Standard & Poor's Screams Over Obama; Silent During Bush's Reign

Yesterday Standard & Poor's Screamed Bloody Murder About America's Increasing Debt. The World Famous Credit Rating Agency Has Threatened To Lower Our Nation's Credit Rating From "Stable" To "Negative".

Ok So Why Weren't They Doing That When President Bush Was Still In Office, Running Up Trillion Dollar Debts From 2 Wars?

Inquiring Minds Would Like To Know.

Whether Those 2 Wars Were Necessary Or Not Isn't The Issue.

Debt Is Debt!!

Yes, Politics Is A Dirty Game.




Can S&P scare Congress into shrinking the deficit?

Standard & Poor's, one of the country's most influential credit-rating agencies, "fired a warning shot on Monday" about the growing U.S. debt load. S&P downgraded its credit outlook for the U.S. from "stable" to "negative," meaning it believes there is a one-in-three chance it will lower the government's sterling "AAA" rating within two years. The agency pointed to the political gridlock in Washington, and questioned whether President Obama and Republicans would agree on a plan to lower the deficit and reduce the national debt before the 2012 elections. Will S&P's downgrade get Obama and the Republicans on the same page?

This should spur Washington to act: Hopefully, this warning will act "as a catalyst" for politicians to agree on a "credible" package of reforms, says Mohammed El-Erian, CEO of bond giant PIMCO, in the Financial Times. Failure to do so would weaken the dollar and could drive up borrowing costs, "thereby undermining investment, employment and growth." The "time has come" for the U.S. "to take better control of its fiscal destiny — for the sake of American society and for the well being of the global economy."
"El-Erian: A warning for the US, and for the global economy"

If only our political system wasn't broken: S&P basically said that it has no confidence in our political leaders "because they're pretty much all spineless cowards," says Hamilton Nolan at Gawker. And the Treasury's response — that S&P "underestimates the ability of America's leaders to come together" — is http://www.blogger.com/img/blank.gifreally "laughable" considering the partisan bickering that has gripped Washington for years. But, hey, "at least the problem is contained in a single sector: the economy."
"The American economy is collapsing some more today"

Who cares what S&P says? The agency "has a horrible track record for judging credit worthiness," says Dean Baker at the Center for Economic and Policy Research. It gave companies like Lehman Brothers, Bear Stearns, and Enron "top ratings" until they collapsed — and also gave good ratings to mortgage-backed securities that turned out to be junk. "Investors are aware that S&P's judgement does not mean very much."
"If a negative S&P outlook for the U.S. explains a drop in stock prices..."



S.&P. Lowers Outlook for U.S., Sending Stocks Down

The United States has long had a sterling credit report from ratings agencies because of the global preference for the dollar. But the latest deficit gridlock in Washington may have taken some of the luster off the reputation of the world’s largest economy and its currency.

On Monday, the ratings firm Standard & Poor’s lowered its outlook on the United States rating to negative. Although the agency did not actually lower its highest AAA rating on the country’s debt, it was the first time since the S.& P. started assigning outlooks in 1989 that the country was given an outlook that was something other than stable.

While it had not been completely unexpected, the S.& P. decision shifted the nation’s deficit debate out of the political arena — at least for the day — and thrust it on Wall Street. The action spooked investors, sending the three main stock indexes down more than 1 percent.

Treasury yields, or the interest rate that the country pays on its debt, spiked immediately after the announcement. Since the United States owes more than $9 trillion in outstanding debt to the public, even a one-tenth of a percent increase could potentially add billions to the deficit over time.

A lower credit rating for the government could also end up hurting consumers in the pocketbook since Treasury yields also affect rates on consumer loans, particularly mortgages.

“If the U.S. gets downgraded, the cost of issuing new debt will definitely increase,” said Guy LeBas, the chief fixed-income strategist for Janney Montgomery Scott. “It is a question of how much.”

Mr. LaBas’s firm estimated in a study this year that there could be a 6 to 6.5 percent decline in American stocks over three months as a result of any downgrade. Russell T. Price, a senior economist with Ameriprise Financial, said that any downgrade could also hurt perceptions of the dollar and perhaps trade.

