Action and dysfunction in the Beltway swamp. E-mail tips to firstname.lastname@example.org.
This morning, the U.S. Senate is taking serious, concerted action to address the jobs crisis in America. Kidding! The first two items on today’s agenda are Republican bills to roll back federal regulations: the first is a resolution of disapproval on the Environmental Protection Agency’s cross-border pollution rules, and the second would kill the Federal Communication Commission’s recent net neutrality guidelines.
You may recall that the FCC approved net neutrality regulations last December that said Internet service providers cannot block rival websites, nor can they prioritize connection speeds to different websites or servers. Proponents of true net neutrality have criticized the rules as being too soft—for one, they don’t apply to mobile devices, meaning that net neutrality may not exist in the ever-expanding world of smartphone and tablet Internet use. And even on the regular Internet, the guidelines are a little soft when it comes to not prioritizing traffic—they just say that ISPs cannot “unreasonably” discriminate web traffic, but doesn’t say what “unreasonable” means. That will be decided on a case-by-case basis, when people start complaining.
Nevertheless, that hasn’t stopped conservatives from, well, totally freaking out over the FCC’s actions. When the new rules were approved a year ago, Senate minority leader Mitch McConnell accused the Obama administration of “mov[ing] forward with what could be the first step in controlling how Americans use the Internet.” Rush Limbaugh crowed about “total government control of the Internet,” and Senator Kay Bailey Hutchison, the sponsor of today’s bill to roll back the rules, said on Fox News that “we’re starting to see the FCC say you have to come to us to get permission to manage your own website.”
Here’s a video compilation of their freak-out last year:
It doesn’t seem likely that today’s vote will succeed, given that most Democrats favor the net neutrality regulations. (Even Senator Scott Brown says he might vote against it, in what we’ll call the “Elizabeth Warren effect.”) Should the Senate pass Hutchison’s bill, President Obama has already said he will veto it anyhow.
But this is an interesting example of where conservative scare-mongering on regulations has actually outpaced the desires of the industry that would benefit from the deregulation. The sad truth is that Internet and phone companies already feel they won this battle with the watered-down rules.
In 2010, as the FCC was writing the net neutrality rules, Verizon spent $13 million on lobbying, AT&T spent $12.5 million and Comcast paid $8.8 billion to influence the process—and when the watered-down rules were passed, it proved their effort was not in vain. In fact, all three companies actively supported the rules after they were written.
As Senator Al Franken pointed out on the Senate floor yesterday, the big ISP and phone companies aren’t even out supporting today’s bill. It’s mostly the work of conservatives who think they have a good talking point on government controlling the Internet, along with groups like the Koch-funded Americans for Prosperity, which launched a website, NoInternetTakeOver.com, to combat the FCC regulations.
These far-right forces will surely get some mileage here with their base of true believers. But in reality, they’re fighting a battle that they’ve already won, if the intent is to prevent real net neutrality from taking hold.
UPDATE: The resolution to nullify the FCC's net neutrality rules failed, 52-46. Every single Democrat opposed it, except Senator Daniel Inouye, who is not present today. Every Republican--including Scott Brown--voted for it, except John McCain, who was also not present.
At a White House staff meeting yesterday, chief of staff Bill Daley made a surprising announcement: his role in the administration going forward will be reduced, and veteran aide Pete Rouse will take over day-to-day management of the West Wing. The Wall Street Journal notes, “It is unusual for a White House chief of staff to relinquish part of the job.”
It’s unusual, but it is good news for progressives. There is no doubt that Daley’s hiring represented a tack to the right, and towards a more corporate-friendly approach, and this demotion could reflect at least a partial retreat by the White House from that approach.
Daley was a troubling hire for progressives from the start. Only weeks before taking the job, Daley wrote an op-ed for the Washington Post about Democratic defeats in the midterm elections. His solution: “Either we plot a more moderate, centrist course or risk electoral disaster not just in the upcoming midterms but in many elections to come.”
At his introduction to the press, President Obama noted that Daley would bring valuable business experience to the White House because he’s “led major corporations”—notably, Daley was a vice-chairman at too-big-to-fail bank JPMorgan Chase. The Chamber of Commerce lauded his hiring, while MoveOn and Public Citizen bashed it.
