why they downgraded the US' credit rating. "More broadly, 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 to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011". This was in conjunction with Congress playing chicken with the debt ceiling, threatening not to raise it, which would have resulted in the US failing to meet some financial obligations. It is indisputable fact that the US credit rating was downgraded b/c the political leadership valued playing politics over doing what was necessary to meet the US' financial obligations. Whether this was due to the Tea Party's influence or not is perhaps debatable.

How can that be said when days ago we just had a downgrade in credit and the market is bleeding?

As for the downgrade, you should read or skim over the S&P report (warning: pdf). Here are a couple of excerpts:

We lowered our long-term rating on the U.S. because we believe that the
prolonged controversy over raising the statutory debt ceiling and the related
fiscal policy debate indicate that further near-term progress containing the
growth in public spending, especially on entitlements, or on reaching an
agreement on raising revenues is less likely than we previously assumed and
will remain a contentious and fitful process. We also believe that the fiscal
consolidation plan that Congress and the Administration agreed to this week
falls short of the amount that we believe is necessary to stabilize the
general government debt burden by the middle of the decade.

and

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. The statutory debt
ceiling and the threat of default have become political bargaining chips in
the debate over fiscal policy. Despite this year's wide-ranging debate, in our
view, the differences between political parties have proven to be
extraordinarily difficult to bridge, and, as we see it, the resulting
agreement fell well short of the comprehensive fiscal consolidation program
that some proponents had envisaged until quite recently. Republicans and
Democrats have only been able to agree to relatively modest savings on
discretionary spending while delegating to the Select Committee decisions on
more comprehensive measures. It appears that for now, new revenues have
dropped down on the menu of policy options. In addition, the plan envisions
only minor policy changes on Medicare and little change in other entitlements,
the containment of which we and most other independent observers regard as key
to long-term fiscal sustainability.

So, I'm sure I'm leaving things out, but they seem more worried about our inability to address medicare, the deficit in general, and the fact that we just finished a national argument about whether or not to default. Thanks, Tea party, your unwillingness to compromise is one of the reasons for the downgrade.

Where is the:

You Maniacs! You blew it up! Ah, damn you! God damn you all to hell!

You haven't taken a look at the stock market today, have you?

The apes don't win against humans; the humans do in themselves first.

In the end, it doesn't matter whether it was the jackasses, the elephants, or the apes at the rating agencies.

You maniacs! You blew it up! Ah, damn you! God damn you all to hell!

we just reported your long term unfunded obligations are $211 trillion and you lack the political will or ability to do anything about it. And you want to have an argument over whether it's really $211 trillion or $209 trillion?

S&P's original figures were closer to 14.7 trillion by 2015, and 22.1 trillion by 2021

Good financial analysis does not start with pulling figures out of your ass.

The other missing link from the original submission http://www.standardandpoors.com/ratings/us-rating-action/en/us/

> Democrats want less government spending as a percentage of GDP [1]. The TEA Party wants to destroy government [2], unions [3], and the US economy [4].

FTFY.

Sources: [1] http://en.wikipedia.org/wiki/File:US_Federal_Debt_as_Percent_of_GDP_by_President.jpg
[2] http://www.contractfromamerica.com/Idea.aspx
[3] http://en.wikipedia.org/wiki/2011_Wisconsin_protests
[4] http://www.standardandpoors.com/ratings/us-rating-action/en/us/

You say that bond holders never had anything to worry about because you claim we would have been able to make payments on the interest. I don't agree with that but even if those claims were true, S&P explicitly stated that they would downgrade us to "D" or "Technical Default" had that happened, which I hope you agree would have been a horrible outcome, so I don't think it's terribly relevant whether we would have been able to continue paying interest or not. Furthermore, AAA is a "risk-free" rating and demanded by investors who can tolerate almost zero risk. Even if you have a 99% confidence interval that we would have been able to continue making payments (which I'm pretty sure you don't), a 1% risk of not getting paid is far too high for someone demanding AAA safety.

"Pay for money" is less ridiculous than it sounds. What are you paying for when you borrow money and are making interest payments? You're paying for the money you borrowed.

