The poor standards of Standard and Poors

There was a bit of brouhaha on Monday when the credit ratings agency Standard & Poors talked of a one-in-three chance that US Treasury securities could be downgraded by the company to "negative" in three years. The warnings were based on projections of federal deficits and were welcomed by many in the punditry, in politics and in the financial sector who want to make deficits the centerpiece of any immediate economic agenda.

But one wonders how much credence should be given to Standard and Poors?  How much of what they publish is tailored to what Wall Street wants to hear and carefully aligned in their immediate interests?

The Congressional Financial Crisis Inquiry Commission has judged S&P and the other ratings agencies as key players in the big stakes deceptions and fundamentally fraudulent mortgage bundling that was at the center of the 2008 financial meltdown. For example, last fall, via the New York Times reporting of the Crisis Inquiry hearings, we learned this:

D. Keith Johnson, a former president of Clayton Holdings, a company that analyzed mortgage pools for the Wall Street firms that sold them, told the commission on Thursday that almost half the mortgages Clayton sampled from the beginning of 2006 through June 2007 failed to meet crucial quality benchmarks that banks had promised to investors.
Yet, Clayton found, Wall Street was placing many of the troubled loans into bundles known as mortgage securities.

Mr. Johnson said he took this data to officials at Standard & Poor’s, Fitch Ratings and to the executive team at Moody’s Investors Service.

“We went to the ratings agencies and said, ‘Wouldn’t this information be great for you to have as you assign tranche levels of risk?’ ” Mr. Johnson testified last week. But none of the agencies took him up on his offer, he said, indicating that it was against their business interests to be too critical of Wall Street.

So anything coming from Standard and Poors needs to be taken with some very large grains of salt. In this vein, emeritus Amherst economics professor Richard Wolff, in an article for the UK Guardian, called the S&P warning,"another scary instalment in the conservative campaign to justify cutting government social spending. S&P may be rampant in its interests, but it hardly seems conflicted about them." 

Simon Johnson, former chief economist for the International Monetary Fund, also had some appropriately skeptical comments on S&P's pronouncements at the NYT's Economix blog:

It is commendable that S.&P. now wants to talk about the United States fiscal deficit –- one wonders where it was, for example last year, during the debate about extending the Bush-era tax cuts.

The House GOP - just a few months into their "Winning-Duh!" triumphalism - has already reached the "I know they're lying because I saw them moving their lips" stage of epic political and policy failure

Two items on today's menu highlight the radical incoherence, profound dishonesty and - yes - "unseriousness" of the alleged conservatives in Congress who are using the country's economic and budgetary challenges as an excuse for ideological hyperventilation and rank hypocrisy, but little else.

Exhibit A - The New York Times reported that:

Mr. Obama wants to expand the power of the 15-member panel, which was created by the new health care law, to rein in Medicare costs.

But not only do Republicans and some Democrats oppose increasing the power of the board, they also want to eliminate it altogether. Opponents fear that the panel, known as the Independent Payment Advisory Board, would usurp Congressional spending power over one of the government’s most important and expensive social programs.

Matt Yglesias notes this opposition signifies that:

...the very same members of congress who voted this month to privatize Medicare in 2022 and enact draconian cuts throughout the 2020s and 2030s are here in town right now defending health care providers’ right to charge the government high prices for services that don’t work. Indeed, as recently as 2009 no less a figure than Paul Ryan himself was fuming at the idea of reducing government subsidies to for-profit insurance companies (via Medicare Advantage.) 

Of course, this is mostly on the GOP side about President Obama being damned if he does anything to rein in deficits and make Medicare more efficient and damned if he doesn't. 

Exhibit B, which is truly stunning in the annals even of congressional hypocrisy - Matt Miller's column at the Washington Post:

The House Republican budget adds $6 trillion to the debt in the next decade yet the GOP is balking at raising the debt limit...

I thought about making this week’s column that one sentence printed over and over 30 times. It would have been the opinion page equivalent of a Dada-esque protest against the inanity of the debate — and a cry for every news outlet to focus on this simple, clarifying fact...

For the life of me I don’t understand why the press doesn’t shove this fact in front of every Republican who says the debt limit cannot be raised unless serious new spending cuts are put in place. The supposedly “courageous,” “visionary” Paul Ryan plan — which already contains everything Republicans can think of in terms of these spending cuts — would add more debt than we’ve ever seen over a 10-year period in American history. Yet Ryan and other House GOP leaders continue to make outrageous statements to the contrary. 