The results were exactly what everyone predicted: under Daley, the White House made deficit reduction a top priority, and infuriated liberals by offering repeated concessions to Republicans in order to achieve it. Democratic leaders in Congress weren’t fond of Daley, either: Senate majority leader Harry Reid was reportedly “livid” with Daley for cutting side deals with Republicans during the debt negotiations, and for telling Politico recently that “both Democrats and Republicans” were to blame for Obama’s governing troubles. That sounds like something straight out of a David Brooks column, but does not even approach the reality of Republican intransigence and Democratic over-compromise—something Daley must have known given his role in those very negotiations.
Daley’s touted affinity for business interests led to some disastrous executive branch decisions. In early September, the White House ordered the Environmental Protection Agency not to enforce stricter standards on smog emissions—even though the EPA itself called the current standards “legally indefensible.” During the deliberation process, Daley got personally involved in meetings with representatives from Business Roundtable, the Chamber of Commerce and other groups. His unique influence in that debate shifted the outcome, according to all involved:
“We saw that as a positive—his level of interest, him sitting in on these meetings, him weighing in on this issue within the administration,” Johanna Schneider, executive director of external relations for the Business Roundtable, told The Hill. “I think it’s emblematic of his role in the administration as part of the outreach to the business community.”
“It moved the issue up to the top of the agenda for the president. That is what happens when you have a White House chief of staff getting involved,” Schneider said. “You have one of the two or three people in government who can control the agenda.”[…]
Rena Steinzor, president of the Center for Progressive Reform, a liberal-leaning regulatory think tank, said it was “astounding” and “really, really unusual” that Daley participated in the OIRA meetings. “You hear rumors of him having meetings like this, but you never see him trundling down to their office in the Old Executive Office Building,” Steinzor said. “I think what this did is elevate this EPA rule to the highest levels of the White House. It shouldn’t go unremarked that the president’s top political guy was sitting in meetings with interest groups about what is essentially [EPA Administrator] Lisa Jackson’s responsibility.” [Emphases added.]
Daley’s new responsibilities haven’t been fully defined, according to the Wall Street Journal. But there’s no question his profile has been lowered. It’s important to remember that the cossacks work for the czar—in other words, Obama is the boss and always has been, and Daley can’t be blamed for every bad White House decision.
But Obama may now want to go in a different direction, as evidenced by his increasingly confrontational approach to Congressional Republicans for blocking the jobs bill, and now by Daley’s apparently reduced influence.
And while few know the true motivations of the White House, it’s not hard to imagine that while facing a mass popular movement against big banks and predatory capitalism, not to mention the increasingly likely possibility it will face a Republican opponent in 2012 best known for starting Bain Capital, it’s not ideal to have the most important non-elected person in the White House be from JPMorgan Chase.
Particularly in recent months, Republicans have gotten a lot of mileage out of the claim that 47 percent of Americans don’t pay taxes. “We’re dismayed at the injustice that nearly half of all Americans don’t even pay any income tax,” Rick Perry said in his presidential announcement speech. “A majority of American households paid no income tax in 2009. Zero. Zip. Nada,” declared Senator John Cornyn of Texas this summer.
The truth behind the truth, of course, is that 47 percent of Americans don’t pay federal income taxes because they don’t earn enough money. For example, a couple with two children earning less than $26,400 isn’t required to pay any income taxes, because they are presumably stretched thin enough already. The elderly, poor and young receive various tax credits that exempt them from having to pay already meager incomes to the federal government.
If Republicans really wanted to go after tax freeloaders, they ought to start talking about big corporations. Today, Citizens for Tax Justice released a damning report detailing how many large corporations paid ridiculously low tax rates on billions in profit—and in some cases, actually got money from the government.
The CTJ studied tax information from 280 of the country’s largest corporations over a three year period from 2008–10, and found that though the corporate tax rate is 35 percent, on average those companies only paid about half of that. Among the other findings:
Only 25 percent—71 companies—actually paid something close to the federal corporate tax rate of 35 percent. They averaged a 32.3 percent effective tax rate.
An equal number of companies, 67, paid an effective three-year tax rate of less than 10 percent. Their average tax rate was zero.
Most shocking, 30 companies actually paid a negative effective tax rate, meaning that through clever accounting and generous government subsidies, they actually got money from the government. These companies made a profit of $160.4 billion over the same three-year period. Here’s a list of these companies:
In my recent piece for The Nation, “How to Be a 1 Percenter,” I looked at some of the ways that rich corporations and individuals use the legislative process to protect and enrich their fortunes. Fighting for tax breaks and subsidies is a key way to protect that wealth.