Of course there are devices that magically allow people to write IOUs. They're called credit cards. I agree that putting yourself in a position where you would need the IOU is irresponsible. We should not have ordered the appetizer but that ship has sailed. Again, if you think it's irresponsible to use *additional* IOUs, fine, by all means let's have that debate. But to say I won't allow the appetizer bill on the credit card unless I get my way on the main course is unacceptable under any condition.

I don't think Democrats are blameless. Cuts to social security and medicare simply must be made but to threaten bond holders by tying the debt ceiling to the budget negotiations was not responsible towards our lenders because they are an innocent third party and I was shocked that the Republicans were so willing to risk the full faith & credit of the U.S. in order to get their way on the budget. The S&P report specifically cited "prolonged controversy over raising the statutory debt ceiling" as well as "political risk" as one of the reasons for the downgrade. Note that France and the UK, which arguably have worse balance sheets than us (they're holding Greek, Portuguese and Italian bonds) retained their AAA and S&P's Beers specifically cited the political gridlock as a reason for the disparity.

The higher interest payments we will have to make are far worse than equivalent taxes would have been because at least the tax money could have been used to pay off the deficit or fund a program. The interest payments are simply an additional cost with no additional benefit in return, at all. This was simply not necessary.

By the way, I'm not a Democrat. I think social security, medicare and defense should all see huge cuts across the board and I pretty much despise most entitlement programs but it doesn't change the fact that Republicans acted irresponsible toward bond holders and I do blame them more than Democrats for the downgrade because for their strategy of 1) tying the debt ceiling to the budget negotiations and 2) not compromising on new revenues, at all. I would have been fine with them doing either one alone but doing both was, in my opinion, irresponsible.

Really I don't think this downgrade should have happened. While there are quite likely to be other problems for the US (spending cuts, tax increases, slow economy) it does not at all look like default is in the cards. Since bond ratings are supposed to be a rating of how likely that is, the rating seems to be incorrect.

Read Standard & Poor's press relase (PDF)
Essentially what triggered this is the Tea Party's ability to completely gum up the works by insisting on no new taxes.

S&P says that, from what they've observed, they are not certain that this intransigence can be avoided when the Bush Tax Cuts are set to expire.
They go on to say that if those tax cuts aren't allowed to expire, they'll cut the USA's rating again.
And without additional "revenue increases" and cuts in spending (entitlements), they won't raise the rating back to AAA.

My opinion is it is politicking. The S&P people in power wanted a different deal and this is their politicking of it.

Politicking is what caused this downgrade.
S&P is advising that we don't let it happen again.

Interesting read. I think the very reason they screwed up so badly before is why they are going though all these detailed methodical research now. Even if it screws us:P

Even the report says "Standard & Poor's transfer T&C assessment of the U.S. remains 'AAA'. Our T&C assessment reflects our view of the likelihood of the sovereign restricting other public and private issuers' access to foreign exchange needed to meet debt service."

They clearly say that we can pay our bills. It also says they don't believe congress will even follow the bill given. There are numerous complaints that congress will not raise revenue at all and that kills all the projections they have. Call it new taxes, call it tariffs, call it a damn VAT. You cut spending, increase revenue to get out of a hole. All we are doing is tightening our belt and promising our wife that we won't go out to eat as much.

Link to the S&P report which contains their rationale for downgrading, future outlook, etc.

BLAH BLAH BLAH BLAH teabagger BLAH BLAH BLAH

It's interesting how a single word tells so much about the writer.

Maybe it'd help if you read the rating agency's report in question?

• * We have affirmed our 'AAA/A-1+' sovereign credit ratings on the United States of America.
• * The economy of the U.S. is flexible and highly diversified, the country's effective monetary policies have supported output growth while containing inflationary pressures, and a consistent global preference for the U.S. dollar over all other currencies gives the country unique external liquidity.
• * Because the U.S. has, relative to its 'AAA' peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable.
• * We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns.

Note that yes, they agree that the current sort of debt payment standoffs are bad (who knows if they too blame such things on the scary teabaggers!), but note what they put in for the third point. For some reason, they thought that the large deficits and overall indebtedness was more important than the current kerfuffle over the debt ceiling.

