Tuesday, February 5, 2013

February 5, 2013

Obama's Payback: US to Sue S&P for Mortgage Ratings
by Newsmax Wires
February 4, 2013

The S&P was the first major credit agency to downgrade the United States' triple-A credit rating.

Now the S&P may pay a heavy price for doing so as the Obama administration gets revenge with legal action against the rating agency.

The New York Times reported Monday: "The Justice Department plans to file civil fraud charges against the nation’s largest credit-ratings agency, Standard & Poor’s, accusing the firm of inflating the ratings of mortgage investments and setting them up for a crash when the financial crisis struck."

The paper said the suit could be filed within days and blamed the agency for bestowing high credit ratings to bundled mortgage securities, making them appear safer than they actually were for investors.

The securities known as collateralized debt obligations (CDOs) suffered a meltdown in the wake of the housing debacle that began in 2007.

The Times' story noted that neither Fitch nor Moody's, credit agencies that also gave high credit ratings to such mortgage instruments, have been included in the Justice Department suit.

Fitch or Moody's also have never downgraded the U.S. credit rating.

Before the housing crisis, financial experts had argued that the collateralized debt instruments were actually safer for investors, because they divided a single mortgage among multiple debt instruments, seemingly lowering the risk to investors who purchased any one instrument.

Bank regulators at the federal and state level had approved the use of such derivative instruments as safe for investors.

But the federal government seems intent on lowering boom on the S&P. And the Times claims an there is an additional SEC action the credit agency will soon follow.

The S&P downgrade of the U.S. credit rating in August 2011 came during the Congressional ruckus over the extension of the debt ceiling.

The unprecedented downgrade by S&P raised the ire of the Obama White House.

Immediately after the downgrade, the Obama adminstration lashed out agains S&P.

Britain's Guardian reported at the time: "The U.S. Treasury and the White House launched an unprecedented attack on the 'credibility and integrity' of Standard & Poor's for its decision to downgrade the U.S.'s credit rating, blasting the agency's 'misleading' calculations and its 'breathtaking' refusal to change its mind."

The S&P said it took the action because of weaking confidence with Washington to resolve U.S. fiscal woes.

The S&P stated in August 2011: "More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned . . ."

Read more: http://goo.gl/UILTk

Prophets and Losses
by Thomas Sowell
February 5, 2013

Now that the federal government is playing an ever larger role in the economy, a look at Washington's track record seems to be long overdue.
The recent release of the Federal Reserve Board's transcripts of its deliberations back in 2007 shows that their economic prophecies were way off. How much faith should we put in their prophecies today -- or the policies based on those prophecies?

Even after the housing market began its collapse in 2006, Federal Reserve Chairman Ben Bernanke said in 2007, "The impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained."

It turned out that financial disasters in the housing market were not "contained," but spread out to affect the whole American economy and economies overseas. Then Chairman Bernanke said: "It is an interesting question why what looks like $100 billion or so of credit losses in the subprime market has been reflected in multiple trillions of dollars of losses in paper wealth."

What is an even more interesting question is why we should put such faith and such power in the hands of a man and an institution that have been so wrong before.

This is not just a question of a bad guess by Ben Bernanke. The previous chairman of the Federal Reserve System, Alan Greenspan, likewise misjudged the consequences of the housing boom and bust. Nor was the Federal Reserve's staff any more accurate in its prophecies. According to the New York Times, "The Fed's own staff still forecast that the economy would avoid a recession."

Today, the economy has not yet fully recovered from the recession that the Federal Reserve System's staff and chairmen thought we would avoid.

We all make mistakes. But we don't all have the enormous and growing power of the Federal Reserve System -- or the seemingly boundless confidence that Fed Chairman Ben Bernanke still shows as he intervenes in the economy on a massive scale.

Not only does the Federal Reserve System control the money supply and regulate banks, the Fed's willingness to keep buying hundreds of billions of dollars' worth of government bonds makes it easier for the Obama administration to keep engaging in massive deficit spending that runs up a record-breaking national debt.

The reason that the Federal Reserve can afford to continue buying huge amounts of government bonds is that the Fed is authorized to create its own money out of thin air. They use the fancy term "quantitative easing," instead of saying in plain English that they are essentially just printing more money.

Being wrong is nothing new for the Federal Reserve System. Since this year is the one hundredth anniversary of the Fed's founding, it may be worth looking back at its history.

Read more: http://goo.gl/kDKfA

The Unconventional Ted Cruz 
He's doing precisely what he promised on the campaign trail.
by Andrew Stiles
February 5, 2013

Ted Cruz (R., Texas) has been a United States senator for only 34 days, but already he is making his mark on national politics. His conspicuous presence and aggressive tone have thrilled his conservative cheerleaders, while inducing fits of rage in liberal detractors and Joe Scarborough.

In the past week alone, Cruz has tangled with veteran Democratic spin-master Chuck Schumer (D., N.Y.) on Meet the Press, sent a tongue-in-cheek letter to Mayor Rahm Emanuel of Chicago, introduced legislation to fully repeal Obamacare, and recorded “no” votes on major items, including Hurricane Sandy relief, raising the debt ceiling, filibuster reform, and the confirmation of John Kerry for secretary of state. He also made headlines with his aggressive interrogation of prospective defense secretary Chuck Hagel.

Additionally, Cruz’s quick rise to prominence appears to have offended the sensibilities of the political press. During Hagel’s confirmation hearing before the Senate Armed Services Committee last week, I overheard multiple groans from other journalists covering the event whenever Cruz began a pointed line of questioning. On Twitter, they noted their exasperation in more colorful ways.

If anything, the 41-year-old Texan has made clear he does not intend to abide by the conventional playbook for new members: Keep your head down, keep your mouth shut, and learn the ropes before inserting yourself into the national conversation.