The classic definition of chutzpah was a kid who kills his parents and then asks for the mercy of the court because he’s an orphan. The new definition of chutzpah is Republicans who vote for the Ryan plan that adds trillions in debt and who then say the debt limit goes up only over their dead bodies!

If I were Barack Obama, my mantra on this week’s debt tour and in the months ahead would be that we should lift the debt limit only by as much debt as is needed to accommodate Paul Ryan’s budget. The president and his team should say this every time they’re asked about the debt limit until people can’t stand hearing it any more.

Matt Miller's piece via Economist's View and Stan Collender

Executive PayWatch

The AFL-CIO has a great new website where you can get data on Fortune 500 CEO pay and information on CEO "pay abuse" which should be addressed by shareholders:

Click HERE.

During the past decade, CEOs of the largest American companies received more in compensation than ever before in U.S. history. They supposedly deserved this money for increasing stock prices. Did they? On Dec. 31, 2010, the S&P 500 Index closed 19 percent below its high on March 24, 2000.

Over the past decade, shareholders—including workers—lost trillions of dollars in retirement savings through the collapse of the Internet stock bubble and the corporate accounting scandals at Enron and other companies. More recently, shareholders have suffered further declines from the bursting of the real estate bubble and the Wall Street financial crisis.

While CEO pay is still out of control on Wall Street and in the rest of Corporate America, shareholders now have new tools to fight back. CEOs must now give their shareholders a “say on pay,” thanks to the Dodd-Frank Wall Street Reform and Consumer Protection Act that President Obama signed in July 2010.           

Via Steven Greenhouse at New York Times' "Economix."

Ryan's private savings

Alan S. Blinder, economics professor at Princeton and a former vice-chair of the Federal Reserve, writes of the GOP budget czar's proposal in the Wall Street Journal:

The House Budget Committee's own rack-up of changes from the CBO baseline displays the much-ballyhooed $5.8 trillion in spending cuts over 10 years. But it also displays $4.2 trillion less in tax revenue. How many Americans know that 72% of Mr. Ryan's claimed budget cuts would go to fund tax cuts that overwhelmingly benefit the rich?

Another Ryanfest - but I'll post a picture of a funny baby rather than the GOP's congressional budget czar because I'm getting sick of his mug

I feel like I'm in a mode of constant repetition, but the fundamental flaws and dishonesty of the GOP's "deficit reduction" proposal need to be driven home, at the risk of boring even myself. Jeff Madrick, economics contributor to the New York Review of Books and senior fellow at The Roosevelt Institute, brings a bit of history to take the GOP's budget strategy apart:

"A fine mess..."

Among the economic fallacies embraced in Congressman Paul Ryan’s budget proposal, two are particularly egregious: that getting rid of Medicare will reduce health care costs and that enacting yet further tax cuts for the rich will spur growth and investment...

(T)he Ryan plan won’t reduce health care costs...the bipartisan Congressional Budget Office calculates that overall health care spending will go up as Medicare recipients are forced to buy private insurance, since private insurance has far higher administrative expenses than Medicare. Health care expenditures...are not being reduced on the backs of seniors, they are being raised on the backs of seniors.

And herein lies a further misunderstanding. It is true that the main cause of long-term budget deficits today is the expected rapid rise in expenditures for health insurance programs like Medicare and Medicaid (not Social Security, though they are all too often lumped together in the press). But the main reason those programs will become so costly is the rapid expected increase in health care costs in general, not the purported over-generosity of Medicare and Medicaid.

All effort should go into reforming health care. Americans pay far more per person in health care for outcomes that are typically not as good as in many nations that spend far less. In my view, effective health care reform will require much more serious government involvement—certainly not less—in improving efficiency and reducing costs.

As for the tax-cut mantra that it will automatically raise rates of growth, it is hard to believe that this theory has any credibility after the poor performance of the economy since the Bush tax cuts. Yet the Ryan plan would not only retain the Bush cuts for those who earn more than $250,000 a year; it would increase the cut for those who make more.

