Blowback to Standard and Poor's Downgrade

**It didn't take the RNC much time to trumpet the first credit downgrade--happening under President Obama.

**Barnie Frank speaking by phone to Rachel Maddow slammed S&P for its historic incompetence,maintaing it always overvalues private debt and undervalues public debt. He pointed out that they gave AAA ratings during the financial crisis to junk securities. Despite the messy debt ceiling debate, he claims this still shows default isn't possible.

**Obama officials slammed the decision as "amateur hour" at S&P saying that their calculations were off by "trillions" and that this downgrade was "incompetence based on a math error."

**Louise Story of the New York Times said that while the record of the rating agencies on mortgage-based securities were wrong, their concerns about the ineffectiveness of the political system were real.

**Ezra Klein pointed to the irony of the last several days being a time of enormous buys in American treasuries after the stormy sessions of the stock market. But he did concur with S&P's political asssessment. He also pointed out that the United States was the only country in the world with a debt ceiling.

**As if to underscore S&P's statements on our political dysfunction, Paul Ryan, Rob Portman and Mitch McConnell claim they will enshrine the notion that budget cuts must be included in any debt ceiling vote for the future. Ezra Klein found that the S&P's insistence on revenues might move some Republicans to modify their positions since their funders are primarily Wall Street types.

**Harry Reid commented that the downgrade indicated the need for a balanced approach to debt reduction.

**Jared Bernstein, Joe Biden's former economic adviser, pointed out that Moody's and Fitch have maintained the AAA rating. But he said that if all three downgraded, pension funds are legally required to divest from American treasuries. The other effect of a downgrade is that it can affect the credit rating of states,municipalities and hospitals. The downgrade could also affect Fannie Mae and Freddie Mac, who now will have to borrow billions very soon. It's important that S&P didn't downgrade the United States' ability to pay.

**The Administration hopes that the market recognizes that American treasuries are the best known, transparent investment in the world and is still considered the safest.

**The Republicans also announced today they would oppose any move by the Administration to increase any funding for transportation or the highway system. For the first time since the inter-highway system,Congress would refuse to replenish the highway fund.

**John Kerry has announced plans to introduce a bill to create an infrastructure bank. He claims that the Sovereign Nations Fund could supply the capital. This is the fund bankrolled by Arab Gulf States. It would be like Indiana selling its turnpike to Dubai taken to a national scale.

**We'll have to endure another session of the blame game this weekend via the talk shows. The question will be how the markets respond on Monday.