The CTJ study found four industries that get 56 percent of federal tax subsidies, and they aren’t likely to elicit much sympathy from actual taxpayers: the largest industry to benefit is financial services, which received $37.5 million in federal subsidies and paid an effective tax rate of 15.5 percent over the past three years. The other three industries receiving a majority of tax subsidies are utilities (like gas and electric companies), telecommunications companies, and oil and gas companies.
Defense contractors also do pretty well—the top ten have enough accountants and lobbyists to keep their average effective tax rate at less than half of the 35 percent corporate rate, despite $67 million in profit over the past three years:
It’s hard to imagine most Americans would actually support paying fewer taxes than defense contractors, oil companies and Wall Street firms—while giving some of what they do pay in the form of subsidies to those same corporations. But that’s the reality of the current tax system.
Republicans, however, uniformly want to cut corporate taxes—while, apparently, seeking to raise them on the 47 percent of Americans that don’t make enough money to pay taxes under the current code.
Unfortunately many Democrats also support cutting corporate taxes, though they at least want to get rid of the subsidies too—President Obama recently proposed lowering the corporate tax rate from 35 percent to somewhere between 26 and 30 percent, but wanted to pay for it by closing the loopholes and exemptions that allow so many companies to get away with not paying taxes.
In any case, it’s hard to look at a tax system where many middle-income people pay taxes at a higher rate than multibillion-dollar corporations and say that it’s fair. The next time a journalist acts confused as to why so many people are taking to the street, protesting unfairness in the economic system, the CTJ report is one of many good examples to bolster the people’s case.
For the austerity class in Washington, yesterday was high theater. The Congressional supercommittee on deficit reduction heard hours of testimony from people who served on other deficit commissions about how best to cut the government’s budget. Both Alan Simpson and Erksine Bowles, of the Bowles-Simpson Commission, testified, as did Alice Rivlin and Pete Domenici, who have their own deficit reduction plan.
A morality play about the evils of national debt unfolded: the scene, as set by Domenici, was a fiscal house in disarray—“We have rats, holes in the roof and grass growing window high,” he said. Bowles—a board member at Wall Street megafirm Morgan Stanley—invoked his grandchildren and told the supercommittee not to “fail the country” by not agreeing on a major deficit reduction plan. Rivlin, who helped Representative Paul Ryan craft his Medicare privatization plan, proclaimed that “this committee can change the course of economic history for the better.”
The villains in this battle were Grover Norquist and the AARP, both of whom were repeatedly invoked as obstacles to a true deficit reduction package. Former Republican Senator Alan Simpson said Republicans should feel free to raise revenue, even if it caused Norquist to “have a stroke over in his shop.” He also blasted AARP for a television campaign to protect Medicare from supercommittee cuts. He called the advertisements “really ugly” and “the most disgusting ad I've ever seen.” (The ad can be seen here; it features a friendly senior citizen asking not to have his benefits reduced.)
No actual specifics were hashed out by supercommittee members—that’s being done behind closed doors, and as we noted last week, the left side of the supercommittee has already proposed a package that’s well to the right of the Bowles-Simpson proposal. Needless to say, the Republican proposal is even worse.
But other developments outside the hearing room yesterday have serious import—and should cause serious concern among progressives.
Reuters reported on the existence of a super-supercommittee—six members of the twelve-member supercommittee are negotiating a compromise amongst themselves. The Democratic members are Representative Chris van Hollen, and Senators Max Baucus and John Kerry.
That means Representatives Xavier Becerra and James Clyburn—the only true progressives on the committee—have been excluded from the negotiations. Becerra is a member of the Congressional Progressive Caucus, and Clyburn has already reportedly opposed the Medicare cuts being discussed and spent most of his time at the hearing yesterday addressing income inequality, using charts that showed explosive growth in post-tax income for the top 1 percent.
But they apparently no longer have a seat at the table with their fellow Democrats. The only other Democrat to be excluded was Senator Patty Murray—and that’s logical because, as a co-chair of the committee, she can’t really be part of the subgroup. (The Republican co-chair, Representative Jeb Hensarling, was left out of the Republican side as well).
Last week, Democrats proposed a package that features deep cuts to both Medicare and Social Security, and now they have sidelined progressive members who might oppose it. I’m not sure there will be a deal—Republicans are still not budging on raising taxes—but Democrats are trying awful hard to make a bad one.
