S&P

Experts Question Ratings After S&P Gives Subprime Bonds Higher Rating Than U.S. Debt

Brian Beutler | September 2, 2011, 5:18PM

Influential investors are scratching their heads over a little-noticed development: After downgrading the country's credit rating, Standard & Poors is continuing to award AAA status to the same class of assets that nearly blew up the world economy three years ago.

From Bloomberg: "S&P is poised to provide AAA grades to 59 percent of Springleaf Mortgage Loan Trust 2011-1, a set of bonds tied to $497 million lent to homeowners with below-average credit scores and almost no equity in their properties."

In other words: U.S. Treasuries -- widely believed to be the safest investment in the world -- don't make the cut, but subprime mortgage investments do? What gives?

Subprime mortgage-backed securities are the same class of assets that fueled the housing bubble and triggered the 2008 financial crisis. According to a 2010 report by the Senate Permanent Subcommittee on Investigations, the main ratings agencies fell over themselves to give these bonds AAA ratings, then abruptly downgraded them to junk status after mass mortgage delinquencies made maintaining the false ratings untenable.

According to the subcommittee's report, "In the end, over 90% of the AAA ratings given to mortgage-backed securities in 2006 and 2007 were downgraded to junk status, including 75 out of 75 AAA-rated Long Beach securities issued in 2006. When sound credit ratings conflicted with collecting profitable fees, credit rating agencies chose the fees." This triggered a collapse in mortgage-related securities leading to trillions of dollars in investor losses and a credit freeze that contributed to -- some contend caused -- the financial crisis.

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Default

Who's Really Responsible For U.S. Debt Downgrade

Brian Beutler | August 17, 2011, 10:00AM

Rep. Michele Bachmann (R-MN)

This article was updated at 10:00am Eastern on August 17, 2011 to include additional names pointed out by TPM readers.

Now that Standard & Poors has confirmed that the chorus of default doubters in the GOP was part of what spooked them into downgrading the U.S. credit rating, Republicans will do all they can to pretend that they never questioned the risk of missing payment obligations, or allowing borrowing authority to lapse. But they sure did! Here's a long, partial timeline of influential Republicans either vouchsafing default, or downplaying the consequences of passing the August 2 deadline without raising the debt limit.

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2012

Mitt Romney Touted Tax Increase To S&P In '04 Presentation

Benjy Sarlin | August 11, 2011, 9:57AM

Mitt Romney

Mitt Romney insisted that Republicans rule out any tax increases in negotiations to avoid a debt ceiling default, but as governor of Massachusetts they were a key selling point in his efforts to raise the state's S&P rating.

In a presentation from 2004 obtained by Politico's Ben Smith, the Romney administration touted a 2002 tax increase of over $1 billion approved by his predecessor as evidence the state was in good fiscal health. According to the 50-page presentation, Massachusetts "successfully managed revenue and expense positions" in 2002 and 2003 and "acted decisively to address the fiscal crisis."

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Barack Obama

Obama: 'No Matter What Some Agency Says, We Will Always Be AAA'

Susan Crabtree | August 8, 2011, 2:19PM

President Barack Obama (D)

President Obama in a somber address to the nation Monday sought to summon Americans' strength and perseverance as stocks continued in a 500-point free fall in the first trading day after Standard & Poor's rating service downgraded the nation's creditworthiness.

"Markets will always rise and fall," Obama told the nation. "No matter what some agency may say, we've always been and always will be a AAA country."

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2012 Presidential Primaries

GOP 2012 Candidates Agree Obama Deserves The Blame For S&P Downgrade... But Disagree Over Why

Thomas Lane | August 6, 2011, 11:55AM

Former Gov. Mitt Romney (R-MA) and Rep. Michele Bachmann (R-MN)

S&P's own explanation of their decision to downgrade the U.S credit rating spreads the blame around. Tellingly, It slams the GOP's intransigence over letting the Bush tax cuts expire. Overall, it paints a bleak picture of the whole political system.

However, for the GOP presidential candidates it's pretty clear where the blame really lies. You guessed it: with President Barack Obama.

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