“Even a small increase in the interest rate being charged on that debt could add significantly to the U.S. deficit problem,” he said.

On Monday, the markets turned sharply lower in reaction to the news. The Dow Jones industrial average closed down 140.24 points, or 1.14 percent lower, at 12,201.59. It was the Dow’s biggest decline since March 16.

The broader S.& P. 500-stock index declined 14.54 points, or 1.1 percent, to 1,305.14. The technology-heavy Nasdaq lost 29.27 points, or 1.06 percent, at 2,735.38.

Stocks also fell across the Asia-Pacific region early Tuesday, with the Nikkei 225 index in Japan down 1.5 percent by midmorning. Singapore’s main index fell 0.6 percent and in Australia, the S.& P./ASX 200 index fell 1.3 percent.

In its decision, the Standard & Poor’s ratings unit issued a strong warning to government leaders to agree on how to address the medium- and long-term budget challenges by 2013.

“More than two years after the beginning of the recent crisis, U.S. policy makers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures,” said Nikola G. Swann, a credit analyst at Standard & Poor’s. The firm said that there was a one in three chance that it could lower its long-term rating on the United States in two years.

The statement initially made investors in Treasury bonds nervous, sending the yield on the benchmark 10-year Treasury bond as high as 3.45 percent. By the end of the day, the yield fell to 3.37 percent, down from 3.41 percent on Friday. The price of the 10-year bond rose 9/32, to 102 2/32.

Previously, on Jan. 14, the S.& P. and another major credit ratings agency, Moody’s Investors Service, warned that the United States might tarnish its triple-A credit rating if its national debt kept growing. At that time, the Obama administration was warning that the government could reach its legal borrowing limit within a few months and urged Congress to raise the debt ceiling to avoid a default.

Administration officials played down the S.& P.’s assessment on Monday while reiterating Washington’s determination to reach a compromise on the deficit.

Treasury officials “believe S.& P.’s negative outlook underestimates the ability of America’s leaders to come together to address the difficult fiscal challenges facing the nation,” an assistant secretary for financial markets, Mary J. Miller, said in a statement.

Austan Goolsbee, chairman of President Obama’s Council of Economic Advisers, said in an interview with Bloomberg TV that President Obama in a recent speech had said that there would be actions taken to promote fiscal responsibility.

He said that S.& P.’s “political judgment” should not be given “too much weight.”

Both President Obama and Republican lawmakers have suggested plans to cut the federal deficit by at least $4 trillion over the next 10 to 12 years, but by different methods. And Mr. Obama plans to take his message on the road this week, traveling to the West Coast to promote his proposal, which combines spending cuts and revenue increases.

The Republican blueprint championed by Representative Paul D. Ryan, Republican of Wisconsin and chairman of the House Budget Committee, includes cutting nonmilitary spending, and a politically charged proposal to fundamentally reconfigure Medicare.

“We face the most predictable economic crisis in our history — a crisis driven by the explosive growth of government spending and debt,” said Mr. Ryan in a statement.

Congressional Republicans quickly seized on the Standard & Poor’s analysis as an argument for advancing the newly adopted House budget that would cut an estimated $5.8 trillion over a decade. They sought to increase the pressure on Democrats against increasing the federal debt limit without some significant new limits on federal spending.

“Serious reforms are needed to ensure America’s fiscal health, and today S.& P. sent a wake-up call to those in Washington asking Congress to blindly increase the debt limit,” said Representative Eric Cantor, Republican of Virginia and House majority leader.

As Republicans claimed the report bolstered their case against increasing the debt limit without new spending limits, Representative Nancy Pelosi of California, leader of the Democrats, said she read the findings as an indication that the two parties must move carefully and cooperatively to show a united front in trying to tackle the nation’s fiscal woes.

“Both Democrats and Republicans must participate in the process initiated by President Obama last week to demonstrate our commitment to reducing our deficit through shared responsibility,” she said.