As we’ve been reporting, Democrats on the supercommittee—led by Senator Max Baucus—are pursuing a “grand bargain” on deficit reduction, which would include tax increases, spending cuts, a new round of economic stimulus and steep cuts to both Medicare and Social Security. Republicans have rejected the deal in favor of their own, which basically includes all of the cuts and does not include tax increases nor stimulus spending.
But several Democratic members of the House are increasingly upset with how supercommittee Democrats are carrying out the negotiations, and are threatening to vote against a package that includes deep cuts to the safety net. Some are even planning an attempt to get rid of the supercommittee altogether.
Representative Maxine Waters of California has introduced a bill to repeal the supercommittee, and the $1.2 trillion in cuts it’s mandated to make. She believes the committee is “illegitimate” and “borders on unconstitutional.”
At a breakfast meeting with progressive reporters and bloggers today, Waters said she knows her bill probably doesn’t have the support to pass right now, but she wants it on the table if the supercommittee deadlocks. “Of course its’s a long shot. But right now people are getting more and more agitated, frustrated and concerned about this supercommittee and not happy that there are those who are saying, including the president, they want even bigger cuts,” Waters said. “So it may fall apart. If it falls apart my bill is there to say ‘kill it.’ ” She added that she’s spoken to several Republicans who are equally unhappy with the supercommittee’s power.
Waters’s frustration is shared by many Democrats in the House, who feel not only shut out from the process by colleagues in the Senate—Baucus is reportedly acting with guidance from Senate majority leader Harry Reid, leaving House minority leader Nancy Pelosi on the sidelines—but are also shocked at the level of cuts to Medicare and Social Security being proposed.
Representative Henry Waxman told Politico today that he has “no stake” in the committee and called it an “outrageous process” that is “not open and transparent.” He said the “things put forward by Democrats…I would never vote for.”
Much of the Democratic caucus could bolt from a supercommittee deal that looks like what Baucus has proposed, according to Representative Gerry Connolly in his remarks to Politico. “It’s a mistake to not bring [minority] leader Pelosi into meetings,” said Connolly .“If she’s not a stakeholder in a final product, neither is the Democratic caucus.”
With Republicans refusing to budge on revenues, a deadlock seems likely—meaning steep, across-the-board cuts to defense spending and domestic programs would be triggered. “I’ve always thought it will deadlock. I’ve never been one who believed anything meaningful would come out of it, if you assign six Republicans to it and they’ve all signed a pledge there can be no revenues,” Representative Peter DeFazio told me this morning at the breakfast.
Some Republicans have already publicly pledged to undo the defense cuts if the triggers are activated—and Waters said today some Democrats would likely try to protect domestic spending cuts.
It’s far from clear what the end result will be, but it’s pretty clear that nobody will like it—and many will try to change it.
Today at a meeting with progressive journalists and bloggers, Representative Gwen Moore of Wisconsin—the only person to have beaten Governor Scott Walker in an election—read her original poem called “Job Creators.” It’s a challenge to that vaunted group, which Republicans eagerly claim to promote and protect at all costs. It was really too amazing not to post right away:
Yesterday, supercommittee Democrats proposed a massive deficit reduction plan consisting of $300 billion in economic stimulus, discretionary spending cuts and increased tax revenue, and an alarming $575 billion in cuts to Medicare and Medicaid, at least $200 billion of which would come directly from benefits. (See my story here). After I published, reports came out that not only were Democrats proposing draconian Medicare cuts, but also floated the idea of adjusting the Consumer Price Index used to calculate Social Security benefits—in other words, they were willing to cut that program, too.
Republicans on the supercommittee rejected the deal immediately, due to the tax hikes, and proposed their own: it, too, included deep cuts to Medicare and Medicaid, deeper (but not by much) than what Democrats proposed, along with deep discretionary spending cuts and some limited “revenue raisers.” The revenue Republicans propose raising isn’t really in the form of taxes but increased government fees and higher co-pays for Medicare recipients.
Democrats have rejected this, rightly, because it makes deep cuts without changing the tax code nor really raising substantial new revenue. So we have a situation very similar to the summer standoffs over the debt limit: Democrats offer a “grand bargain” including tax increases along with many things that really anger their base, Republicans reject it in favor of an even more extreme package with no tax increases, and there’s a standoff. Everyone kicked this can down the road, to use the parlance of Washington pundits everywhere, by creating the supercommittee, but the fundamental dynamics haven’t changed.