The conscience of a conservative

I do not much like David Frum, the former Bush speechwriter who penned one of the most idiotic and overwrought locutions I've heard a President deliver in a State of the Union address in my lifetime - "The Axis of Evil" - combining Saddam's Iraq, the Mullah's Iran (which had seen its conscripts subjected to chemical warfare at Saddam's hands in a nine-year conflict) and the isolated outlier of North Korea into some imagined alliance that defied even a wisp of rational analysis.

Frum became identified with the neoconservative movement at its worst. That is, until the GOP think tank, American Enterprise Institute, dismissed him soon after he began questioning aspects of the party line. (I have to say that today neo-conservatism seems like a fading echo within the spectrum of loud noise on the right.) But partly because I have long seen him as herald of a conservative mindset which in all honesty I despise, I also happen to find much of his current analysis of the ideological cul-de-sac of the Republican party's recent parade of political "stars" fascinating and telling.

"You'd have to be half mad to dream me up!"

In short, Frum - of all people - is freaked out by the descent into blindered unreality and unhinged  hsyterics of a Tea-Partyized GOP.  Here's a Frum commentary - reflecting on the aftermath of the 2008 financial meltdown and his own efforts at rethinking a "free market" outlook in it's wake - that captures some of the essence of just how disconnected from reality the current iteration of the GOP has become:

Especially after 2000, incomes did not much improve for middle-class Americans. The promise of macroeconomic stability proved a mirage: America and the world were hit in 2008 by the sharpest and widest financial crisis since the 1930s. Conservatives do not like to hear it, but the crisis originated in the malfunctioning of an under-regulated financial sector, not in government overspending or government over-generosity to less affluent homebuyers.

"In politics, the side with a fixed notion of ends and an unscrupulous approach to means always has the advantage"

George Packer brings clarity to the essential nature of today's GOP - their goals and their means - as "The Budget War" is being waged in Washington:

Rep. Ryan: "This is not a budget. It's a cause."

The Republicans now hold just one house of Congress, yet they have controlled the terms of the debate, because they understand that budget battles are about far more than numbers, and they’ve made the ideology behind their various bargaining positions startlingly clear: government should be reduced to gasping for air. What’s more, they’re willing to deploy legislative terrorism—threatening to shut down the government and to allow the United States to default on its debt—to get their way. In politics, the side with a fixed notion of ends and an unscrupulous approach to means always has the advantage.

No joy in Medicareville: more on the funny numbers and dishonest packaging of "Ryancare"

GOP Congressional Budget Czar Paul Ryan in the Wall Street Journal:

“Starting in 2022, new Medicare beneficiaries will be enrolled in the same kind of health-care program that members of Congress enjoy.”

Princeton economics professor Uwe Reinhardt begs to differ with Ryan's (false) claim that he's giving Grandma the same health insurance that he and John Boehner "enjoy:"

Mr. Ryan goes to Washington... to snatch Grandma's purse, enrich insurance companies and keep the cost of health care high.

Dean Baker of the Center for Economic and Policy Research comments on just how fundamentally irresponsible the GOP's "Ryancare" plan to kill medicare is, solely in terms of  dollars spent on coverage, according to the non-partisan Congressional Budget Office estimates:

The CBO projections show that under the Ryan plan, seniors would soon be spending more than half of their income to buy a Medicare equivalent plan. This is both due to the cost shifting from the government to individuals, but even more importantly CBO projects that Ryan's plan will lead to much higher health care expenses since it will be less effective in containing costs than the traditional Medicare program.

The CBO projections imply that Ryan's plan would add more than $30 trillion to the cost of providing Medicare equivalent policies over the program's 75-year planning period. The additional cost under the Ryan plan is an amount that is approximately equal to $100,000 for every person in the country or 6 times the size of the projected Social Security shortfall. This sum is the pure waste, it does not count the costs shifted from the government to seniors.

This breakdown of CBO findings is so stunning it's worth repeating: Obtaining private insurance policies that are equivalent to Medicare coverage over the duration of "Ryancare's" 75 year projection - would cost $30 trillion more than current Medicare. This is the sum of difference between profit-driven private insurance premiums and the cost of low-overhead Medicare with fee containment structured in.

Via Center for Economic and Policy Research.

New York Times Budget Puzzle - "You Fix The Budget!"

ACCESS PUZZLE HERE.