With many lawmakers back home beginning a two-week recess, the S.& P. warning could weigh on some voters as Republicans try to sell their new plan.

Standard & Poor’s did not take sides on any of the political proposals, saying that they were a good starting point. But it cautioned that “we see the path to agreement as challenging because the gap between the parties remains wide.”

Analysts said that there were not many immediate implications to the S.& P.’s action. But over time, other ratings agencies could reconsider their recommendations on the United States’ sovereign debt.

The S.& P. statement could spur the administration and lawmakers to find a way to reduce the nearly $1.5 trillion budget deficit and give the fiscal austerity debate a greater sense of urgency, said Capital Economics economists in a research note.


View Larger Map


Sources: CEPR, Fox News, NY Times, The Week, Youtube, Google Maps

Foreclosure Ruins Consumer Credit For 7 To 14 Years

After Foreclosure: How Long Until You Can Buy Again?


Walking away from a mortgage you can still afford to pay has consequences; everyone knows that. Your credit score is shot and it can be impossible to get credit.

Some homeowners, no doubt, believe that the credit score hit is worth getting out from a deeply underwater mortgage. They may owe, say, $500,000 when their house value is only valued at $350,000. And, they figure, there's no way it will ever be worth what they owe so it's better to get out from underneath the burden.

After default, they reason, they can raise their FICO scores by paying all their bills on time and eventually finance another home purchase.

Don't count on it.

While homeowners who default due to economic hardship, such as a job loss or divorce, normally must wait two to five years before buying a home again, walkaways may face double that time.

"It could be well over seven or eight years before [walkaways] are able to obtain a mortgage to buy a home again," said Jay Brinkmann, chief economist for the Mortgage Bankers Association.




How Foreclosure impacts your credit score

"Credit scores are only one component of a complete credit decision," Brinkmann said. "[In these cases] credit scores are not a good indicator of their willingness to continue to pay their mortgage."

But future underwriters will scrutinize their records very closely, and if they find no precipitating factors leading to the defaults -- no job loss, no health issues --the repaired credit score won't overshadow the black mark of a walkaway.

"If you made a strategic decision to default on paying your mortgage, it will work against you," said Bill Merrell of the National Association of Review Appraisers and Mortgage Underwriters.



Merrell, who teaches underwriting, said banks are looking at several factors in determining whether to grant mortgages: the amount of money borrowers have in the bank; employment histories; payment history.

However, banks may be far more lenient if the default resulted from factors somewhat beyond the borrower's control, such as from local economic problems. "They'll give you more consideration if it's job related," he said. But, he added, banks look at strategic defaults "very negatively."

That said, it's not impossible to get a loan. Banks still want to make interest payments, so they might be willing to gamble with a walkaway.

"It might be a little more difficult for them to borrow, but [banks'] drive for market share -- to profit from making loans -- will trump that caution," said Keith Gumbinger, of the mortgage information publisher HSH Associates. "I don't think we'll see a full denial."

It's hard to foresee the state of mortgage lending six or seven months from now, let alone seven or eight years into the future. So lenders may look at applications from one-time strategic defaulters and say, "Yes, they walked away but it's a whole different market now," according to Gumbinger.

Even so, lenders may require more from borrowers who walked away than those who didn't.

"To the extent they could get a mortgage," said Brinkmann, "they can count on needing a heavy down payment."

The lenders may ask for 30% down or more. That would provide enough collateral cushion that the bank could get all or most of its money back in a foreclosure.

Strategic defaulters might also be charged higher interest rates, even above the levels other borrowers with similar credit scores would receive.


Sources: CNN, Video Credit Score

CIT Enters Bankruptcy...Creditors Back Reorganization Plan

Creditors Back CIT’s Bankruptcy


As the CIT Group sought desperately to avoid bankruptcy this summer, it argued that being forced into Chapter 11 protection would spell disaster for its customers: a wide swath of the nation’s small and midsize businesses who rely on the 101-year-old company for financing.

