Pennsylvania GOP’s Budget Cuts Mean Police Response To 911 Calls Could Take Days

By Marie Diamond on Dec 13, 2011 at 2:00 pm

Pennsylvania Gov. Tom Corbett (R) has consistently advocated for steep budget cuts that compromise public safety and essential government services. For instance, he signed into law a budget that slashed education funding by $900 million. Instead of lawnmowers, one school district had to resort to using sheep to cut grass.
Now, The Patriot-News reports that the state’s proposed budget cuts could force the Pennsylvania State Police to layoff 500 state troopers. As a result, Pennsylvanians who call 911 for emergency assistance may have to wait days before the police can respond:

Imagine calling 911 for the Pennsylvania State Police and not seeing a trooper for hours, even days.
It’s a scenario that state lawmakers and troopers foresee if the department’s budget is cut 5 percent next year, forcing what would be the first layoffs in the state police history.
An internal department document obtained by The Patriot-News forecasts the potential for 400 to 500 trooper layoffs under a budget proposal to trim the department’s spending. That’s approximately 10 percent of the nearly 4,400 troopers currently employed by the department. The cuts would also force stations around the state to close.
The department provides full- or part-time police service to two-thirds of the state’s municipalities and is relied upon by virtually all police departments to provide specialized services such as DNA, drug and ballistics testing.

This likely budget scenario will require the state police to close five barracks, freeze civilian hiring, and eliminate cadet academy classes until at least July 2013. The police will also be hard-pressed to replace the 150 troopers who typically retire each year, as well as the 1,500 troopers who will become eligible for retirement in the next five years.
Pennsylvania State Troopers Association president Bruce Edwards said, “I don’t want to sugarcoat it. That’s what is going to happen.” Edwards says Pennsylvania could have a public safety disaster on its hands.
Corbett could have avoided making many of these damaging cuts by simply ending a special interest tax break for corporations and natural gas companies. Of the top 15 gas producing states, Pennsylvania is the only one that doesn’t tax companies that use fracking to extract natural gas. The tax could give the state $400 million annually. But the governor, who received more than $835,000 from oil and natural gas companies during his campaign, has only offered to support a completely inadequate one-time fee, proving his loyalty to corporate profits over public safety.

Olympia Snowe On Debt Ceiling Debate: 'I've Never Seen A Worse Congress'

First Posted: 8/10/11 12:27 PM ET Updated: 8/11/11 01:02 PM ET

http://www.huffingtonpost.com/2011/08/10/olympia-snowe-debt-ceiling-deal_n_923348.html

Sen. Olympia Snowe (R-Maine) talked to people in Saco, Maine about the debt ceiling negotiations Wednesday, and lamented the extreme partisanship that characterized the debate this summer.
“I’m embarrassed by all of us,’’ Snow said, according to the Associated Press. “I’ve never seen a worse Congress in my whole political life.’’
Polls conducted after the debt ceiling deal have showed that Americans hold an increasingly negative view of Congress. A New York Times/CBS News poll last week showed Congress' approval rating falling to 14 percent, with a record 82 percent of Americans disapproving of the way Congress is handling its job -- the most since the Times first began asking the question in 1977.
A CNN poll this week showed, for the first time in its history, that most Americans think their own representatives do not deserve reelection.
Snowe, who served as Maine's congresswoman from 1979 to 1995 and has been a senator ever since, is being targeted by the Tea Party for voting in favor of the debt ceiling deal despite the fact that it did not include a balanced budget amendment.
"Just 25 days ago, Republican Sen. Olympia Snowe told us she would vote for a debt plan with a balanced budget amendment," Scott D'Amboise, a conservative Republican who is challenging Snowe for her Senate seat, wrote in the fundraising letter just hours after the debt ceiling vote. "However, today Snowe betrayed us by voting with the Democrats for a debt deal that gives President Obama a blank check in exchange for only token spending cuts and no promise for a balanced budget amendment."

FEMA’s Budget Disaster

Aug 27, 2011 11:44 PM EDT

As Hurricane Irene slams into the East Coast, the federal disaster relief agency is dangerously low on cash. And politicians are already bickering about where to get new money.