The difference now, as I noted yesterday, is that the Republicans have no particular leverage. They possess the same amount of votes on the supercommittee as Democrats, and are if anything more scared of the triggers that get pulled in the event of a deadlock—Republicans don’t want to see the massive defense cuts that would then occur. Hopefully this means that Democrats won’t sell the farm in order to achieve a deal, but that remains to be seen. If I had to guess, I would say the committee deadlocks.
Meanwhile, the media coverage is the same as it ever was—that is, awful. Today in the Washington Post, Dana Milbank wrote a column on the supercommittee that turns on the following analyses:
Reasonable people on all sides know that tackling the nation’s long-term debt problems will require both an increase in taxes and cuts to entitlement programs. But just weeks from the committee’s deadline, Republicans continue to resist new tax revenues, and Democrats dance around the need for entitlement cuts [emphasis added].
Putting aside his insistence that entitlements must be slashed—Social Security does not contribute to the deficit—how did Milbank follow the supercommittee all day yesterday and come away thinking Democrats are dancing around entitlement cuts?
Very distressing news broke during this morning’s meeting of the supercommittee: aides told Reuters that Democratic members of the committee have proposed $2.5 to $3 trillion in deficit reduction measures, including $400 billion in cuts to Medicare—a half of which would come from benefits.
The Democratic proposal consists of an even split between tax increases and spending cuts, and also $200 to $300 billion in new stimulus spending that would be paid for because interest payments on the debt would be lowered if the plan passed. The $400 billion in Medicare cuts would be split evenly between beneficiaries and providers. It was reportedly a formal proposal advanced by Senator Max Baucus, though Clyburn is said to object to the Medicare cuts.
The supercommittee has largely been deliberating behind closed doors, but as far as anyone knows the Republicans have not proposed anything this concrete. This begs serious questions, once again, about Democrats’ negotiating techniques in the ongoing budget and debt ceiling dramas.
The additional stimulus is a terrific idea, and fulfills the calls for the supercommittee to address the jobs crisis as it forms a deficit reduction plan. And raising additional revenue is a must for any serious deficit package.
But this magnitude of Medicare cuts, presumably meant to entice Republicans, is astounding and out of line with previous Democratic proposals. President Obama’s own deficit plan calls for $320 billion in healthcare savings, only seven percent of which—not 50—would affect beneficiaries. I thought at the time perhaps Obama’s proposal would push the supercommittee left; instead, it’s gone far to the right, thanks to Baucus and the Democrats who support his plan.
Right now, approval ratings for Congressional Republicans are in the toilet, with just 20 percent of Americans saying they believe the party has a “clear plan” for job creation. Meanwhile, almost half of Americans (and counting) support the Occupy Wall Street movement and its demands for greater income equality and protections for the 99 percent.
So Republicans’ pull with the public is low, and on the supercommittee, it’s even lower. Unlike during the prolonged debt ceiling debate, the party has no real leverage. Then, Republicans seemed willing—even eager—to let the federal government default on its obligations, whereas Democrats and President Obama were not. But Republicans have the same number of votes as Democrats on the supercommittee, and control only the House of Representatives. Moreover, many Republicans have voiced serious fears about the triggers that would cut defense spending if the supercommittee cannot reach a deal. (Medicare, by the way, is entirely protected from the trigger process).
So why would the Democrats pre-negotiate cuts to Medicare—and if so, why go so far beyond what Obama already proposed? They either really want to cut the program, or are hoping to entice Republican votes to their side—a mission that’s proven fruitless in the Obama era, ever since the president went hunting for Republican votes on the stimulus in 2009 and didn't find a single one in the House and three in the Senate, one of which came from a senator, Arlen Specter, who soon became a Democrat.
And when Republicans on the supercommittee reject the stimulus and tax measures, they will surely be more than happy to keep talking about Medicare cuts, which are now officially on the supercommittee’s table.
This morning, I wondered whether income inequality would come up during the hearing, since the only witness, Congressional Budget Office Director Doug Elmendorf, just produced a dramatic report on the growing wealth divide. To their credit, Representatives Xavier Becerra and James Clyburn mentioned the report and urged the committee to address income inequality as it produces a deficit plan. If that’s what they want, they ought to push back hard against their party’s attempts to slash the social safety net.
UPDATE: In a not-so-shocking development, Republicans on the super-committee have already rejected Baucus' attempt to go big on deficit reduction. They don't like the stimulus and tax measures, and the committee is now deadlocked. Now that the GOP has pushed those items off the table, it will be very interesting to see if the Democrats pull the deep Medicare cuts right off the table as well.
