incidentally, sorry for the triple post, but I was just reading up on the short ratios of TLT. yikes. You and Jeopard might have a point. Thank god, this whole discussion will remain academic for now. Hopefully. http://www.vancouversun.com/Debt+ceiling+deal+breakdown/5187205/story.html
Dodd-Frank introduced measures to ensure much greater transparency in rating methodologies. This has actually resulted in some major changes in the way agencies go about their business. I'm not sure that you'd want to go much farther than that (ie, regulations affecting ratings themselves). Agencies need to be independent. I guess you could replace the "issuer pays" business model to get rid of those conflicts of interest, but I don't think that that would have prevented the problems in mortgage-backed security ratings. Also, what would it be replaced with? As for the debt ceiling debate, I haven't heard anyone argue that the rating agencies have even been wrong about US debt. Again, my post was about the problems with the SEC and Basel using ratings as the basis for regulations on banks and other institutions. That's not what ratings are designed for, and as far as I know agencies are generally opposed to such uses of their ratings.
a) What Frank-Dodd purports to do, and what it actually does, are two vast realms of difference, especially with all major enforcement agencies taking budget hits. b) A lot of companies are running scared and charging blindly around for no other reason than sheer fear of what Frank-Dodd might be. That's a 2000 page law, and companies are being a little frightened (I think for a while rating agencies were refusing to release ratings because of provisions affecting their liability). It's the first steps in the pool, so people are going to be cautious. Once the water gets warm though, you're going to see a lot more of the same old, since most of the provisions hinge on disclosure, and the honor system. c) What really pisses me off and what you allude to is that there is no systematic approach to the problem. Regulation of how agencies operate is taken strictly out, and conflict of interest is only solved through "disclosure". Agencies are more or less just held a bit more liable, and have to disclose more, but the regulators are more or less hoping the system will continue to regulate itself with more "safety measures". It's a bit like adding seatbelts to a burning car. The system's broke, but we're only taking half-steps to fix it. And the thing is, there are solutions out there. d) Even if you believe the agencies should be fully independent, and that conflict of interest issues do not reign that high, the way Frank-Dodd set out to solve the problem enumerated in your last line (basically, scratch credit ratings as the basis for all regulations, and leave it to the discretion of the regulator to implement "alternative models") has to be the most ramshackle way of punting the issue down and away, especially with the SEC cutting its' agency on CRAs. While the debt ceiling issue may or not be the best bone to pick about rating agency work, it is once again a reconfirmation of the power these agencies seem to have, and which I think they should not have, to be perfectly honest.
This agreement is a couple TRILLION short of what S&P wanted in order for the US to avoid a downgrade. Sure we got a good amount of the deficit cut over the next 10 years, but we basically just kicked the can down the road. Unless there is major progress on further deficit cuts immediately then we will still get downgraded. With that being said TLT is up a point today. Also, to the people who think our cost of credit is going to spike on a downgrade to AA then you guys should check out Japan. They are AA, have a much higher debt/gdp ratio, and guess what....their rates are significantly lower than ours.
Yes, take the 1 trillion plus of tax revenue off the table and get the down grade, way to go tea party!
THis is a strange statement to me. I'm not a huge Tea Party supporter, but without a split congress, the debt limit gets raised no questions asked with $0 in cuts. We'd be $2 Trillion further away from cuts we'd need to make anyways and we'd still be downgraded if they weren't in Congress even if they didn't want to increase taxes.
There was a deal of about 4 trillion cuts and revenue on the table in the house, and the Republicans backed out the last moment, was that the case or not?
I dunno? But you are saying that without the Tea Party in the Congress you'd have seen ANY cuts at all?
We will see cuts no matter what, because guess what, we have reached close to our limit of normal borrowing. I am not blaming tea party for wanting to cut spending, but debt cannot be solved by only cut spending, unless you want to just gut the government completely.
The S and P guys and gals should just go to the Koch Brothers- S. Ct confabs with Scalia and Clarence Thomas. Folks whose main interest and value in life is amassing personal fortunes or increasing the personal fortune of the super rich in the money biz don't tend to be liberals and or moderates for the most part. Just another way to help big finance rule the world. They didn't care when the Repubs ran up the budget deficit; now they do. Hmmm. They are unmasking themselves. Many of the finance crowd are just the intellectual arm of the tea partiers/ Koch brothers movement.
glynch, why do the uber-wealthy care about a US downgrade? Seriously. They've had the government at the end of a leash for the last 30 years or so (at least), and now it will be just a tiny bit less efficient in carrying out its tasks for them, but they can use this news to enforce more cuts to entitlement programs, making sure their servant doesn't waste time on the poor and middle-class at all. I just don't see it effecting the Koch brothers et al.
Again...this is a non-event in terms of finance costs. Japan is AA and they pay cheaper rates than we do.
The reason for the down grade is mostly because of the fighting in Washington, S & P believe that the US government cannot get the right things done. They think both spending cuts and increase in revenue are necessary to reduce deficit and debt.
Bbob you sanswered your own question. " they can use this news to enforce more cuts to entitlement programs, making sure their servant doesn't waste time on the poor and middle-class at all." As we know the Koch boys were raised to be ideological extremists by their father a prominent member of the John Birch Society in the 1950's, so they don't have to have an immediate money payback. However, as prominent funders of the libertarian/conservative "starve the beast " i.e government school they know that if they can deligitimize government they can keep their taxes low. They also can make more money in their industries by not having to worry about government enforcers and hence silly externalities like pollution, injured workers, wage and hr laws etc.
Maybe, maybe no. Be that as it may, the news is huge politically. My guess is that the people who will be blamed the most for this are the Republicans and the "tea party." People are going to remember Obama attempting to do a much larger deal on deficit reduction and the damned near complete rejection of that by the Republicans in Congress and their leadership. Whatever attempts by more sane Republicans there behind the scenes was behind the scenes, and they ultimately crowed about the result as a victory. Some victory. In my opinion, this will be remembered in a very negative light regarding the GOP and their minority "tea party" extremist pals when the public votes in the next election.