US President Barack Obama (far right) and US Secretary of Homeland Security Janet Napolitano (second from right) get an update regarding Hurricane Irene at FEMA headquarters, August 27, 2011., Paul J. Richards / AFP-Getty Images

It’s been a busy year for America’s disaster agency, and that may soon spell disaster for its budget.

It started with severe winter storms in the east and southwest in January. Tsunami waves from the Japanese earthquake struck the West Coast and Hawaii in March, followed by the tornado that flattened parts of southern Missouri in May. Several Midwest states saw flooding earlier this month. And an earthquake and hurricane rocked the East Coast this week.

So far in 2011, the Federal Emergency Management Agency (FEMA) has responded to  “major disasters” 65 times, among the highest in the agency’s history. The unprecedented demand has stretched the agency and its budget increasingly thin.

Craig Fugate, FEMA’s administrator, told White House reporters in May that the agency’s disaster relief fund was running low, then just above $1 billion. Without an infusion from Congress, he said, relief workers would only address immediate needs, like delivering food and water, instead of less immediate concerns like clearing felled trees and cleaning streets.

But just weeks before the worst of Hurricane Irene began to pelt Washington, D.C. and New York with heavy rain and wind, the agency’s disaster relief fund dropped below $1 billion—to $792 million—nearly the lowest the fund has ever been only eight months into the year. As a result, FEMA officials on Saturday implemented what’s known as "immediate needs funding guidance,” which allows the agency to divert funds from long-term repair and rebuilding projects so it can focus on response and recovery efforts from the hurricane.

FEMA spokesperson Rachel Racusen said that the agency had the funds to meet the immediate needs of disaster survivors. But, she said, "This strategy prioritizes the immediate, urgent needs of survivors and states when preparing for or responding to a disaster."

That means the agency may have to forego recovery projects that it normally does in states that turn to the agency for help. Previously, cash-strapped states have relied on FEMA to help rebuild schools, hospitals and other public infrastructure after major natural disasters. But with a bank balance of $792 million to respond to the areas affected by the hurricane, stretching from North Carolina up to New England, officials expect those funds to deplete quickly in the coming few days.

Getting the agency more money for both Irene and disasters through the rest of the year will require an act of Congress. But already the issue has become political, with the same fault lines forming as they did during the debt debate that paralyzed Washington last month.

Neither party has threatened to deny funds for areas and people in need, but House Republicans, including Majority Leader Eric Cantor, have vowed that any new funding for FEMA will have to come from money cut elsewhere from the federal budget.

“We’ve had discussions about these things before and [FEMA] monies will be offset with appropriate savings or cost-cutting elsewhere in order to meet the priority of the federal government’s role in a situation like this,” Cantor said at a news conference after last week’s earthquake. His district, just south of Washington DC was among the hardness hit by the trembler.

Democrats see the GOP trying to make disaster relief a political debate over what spending is needed and what isn’t and accused Republicans of setting up political arguments in the wake of a debilitating disaster.

“Millions of Americans will suffer if we artificially handcuff the government when it comes to disaster relief,” Rep. Chris Van Hollen says.

“We should try to realistically budget for emergencies but millions of Americans will suffer if we artificially handcuff the government when it comes to disaster relief,” Rep. Chris Van Hollen, a Maryland Democrat whose district borders Washington, told Newsweek and The Daily Beast. “That’s a negligent approach to governing.”

Brad Dayspring, a spokesman for Cantor, said that no request has yet been made for federal funding, and if money is needed Congress will respond appropriately.

Meanwhile, a group of senior Republicans have already placed the blame squarely on the White House and the Democratically controlled Senate.

Reps. Hal Rogers, (R-KY), Robert Aderholt (R-AL), and Jo Ann Emerson (R-MO), who all sit on the Appropriations Committee, released a statement Saturday morning when it started raining in Washington. The reason for FEMA’s money problem, they said, was that Democrats didn’t make the agency’s budget big enough to begin with.

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Daniel Stone is Newsweek's White House correspondent. He also covers national energy and environmental policy.
Laura Colarusso is a reporter at The Daily Beast. She previously worked as a senior news editor at Talking Points Memo. She has also written for The Boston Globe, The Star-Ledger (Newark), AOL and New Jersey Monthly Magazine.