Assuming some haven't seen this, the Times "Budget Puzzle" is a fascinating (and fun) interactive federal fiscal "game" in which you can make your own choices as to how best to generate federal revenues and align them with federal spending.  The puzzle gives you a menu of choices on both sides of the balance sheet.  It's been online since last fall, but its worth revisiting in the context of current debates and definitely worth checking out if you've missed it.

Inflation is still low...(and "doing nothing" to reduce deficits)

According to Friday's Consumer Price Index, core inflation (which excludes food and energy prices because they are subject to sharp and often short-term spikes, driven by events external to the economy, that tend to obscure overall inflationary trends) rose slightly less than expected and remains low. (Via "NYTs Economix.)

This is important to underscore because anti-stimulative agendas that are fundamentally ideological or political often come cloaked in inflation alarmism.

Historical inflation comparison chart, including the past 12 months.  NYT's "Economix"

In the words of the New York Times' economics reporter, David Leonhardt, "The recent signs of economic weakness remain a much bigger risk than inflation."

The point is that economic policy must be about promoting jobs and growth rather than controlling a largely imagined threat of inflation - that is, if it's "serious."

Also of note, the NYTimes' Leonhardt had a column worth reading this past week that explains the "do nothing" approach to deficit reduction.  While it runs counter to "conventional wisdom" of the punditocracy, embracing the potential of "partisan gridlock" by simply "doing nothing" and letting the Bush tax cuts expire, as they will in 2013 within the framework of existing legislation, would solve 75% of the deficit problem over the next 5 years and 40% of deficits in the 20 year projections. This "do nothing" approach - especially given the extreme partisan obstructionism of the congressional GOP - should become the "baseline scenario" for any further discussion of deficit reduction, rather than the alarmism of far-right ideologues intent on using deficit fears as a club to kill Medicare and Social Security.

"Thought for the Day"

Credits: WW CHART — SOURCE: AUTHOR CALCULATIONS FROM IRS

From David Cay Johnston - "9 Things the Rich Don't Want You to Know About Taxes."

"People who actually understand budget numbers went to work..."

Nobel Prize-winning economist Paul Krugman notes in his NYT's column today (see below), "Last week, (House Budget Committee Chair, Paul) Ryan unveiled his budget proposal...Then people who actually understand budget numbers went to work, and it became clear that the proposal wasn’t serious at all."  One of those people was Emmy-award-winning budget analyst Jon Stewart:

The Daily Show
Tags: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

The credibility of the President vs. the GOP's Budget Czar: "Who's Serious Now?"

 From Paul Krugman's NYTimes column:

Last week Mr. Ryan ( the chairman of the House Budget Committee) unveiled his budget proposal...

"You know what else might work?"

Then people who actually understand budget numbers went to work, and it became clear that the proposal wasn’t serious at all. In fact, it was a sick joke. The only real things in it were savage cuts in aid to the needy and the uninsured, huge tax cuts for corporations and the rich, and Medicare privatization. All the alleged cost savings were pure fantasy.

On Wednesday... the president called Mr. Ryan’s bluff: after offering a spirited (and reassuring) defense of social insurance, he declared, “There’s nothing serious about a plan that claims to reduce the deficit by spending a trillion dollars on tax cuts for millionaires and billionaires. And I don’t think there’s anything courageous about asking for sacrifice from those who can least afford it and don’t have any clout on Capitol Hill.” Actually, the Ryan plan calls for $2.9 trillion in tax cuts, but who’s counting?

And then Mr. Obama laid out a budget plan that really is serious.

The president’s proposal isn’t perfect, by a long shot. ... But the vision was right, and the numbers were far more credible than anything in the Ryan sales pitch...

More on the Brits' austerity strategy

 Landon Thomas in New York Times' "Global Business:"

In the United States, the debate over how to cut the long-term budget deficit is just getting under way.

But in Britain, one year into its own controversial austerity program to plug a gaping fiscal hole, the future is now. And for the moment, the early returns are less than promising.

"We do not have to sacrifice the America we believe in"

President Obama:

The America I know is generous and compassionate; a land of opportunity and optimism. We take responsibility for ourselves and each other; for the country we want and the future we share. We are the nation that built a railroad across a continent and brought light to communities shrouded in darkness. We sent a generation to college on the GI bill and saved millions of seniors from poverty with Social Security and Medicare. We have led the world in scientific research and technological breakthroughs that have transformed millions of lives.