My view is that in the absence of some closing of the gap between US government spending and tax revenue, S&P (as well as other ratings agencies) would still be issuing warnings just due to the massive deficits currently being incurred. The current disagreements might have pushed on the decision a bit early, but it'd still happen.

As to your comments about default and the rating of the bond, keep in mind that inflation is another cause of bond rating downgrades.

Ratings?

Ratings?

Please stop. All the laughing, it hurts.

What were all those CDO's rated again?

The ratings agencies just had to remind us all, starting with the audience of their congressional hearings, that ratings are a guess made by people with no accountability for whether they guessed right. Sort of like a weather forecast, except meteorologists are expected to at least get a certain percentage right. Or like if Arther Andersen's audits were still a basis of financial decision-making even after the Enron scandal.

Are they still well-respected?

Most are respected well enough to still be in business rating bonds, without major changes to their business practices like having the rating awarded affect the fees for their service or only disclose rating to subscribers.

And something else --- the federal government was scheduled to give BP a safety award right before the Deepwater Horizon exploded in the Gulf. Governments are not immune to this kind of fuck-up either, but you can't decide to go with a different government next time.

Cute, but my point was never that governments in general, or any specific government in particular, was perfect; just that private for-profit organizations are demonstratively imperfect as well.

Also, if you value choice think about this... You can choose not to directly patronize a BP station, but how can you ever know if any product you consider buying was either made or transported using petroleum sold by BP? Annually, you could be generating hundreds or thousands of dollars of revenue for BP without ever getting within 100 miles of one of their gas stations and realistically there is nothing you can do to alter that fact. Where's the power behind your choice as a consumer now?

In both theory and practice the average US citizen has much more control over who is their President than who is the CEO of BP. Likewise they have more control over who their Senator or Congressional Representative than any board-member of BP. Of course, mutatis mutandis, if you live in some other country with a Western style of participatory government. It may not seem like much, but you still have more potential influence on any given company as a citizen then you do as a consumer, especially as a part of a vocal group. Of course, combining mass political and economic pressure doesn't hurt at all, and is probably the most effective choice of all.

Companies are (usually) included because they have a high liquidity and are "representative" of their industry. ... Red Hat is representative of the overall health of this segment of the industry.

Assuming this 2002 statement concerning the S&P Index Policy is still accurate, Red Hat was selected because they are a leader.

When it comes to publicly traded linux distributors you have NOVL, ORCL, RHT, and at one time Caldera which is now SCOXQ.PK. The make up of the industry has some extreme variation from Novell and Oracle who have started out and continue to sell proprietary closed source products to Caldera a.k.a. The SCO Group that is currently struggling to avoid Chapter 7 Bankruptcy liquidation. Red Hat is more than representative, they are the leader.

And in a way this is a sign of the "runaway success of linux". I've read and listened to the ignorant mewling of several "investment advisers" over the years continually predicting the demise of Red Hat, and open source in general, because they "give their product away for free". And yet here we are not only with Red Hat continually growing and profiting but at the same time linux has become a huge part of the server infrastructure that makes up the internet and global business data centers but it has also taken a minor share of the desktop market and a massive share of the embedded market in products from data infrastructure components like routers and firewalls to mass consumer products like televisions, DVD players, HD satellite receivers, etc. It is due to this runaway success that Red Hat has grown, profited and now has been acknowledged as a leader with inclusion in the S&P 500.

Haha, if you actually follow that link to the original report it doesn't even mention PSP or games at all. It just talks about the MGM purchase and profits in general terms.

The 90% of the shares owned by US investors aren't owned by your next door neighbours, they're owned by multimillionaire investment traders. They don't give a shit about the people making them the money, they're just cogs in their money-machine.

You're right in that major shareholders are institutions - Coke's float is 67% held by them. However, that's because "institutions" are usually just investing the public's money. Coke in particular happens to be one of the S&P 500 companies -- know all those people invested in mutual and S&P index funds? Chances are most of them, including a few of your "next-door neighbors", own at least a few shares, and what profits Coke profits them too.

Ultimately, if you think that big multinationals are the ones that are going to be making the money, there's nothing that's stopping you from hitching your money to their wagon. There's nothing stopping you from being one of those investors that's profiting from their returns. Especially in this day with low-cost online brokerages, it's a fallacy to think that only rich people can afford to be investors.