Ron Paul: FEMA Signals Too Much 'Dependency' On The Federal Government In Disasters (VIDEO)

WASHINGTON -- With reports that Hurricane Irene killed at least 10 people, knocked out power to more than 2 million homes and businesses and left many towns flooded over the weekend, presidential candidate Rep. Ron Paul (R-Texas) stood by his controversial belief that the federal government should reduce its role in disaster relief.
On Friday, Paul told NBC News that there was nothing "magic" about the Federal Emergency Disaster Agency (FEMA), which has been coordinating the response to Hurricane Irene.
"We should be like 1900, we should be like 1940, 1950, 1960," said the Texas congressman during a stop in New Hampshire.
In an interview with "Fox News Sunday," Paul -- who appeared on the show immediately after an interview with FEMA Director Craig Fugate -- stood by his remarks but acknowledged that it would take time to get rid of the agency.
"It's a system of bureaucratic central-economic planning, which is a fallacy that is deeply flawed. So no, you don't get rid of something like that in one day," he said.
"I propose that we save a billion from the overseas war mongering, bring half that home and put it against the deficit, and yes, tide people over until we come to our senses and realize that FEMA has been around since 1978. It has one of the worst reputations for a bureaucracy ever," added Paul, arguing that federal money often goes to contractors instead of disaster victims.
In 1900, the year that Paul cited as a model for disaster intervention, "the greatest natural disaster to ever strike the United States occurred at Galveston, Texas," according to the National Oceanic and Atmospheric Administration. More than 6,000 people died.

In 2008, Hurricane Ike hit parts of the Texas Coast. Paul voted against a bill to send millions of dollars in federal aid to the area, which included his district.
Paul also said he would vote against any request for additional money for FEMA, if the Obama administration asks for an emergency funding bill. He said it was time citizens "transition out of the dependency on the federal government."
"Where would the money come from?" he responded. "We don't have any money. What are you going to do? Go hat in hand to China and borrow the money? ... The whole idea of FEMA is a gross distortion of insurance. "
Earlier in the show, host Chris Wallace asked Fugate whether FEMA will need emergency spending to deal with Irene. The FEMA director replied that they currently have enough funds to deal with the response, although the agency may need more as the full toll becomes clearer.
"Going into this storm, we had over $800 million still in the relief fund, which is allowing us to continue the response in the existing disasters and ramp up for this one," he said. "Really, Chris, it depends on how much damages and recovery and rebuilding costs and that will determine how much more funds we're going to need. We won't know that until we actually get out and see some of the damages and do some of the damage assessments. But for the response piece, we do have the funds there to go, and we are committing the resources, even as Irene moves up the coast."
Houses Majority Leader Eric Cantor (R-Va.) has not gone as far as Paul, but he has argued that any potential emergency funding for natural disasters must be offset by spending cuts elsewhere. His remarks have been criticized by members of both parties.
Cantor's own district was in the path of Hurricane Irene, but when The Huffington Post asked his spokesman last week whether he would require offsets for aid specifically tied to the storm, he declined to comment.