On Sunday, CIT entered what it called a different kind of bankruptcy, one that will let it reemerge from court protection by the end of the year under the ownership of its creditors, who widely supported the reorganization plan.

The filing marks the culmination of months of bargaining among CIT, its creditors and the federal government over the company’s fate. Bank regulators concluded over the summer that even though CIT was vital to many small businesses that needed financing, the company’s problems did not pose the type of systemic risk that led to the aggressive rescues of Citigroup and Bank of America.

Even so, the bankruptcy filing means taxpayers will lose the $2.3 billion investment they made in CIT as part of the government’s sweeping financial rescue last fall, marking the first such loss of the bailout program.

Even though the government has been repaid with interest for its investments in companies like Goldman Sachs and Morgan Stanley, it will probably see more losses in companies like the American International Group and Chrysler.

By filing a so-called prepackaged bankruptcy plan, CIT is aiming to limit the damage inflicted on the scores of retailers and other companies that depend on the specialized financing it provides. It is the dominant provider of factoring, in which a company sells the debt it is owed to a company like CIT at a discount.

Many companies that provide factoring have been hit hard by the faltering economy and have closed their doors, leaving more businesses dependent on the likes of CIT, according to Michael C. Appel, the head of the retail and consumer practice at Quest Turnaround Advisors, a consulting firm.

“In the long run it will be good for CIT,” said Emanuel Weintraub, chief executive of Emanuel Weintraub and Associates, a management consultancy. “In the short term it will not be good for thinly financed companies that may not be immediately taken in by other lenders.”

When CIT disclosed its troubles in July, many retailers were preparing their orders for the holiday season and were terrified by the prospects of a sudden and uncontrolled Chapter 11 filing, said Ellen Davis, vice president of the National Retail Federation.

CIT’s filing will test whether a financial company can survive the Chapter 11 process. Bankruptcy has long been considered a death knell for lenders, whose very existence depends on the confidence of its creditors and customers. The company’s struggles have been watched with interest and trepidation by analysts and its clients.

“The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy,” Jeffrey M. Peek, CIT’s chairman and chief executive, said in a written statement.

It also means the end of CIT’s efforts to transcend its roots as a sleepy financier of retailers, restaurants and manufacturers. Under Mr. Peek, a former high-ranking Merrill Lynch executive, the company branched out into student lending and investment advisory services. Befitting its ambitions, it moved from an office park in Livingston, N.J., to a flashy tower in Midtown Manhattan.

But the company was laid low by the turmoil in the credit markets, which sapped its ability to finance its daily operations. Even after receiving the initial $2.3 billion in government aid, it went to its regulators for additional help, only to be told it needed to find a solution in the private markets. It subsequently bargained with its creditors over a restructuring plan that would keep it operating and cut $10 billion in unsecured debt.

While CIT had hoped to stay out of bankruptcy court through a bond exchange offer, that plan failed to win enough support from bondholders, the company said in a statement.

With $71 billion in assets and nearly $65 billion in liabilities, CIT’s bankruptcy ranks among the largest in corporate history, though it is dwarfed by the bankruptcies of Lehman Brothers and Washington Mutual. CIT said in its bankruptcy petition that $800 million of its bonds would mature from Sunday through Tuesday.

CIT said that only its holding company was filing for bankruptcy, and that most of its important operating subsidiaries, including its Utah bank, would continue to operate normally. As part of an effort to revamp its business model, the company plans to move more of its operations into its bank instead of relying on the more volatile capital markets.

Bondholders will receive about 70 cents for each dollar owed them through the prepackaged bankruptcy. CIT said investors would have received as little as 6 cents on the dollar in the alternative, a free-fall bankruptcy that lacked a pre-approved reorganization plan.

CIT said in a statement that holders of about 85 percent of its $30 billion in bond debt participated in the voting. Those investors voted almost unanimously to support the prepackaged bankruptcy plan.

Last week, the company got a $4.5 billion loan from several investors. It also reached an accord with Goldman Sachs that would preserve a $2.13 billion loan.

Sources: NY Times