That’s not Cruz’s style. More important, it’s not what he campaigned on. “If I go to Washington and just have a good voting record, I will consider myself a failure,” then-candidate Cruz said on the campaign trail in 2012. Last week, in an interview with conservative radio host Mark Levin, Cruz expressed disbelief at “how shocked people are when you actually do what you said you would do.” “In most of America that’s to be expected, and yet oddly enough in Washington, D.C., that seems to be unusual,” he said.
Republicans are delighted that Cruz, whom many regard as a skilled advocate for conservatism, has decided to play such an active role right off the bat. “Any member who has a point of view on a topic should not feel shy about expressing that,” says one Republican Senate aide. “For someone as talented as Ted Cruz, it’s vital that we have eloquent conservatives out there arguing for our side.”

Senate Minority Leader Mitch McConnell (R., Ky.) sang Cruz’s praises in an interview with National Review Online, calling the freshman senator “one of the smartest, most articulate guys you’ll ever meet.” “He’s ready for prime time on day one, which is pretty unusual for somebody who just got sworn in,” McConnell says. “He’s a deadly weapon.” He is also “good company,” according to McConnell, who recently accompanied Cruz on a delegation to Israel and Afghanistan.

Republican leaders have already sought to deploy Cruz’s talents in critical areas. In addition to being tapped for coveted slots on the Judiciary and Armed Services Committees, Cruz was named vice chairman of the National Republican Senatorial Committee, where he is likely to play a key role in selecting and advising candidates in the 2014 midterm election.

Senate conservatives are similarly pleased to count Cruz among their ranks. “For the forces of those who favor limited government, Senator Cruz is a powerful addition,” says a conservative GOP Senate aide. “Based on our numbers, and the youth of many of these members, we’re going to have a much stronger voice in the public debate.”

Cruz may consider a solid conservative voting record to be a meaningless metric for success, but he has already established one for himself. The Washington Times noted that Cruz has been on the losing end of all eleven votes he has taken so far this year, a record the Texan is perfectly content with.

For example, he voted against the $50 billion Sandy-relief bill, which he decried as a pork-laden mistake. “Hurricane Sandy inflicted devastating damage on the East Coast, and Congress appropriately responded with hurricane relief,” he said in a statement. “Unfortunately, cynical politicians in Washington could not resist loading up this relief bill with billions in new spending utterly unrelated to Sandy.”

He was one of only three senators to vote against John Kerry’s confirmation to be the next secretary of state, citing the Massachusetts Democrat’s “longstanding less-than-vigorous defense of U.S. national-security issues and, in particular, his long record of supporting treaties and international tribunals that have undermined U.S. sovereignty.”

Cruz was also one of the first Republican lawmakers to voice skepticism about the Senate framework on immigration reform, citing “deep concerns” about the proposed pathway to citizenship. “To allow those who came here illegally to be placed on such a path is both inconsistent with rule of law and profoundly unfair to the millions of legal immigrants who waited years, if not decades, to come to America legally,” he said.

Cruz’s position has put him at odds with Senator Marco Rubio (R., Fla.), who helped draft the framework. The political relationship between the two Hispanic Republicans will certainly be something to watch over the coming months.

Cruz has sought to shape the political discourse in other ways, beyond the confines of Capitol Hill. Last week, he issued a colorful retort to Mayor Rahm Emanuel’s call for mass-scale divestment from firearms manufacturers.

Cruz sent a letter to the CEOs of gun makers Smith & Wesson and Sturm, Ruger & Co, as well as to leaders of Bank of America and TD Bank, financial institutions that Emanuel specifically urged to cease their relationships with the firearms companies. He slammed the mayor’s actions and urged the companies to bring their business to his home state.

“In Texas, we have a more modest view of government,” Cruz wrote. “We do not accept the notion that government officials should behave as bullies, trying to harass or pressure private companies into enlisting in a political lobbying campaign.”

Matt Mackowiak, a Texas-based Republican consultant, praises Cruz as “someone who really understands the outside game,” who spends his weekends “aggressively” traveling the state and meeting with constituents and grassroots organizations. It’s only a matter of time, Mackowiak says, before Cruz masters the inside game and “starts to have a real impact.”

Cruz supporters see him as a natural heir to former senator and soon-to-be Heritage Foundation president Jim DeMint (R., S.C.), one of Cruz’s earliest backers. “DeMint changed the whole paradigm in the Senate, shook it up in way that you can be a freshman and have a national profile and be aggressive and still be effective,” Mackowiak says.

Like DeMint, Cruz has already become a favorite target of the establishment press. The New York Times penned an editorial on January 20 urging Republican leaders to “marginalize lawmakers like Mr. Cruz,” which began: “Ted Cruz, the newly elected Tea Party senator from Texas, embodies the rigidity the public grew to loathe in Congress’s last term.”

The mainstream press was particularly incensed by last week’s Hagel hearing, where Cruz pressed Hagel to explain remarks he made in a 2009 appearance on Al Jazeera. The senator’s staff had rolled a big-screen television into the hearing room to play clips of the appearance, in which Hagel concurred with a number of controversial statements from Al Jazeera viewers — that the United States is “the world’s bully,” and that Israel has been (referring to a specific past event) complicit in a “sickening slaughter.”

Cruz’s blunt approach, and perhaps unorthodox tactics, became a lightning rod for liberal critics, especially after many of them had all but given up defending Hagel, whose performance was widely panned on both sides. Cruz was derided for his “bogus attack” on Hagel, for “hectoring” the nominee, for turning the hearing “into a clown show,” and even for channeling the spirit of Joe McCarthy.

For conservatives, that may be one of the surest signs that Cruz is doing something right.

Read more: http://goo.gl/Qyi7P

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