S&P controversy fuels demands for ratings reforms

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Analysis & Opinion

• Rater bashing
• The difference between S&P and Moody’s

By Andrea Shalal-Esa

WASHINGTON | Wed Aug 10, 2011 8:59pm EDT

(Reuters) - Concerns about S&P's downgrading of the U.S. credit rating and the resulting global stock sell-off are sparking urgent calls for investigations and reinvigorating ongoing efforts to reform the ratings agencies, which have been under fire since the Enron scandal of 2001.
Representative Maxine Waters, a California Democrat, on Wednesday called for the House Financial Services Committee to hold a hearing on the implications of the S&P downgrade.
She also wrote to the Securities and Exchange Commission, asking it to investigate whether Standard & Poor's, a unit of McGraw Hill, selectively disclosed information about a downgrade of U.S. government debt to certain financial institutions before it was publicly released.
Waters said she was concerned by news reports that banking industry executives met with S&P on Thursday and Friday, before the downgrade, especially given heavy trading volumes and a large sell-off of equity securities during the day on Friday before S&P formally announced the news on Friday evening.
S&P declined comment.
The Senate Banking Committee has also said it is looking into the S&P downgrade.
John Hunt, a law professor at the University of California Davis, noting that the S&P downgrade was prompting even more anger than the 2008 housing crisis, particularly given allegations by the Treasury that the company based its decision in part on a $2 trillion error.
S&P denies it made an error but acknowledged it later changed its assumptions.
"This is definitely reenergizing the debate," he said.
"There may well be some more pressure on the regulators to do what they were ordered to do," he said.
The Enron debacle spurred measures to remove barriers to competition in the ratings industry, allowing smaller companies to make gains in a market still largely dominated by S&P, Moody's Corp and Fimalac SA's Fitch Ratings.
Credit rating agencies have been criticized for fueling the 2007-2009 financial crisis by assigning gold-plated ratings to securities that proved to be far more risky than advertised.
In response, the 2010 Dodd-Frank financial oversight law requires regulators to strip from their regulations the reliance on credit rating agencies' work to determine such things as capital requirements for banks based on the riskiness of their assets.
Hunt said regulators have been resisting those measures and have already missed a deadline for completing that work.
Reforms have also not yet fully tackled the "issuer pays" problem -- namely that potential borrowers pay the ratings agencies to grade their creditworthiness, something critics say results in clear conflicts of interest.
Senator Al Franken, a Minnesota Democrat, who spearheaded a drive to eliminate the conflict of interest, told Reuters on Wednesday that he has already been on the phone with "very high administration officials" to raise his concerns about the S&P downgrade and to revive his reform efforts.
Franken, whose proposed amendment to the 2010 Dodd-Frank financial reform bill would have created a new board to assign initial ratings contracts to the agencies instead of letting borrowers pick a firm themselves, says he remains fully engaged.
A weakened version of the measure was adopted in the final bill that requires the SEC to address conflicts of interests at the agencies and implement the new board by mid-2012 if no alternative emerged from a two-year study.
Columbia University law professor John Coffee said concerns about the downgrade could spur fresh interest in reforms, but if history was any guide, any changes were likely to face resistance from the industry and even regulators.
A wide range of groups, companies and lawmakers responded this past week to a 517-page proposal unveiled by the SEC in May that mapped out rules to improve the quality of ratings agencies and implement the Dodd-Frank law.
Democrat Carl Levin, chairman of the Senate's Permanent Committee on Investigations, urged the SEC to beef up its proposed rules, saying they were critical to ensuring accurate ratings and the return of investor confidence.
Meanwhile, S&P, Moody's and Fitch submitted dozens of pages of detailed comments, urging the SEC to alter and back off some key proposals.
The ratings industry is also continuing to fight a measure in Dodd-Frank that made it easier for investors to sue credit rating agencies that overlook key information.
So far this year, the big three companies have spent well over $1 million combined to lobby Congress, a fact that prompted government watchdog group Public Citizen to call for a ban on lobbying by the groups given their power over government agencies whose creditworthiness it rates.
Former congressman Lee Hamilton, director of the Center on Congress at Indiana University, said the American public was angry at the ratings companies and the financial industry.
He said a ban on lobbying would infringe on the companies' First Amendment rights, but argued that lobbying activities should be more fully disclosed than they are now.
(Additional reporting by Sarah N. Lynch)
(Reporting by Andrea Shalal-Esa)