A dramatic study released today shows income inequality in the United States is on a furious upward trajectory: since the late 1970s, the top one percent of earners more than doubled their share of the nation’s income. From 1979 to 2007, average inflation-adjusted after-tax income grew by 275 percent—and the top one-fifth now receives more income than the other four-fifths of the population. Meanwhile, people in the middle three-fifths of the population saw their shares of after-tax income decline by two or three percentage points.
The study’s results are dramatic, though certainly have been studied and noted before. But what adds juice is who conducted the study—it was released today in the heat of the Occupy Wall Street movement by the non-partisan Congressional Budget Office, after years of work. The study was requested by Senators Max Baucus and Charles Grassley in 2006.
And this morning, there’s a perfect stage for these findings: Doug Elmendorf, the head of the CBO, is testifying again before the Congressional supercommittee on deficit reduction, which is trying to find $1.2 trillion in cuts while possibly tackling the increasingly lopsided tax code, which the CBO found was a key contributor to the upward shift in incomes.
The last time Elmendorf testified, he urged the supercommittee to focus on growing the economy now and cutting the deficit later. Many Democrats and union groups are urging the committee to focus on growing the economy and creating jobs now, as well. But Republicans on the panel weren’t receptive to Elmendorf’s message last time—“deficit reduction is a jobs plan,” Representative Jeb Hensarling claimed that day.
Now, Elmendorf’s office has released this thorough, nonpartisan debunking of the idea that income inequality isn’t a real problem. Will Elmendorf trumpet its findings, and will Democrats bring it up? How will Republicans get around it? And ultimately, will these sobering facts push the supercommittee to minimize cuts harmful to middle-class Americans, ignore the calls from Wall Street for deep cuts and also make the tax code more equitable?
I am heading over to the hearing room now, and will report on twitter (@gzornick) and in this space later today. I’m not convinced at all that Hensarling and Club for Growth’s favorite Senator, Pat Toomey, will suddenly see the light, but they will likely at least face some uncomfortable truths.
Last week in The Nation, Ari Berman penned an excellent examination of the “austerity class”—the network of wealthy donors, pro-corporate front groups, and right-leaning pundits that have successfully convinced Washington that debt and deficits are a more pressing concern than stimulative action on jobs. As Berman noted, the basic goal of the Wall Street–driven movement is to see government funds directed to the private sector.
The Congressional supercommittee, tasked with finding at least $1.2 trillion in ten-year deficit reduction by November 23, is a natural target for the slashing austerity class. But there’s been a lot of talk in recent weeks that the supercommittee might not actually do much. Many legislators seem to think the committee will deadlock, thus triggering automatic cuts in both defense and domestic spending—but lawmakers could pretty easily undo the cuts resulting from that trigger. There are other ways for the committee to escape the burden of deep cuts painful to both sides: some senior Republicans, for example, are reportedly pressuring their colleagues to just count the money saved from already planned drawdowns in Iraq and Afghanistan, which would almost get to the supercommittee’s $1.2 trillion target.
Enter Wall Street. In a Hill story this morning titled “Fears of a US credit downgrade are growing on Wall Street,” we hear a lot of ominous talk from bankers that the credit rating agencies will downgrade the federal government's credit, again, if the deep cuts aren’t achieved:
Fitch Ratings, one of the three major credit raters, said in August that failure by the supercommittee to agree to a $1.2 trillion deficit-reduction package “would likely result in negative rating action.” […]
In its outlook for this week, Bank of America Merrill Lynch said it “expects” a downgrade by one of the three credit agencies “when the supercommittee crashes.”
It’s important to understand that the credit rating agencies get all of their fees from Wall Street, and have historically been more than willing to do the bidding of powerful financial firms—whether it was blessing toxic mortgage-backed securities or the issuing the unjustifiable downgrade of the federal government’s credit in August. (I wrote about that here, here, here and here). So this is just a tool which Wall Street is using to increase pressure on Washington to make cuts.
The story has more threats from Wall Street beyond action by the rating agencies, namely in the form of completely ridiculous rhetoric:
In its weekly analysis Friday, Deutsche Bank said the supercommittee report is “perhaps” the most important issue facing the markets. “The fiscal calendar is likely to be a source of considerable volatility,” the report warned.[…]
Michael Cembalest, chief investment officer for JP Morgan Chase, wrote that failure by the group could even herald the end of the dollar as a reserve currency.
So Wall Street really wants these cuts, without any shenanigans. The question now is whether Washington will listen—and of course, it usually does.