This is who we are. This is the America I know. We don’t have to choose between a future of spiraling debt and one where we forfeit investments in our people and our country. To meet our fiscal challenge, we will need to make reforms. We will all need to make sacrifices. But we do not have to sacrifice the America we believe in. And as long as I’m President, we won’t.

The New York Times editorial in response to the President's speech on fiscal policy is, in my view, one of the best appreciations of the stand President Obama took - as well as a realistic assessment of the  limitations and the political problem we face moving forward:

The President's Speech on long-term budget strategy

Visit msnbc.com for breaking news, world news, and news about the economy

I'll have commentary on this tomorrow.

Update: For starters, check out Paul Krugman's reaction. Since Krugman tends to play Cassandra when it comes to President Obama's economic agenda and messaging, his relative optimism is heartening - HERE.

Economic growth estimates for the first quarter are down - "And the year started out so very hopeful"

Noting the "great expectations" for faster economic growth this year, Catherine Rampell at the New York Times' "Economix" has this disturbing report:

When 2011 began, Macroeconomic Advisers, a forecasting company, expected that America’s economic output would shape up to rise at a 4.1 percent annual rate in the first quarter, the highest pace in over a year.

But economic reports coming in over the last few months have been increasingly disappointing.

Today, after an especially weak report on February’s trade deficit, the group’s economists lowered their first quarter G.D.P. estimate to a sorry 1.5 percent annualized. If borne out, that rate would be slower than each of the last two quarters, at a time when the economy desperately needs to be rocketing forward so that companies will hasten their hiring.

The Commerce Department will release its preliminary number for first quarter G.D.P. on April 28.

Update: MarketWatch (via CalculatedRisk) reports that forecasters at Morgan Stanley and RBS Securities have also lowered their G.D.P. estimates for the first quarter.

This bad news comes as little other than the scale of proposed spending cuts is being debated as our "serious" path to getting the economy back on track - as a "path to prosperity" even.  One of the NYT's online commenters, Chris Guan, in responding to this "Economix" news, offered strong evidence that allowing our economic agenda to shift radically toward austerity or focusing on the scale of cuts rather than growth, jobs and effective stimulus  - with Democrats appearing to tail after Republicans who are framing the debate - is precisely the wrong direction to move if we're serious about recovery.

Aggressive austerity and spending cuts have been imposed by David Cameron's government in the UK and appear to be dragging the country even further down into recession. According to an article in Bloomberg that Guan links,  "UK retail sales plunged most on record in March."

In the real world the Conservative government's austerity program is making matters worse not better, as one might expect if you're not reliant on "faith-based" economic notions that somehow consumer confidence and greater demand will arise magically in the midst of a program of cutbacks by the government overlaying depressed demand by households:

"Ryan's plan...a fairy tale utterly disconnected from the real world"

Economist and former consultant to Presidents Ronald Reagan and G.H.W. Bush, Bruce Bartlett - who I quote frequently and consider an authentic conservative, as opposed to the right-wing radicalism dominating the GOP - has issued a blistering critique of Paul Ryan, published in both The Fiscal Times and Capital Gains and Games blog:

House Budget Committee Chairman Paul Ryan’s budget plan has been the talk of Washington this week. Most of the discussion has revolved around his proposal to privatize Medicare and slash many federal programs to the bone. Less attention has been paid to the tax side of Ryan’s plan, which is every much as radical as the spending side.

One would think that a comprehensive budget proposal designed primarily for the purpose of reducing budget deficits and the national debt would put at least some of the burden on the revenue side of the equation. First, it would reduce the need to cut spending so heavily and improve the chances of passage; unless Ryan is only interested in scoring points with the Tea Party crowd...

Three views on the budget deal and moving forward...

What was that definition of insanity?

All 3 POVs are up at Huffington Post and worth reading:  Robert Reich - "Why the Right-Wing Bullies Will Hold the Nation Hostage Again and Again," Robert Creamer - "Why Last Week's Deal Reduces Republican Leverage in the Budget Battle" and  R.J. Eskow - "Why Progressives Keep On Losing and the Right Keeps On Winning."

I hope Creamer is correct, but I'm concerned that the points made by Reich and Eskow appear to be realistic rather than alarmist.