(NEW YORK) — Last summer, August 5 to be exact, Standard & Poor’s dropped the rating of United States debt below AAA for the first time in history. This year, with our flippers and masks barely out of the pool equipment room, Moody’s downgraded the ratings of fifteen mega banks, including major American institutions such as Goldman Sachs and J.P. Morgan Chase. Bank of America and Citigroup were downgraded to Baa2, just two ticks above “junk” status.
S&P cited as one of the major reasons for last summer’s historic downgrade the “Bedtime for Bonzo” antics that went on in Congress in connection with, among other things, the once perfunctory act of raising the national debt limit. If you were otherwise engaged and missed the circus, don’t worry, it will be coming back to town near election time this year.
Moody’s, on the other hand, did not have to make reference to our political paralysis (yet), they simply underscored our “globalized” exposure to the financial chaos in the Eurozone, describing its actions as follows: “Moody’s downgrades firms with global capital markets operations;” which, among other things was a not-so-subtle reference to the recent revelation that J.P. Morgan Chase had casually dropped another $2-3 billion in a “whaling adventure” that went awry, a fact that produced a flurry of congressional posturing — filled with sound and fury — that seemed to signify very little.
Meanwhile a host of Washington conservatives are continuing their efforts to undermine Dodd-Frank by introducing a series of nine bills in the House and the Senate and launching litigation (with a willing co-conspirator — a bank in Texas) against the Consumer Financial Protection Bureau and select provisions of the law.
The S&P downgrade was a direct response to Congressional debt devilry, while the Moody’s downgrade was considered by many to be an unspoken but pointed commentary on both globalization and the dismal performance of federal regulation of the banking industry as a whole. There are those who argue that that the banking industry is over regulated while others opine that it is under-regulated. However, it’s very difficult to argue that given the history of financial events in the last few years, the banking industry is effectively regulated.
To top it all off, the Washington Post recently reported that during the ugliest days of the of the financial crisis, 34 members of Congress on both sides of the aisle had reworked their own financial portfolios after having interacted with Hank Paulson, Ben Bernanke, or Timothy Geithner. As you might imagine, those legislators managed to catch an earlier “flight to safety” than most of us. It would be hard to imagine anything more “extractive” than that, wouldn’t it?
This is not an easy fix to be sure. Our economy has become so complex many would argue that it can’t be effectively regulated. Let’s hope they’re wrong and that our representatives will have an epiphany that lifts them from the tar pit of partisanship, election year or not, and makes them leaders, not slaves to ideology or Grover Norquist inspired oaths. They must screw up the courage to get this thing right. If they fail, once again, the consequences are far worse than winning or losing an election. Because if we don’t fix this problem — how shall I put this delicately? — we’re screwed.
Copyright 2012 ABC News Radio
Ralph Ellis, CNN
Kathryn Vasel, CNN
Parija Kavilanz, CNN