Debt Ceiling: The Musical
by digby
OMG! The sky is falling! At least according to Contessa Brewer and Melissa Francis on MSNBC, S&P issuing a warning that it might lower its outlook yesterday is the single greatest blow to American security since 9/11. Or something. Whatever it was, it was very, very, very important.
Except, you know, it wasn’t. It was bullshit. The S&P has, at best, what you might call a spotty record when it comes to forecasting, seeing as it missed that little mortgage blip completely — something which they are actually counted upon to do. But more importantly, as James Fallows points out here, they are making a political forecast, not an economic one and it’s one that nobody needs S&P to make, so this “warning” is essentially meaningless. If the markets are so dumb that they need someone to point out that there’s a big argument going on about the debt then I think we have much bigger problems.
Moreover, dday may be the only person in the nation who noticed this:
Moody’s threatened a credit downgrade in March 2010. It just so happened the political world was busy at that time waiting to see if Congress would pass the health care bill. Moody’s actually continued to make these threats for the better part of a year. So chalk up the interest in S&P to a) a slow news day, and b) a newfound concern with deficits in Washington. After all, the President just made a speech about it!
Judging by the media reaction, that’s exactly the case. They are in the midst of a swoon I haven’t seen since Lehman went under. Unfortunately, that was real and this isn’t.
Dday also asks why S&P bothered with such an obvious observation and points to this article by Dean Baker, who wonders if S&P might just be angling for a payoff, something that shouldn’t surprise anyone considering the behavior of all the big financial players over the last few years.
That certainly might be true. But I’m actually leaning more to the idea that the main reason is political rather than financial. I suspect they are playing their designated role in this spring’s runaway hit, “Debt Ceiling: the Musical” a madcap Village romp in which everyone pretends they believe things they don’t believe resulting in much confusion and wacky misunderstandings until the end where it turns out they were after the same things all along: huge spending cuts.
The Obama administration is trying to enlist Wall Street executives in the debate over increasing the debt ceiling and convince congressional Republicans that a US default would be catastrophic for markets.Tim Geithner, US Treasury secretary, has been leading the campaign for the White House, urging executives such as Vikram Pandit of Citigroup, Jamie Dimon of JPMorgan and Brian Moynihan of Bank of America, as well as top insurance industry executives, to point out the dangers of “walking up to the brink” on debt, according to an administration official.
Now it’s possible that S&P was just doing its own thing and that it’s completely unaffiliated with Wall Street’s little performance on behalf of the Treasury, but let’s just say it’s a very big coincidence.
Unfortunately, for those of us who fear this debt ceiling “debate” is going to result in yet more draconian cuts, the White House and GOP response to S&Ps announcement is not reassuring. The Republicans came charging out of the gate demanding more spending cuts and tying them directly to the debt ceiling. The White House, by contrast, issued a very tepid response saying they are sure that the two sides will be able to work together to solve the debt crisis. I don’t think you need to be Machiavelli to where this is going. Neither do you have to be a mind-reader to suspect that this is all playing out for a common purpose.
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