August 6, 2011

Amid Criticism on Downgrade of U.S., S.&P. Fires Back

By NELSON D. SCHWARTZ and ERIC DASH

The day after Standard & Poor’s took the unprecedented step of stripping the United States government of its top credit rating, the ratings agency offered a full-throated defense of its decision, calling the bitter stand-off between President Obama and Congress over raising the debt ceiling a “debacle.” It warned that further downgrades may lie ahead.
In an unusual Saturday conference call with reporters, senior S.& P. officials insisted the ratings firm hadn’t overstepped its bounds by focusing on the political paralysis in Washington as much as fiscal policy in determining the new rating. “The debacle over the debt ceiling continued until almost the midnight hour,” said John B. Chambers, chairman of S.& P.’s sovereign ratings committee.
Another S.& P. official, David Beers, added that “fiscal policy, like other government policy, is fundamentally a political process.”
Initial reactions from Congressional leaders suggested that S.& P.’s action was unlikely to force consensus on the fundamental divide over spending and taxes. Politicians on both sides used the decision to bolster their own long-standing positions.
Officials at the White House and Treasury criticized S.& P.’s move as based on faulty budget accounting that did not factor in the just-enacted deal for increasing the debt limit.
Gene Sperling, the director of the White House national economic council, called the difference, totaling over $2 trillion, “breathtaking” and said that “the amateurism it displayed” suggested “an institution starting with a conclusion and shaping any arguments to fit it.”
Even as the ratings agency insisted on Saturday that its move shouldn’t have come as a shock, it reverberated around the world. Officials from China to Europe scrambled to assess the downgrade’s impact on the already troubled global economy, and political leaders in the United States sought to frame the issue in their favor.
Republican presidential candidates on Saturday seized on the downgrade as a new line of criticism against President Obama, suggesting that ultimate responsibility rests in the Oval Office.
“It happened on your watch, Mr. President,” Representative Michele Bachmann said, drawing applause at an afternoon rally in Iowa. “You were AWOL. You were missing in action.”
In a statement, the White House made no mention of the downgrade. “We must do better to make clear our nation’s will, capacity and commitment to work together to tackle our major fiscal and economic challenges,” the White House press secretary, Jay Carney, said.
The ratings agency’s action puts additional pressure on a still-to-be-named Congressional committee to find additional spending cuts, tax increases or both to bring down the inexorably rising national debt.
The debt-limit law agreement set spending caps in the fiscal year that begins Oct. 1 and calls for the bipartisan Congressional “supercommittee” to propose more deficit reduction — for up to $2.5 trillion in combined savings over a decade.
Senate Majority Leader Harry Reid said the downgrade affirmed the need for the Democrats’ approach, balancing spending cuts with higher revenue from the wealthy and corporations.
The decision, he said, “shows why leaders should appoint members who will approach the committee’s work with an open mind — instead of hardliners who have already ruled out the balanced approach that the markets and rating agencies like S.& P. are demanding.”
House Speaker John A. Boehner of Ohio, who runs the House with his anti-tax Republican majority, said that, “decades of reckless spending cannot be reversed immediately, especially when the Democrats who run Washington remain unwilling to make the tough choices required to put America on solid ground.”
While American politicians sparred, China, the largest foreign holder of United States debt, said on Saturday that Washington needed to “cure its addiction to debts” and “live within its means,” just hours after the S.& P. downgrade.
Europeans had girded for a possible downgrade, but the news was received with a degree of alarm in the corridors of power across the Continent.
Finance Minister François Baroin of France questioned the move Saturday, noting that neither Moody’s nor Fitch, the two other major ratings agencies, had reached a similar conclusion.
The downgrade could lead investors to demand higher interest rates from the federal government and other borrowers, raising costs for local governments, businesses and home buyers.
The wrangling over S.& P.’s downgrade to AA+ from AAA stretched on for days. But interviews with both officials from the administration and S.& P. reveal sharply differing perceptions on whether a downgrade was imminent. The rating agency argued that their intentions had been plain for months if the government didn’t take strong action to curb the debt; administration officials claimed they were blindsided.
The drama, which would culminate late Friday and into the weekend, actually began to gather speed Wednesday, when S.& P. executives came to the Treasury Department to meet with a group of administration officials led by Mary J. Miller, the assistant secretary for financial markets.
At the meeting, the S.& P. executives walked the Treasury Department team through its analysis. Government debt was growing rapidly, they said, and the just-completed deal wasn’t going to do enough to slow it down, endangering the AAA rating.
As early as April, S.& P. had changed its credit outlook on the United States to negative. By July, S.& P. warned that if the government did not agree to a deficit reduction package of about $4 trillion, there was a one-in-two chance a downgrade.
Still Treasury officials claim they were taken by surprise on Wednesday. Just the day before, Ms. Miller and her team met at the Hay-Adams Hotel with a group of senior Wall Street executives who advise the Treasury on its borrowing. None of the members believed that the government’s credit rating would be lowered in the near-term.
On Thursday, the ratings agency informed the Treasury that its seven-person panel would meet Friday morning to assess the creditworthiness of the United States government.
Even then, one administration official said, “We didn’t think they would actually do it.”
At 8 a.m. Friday, S.& P. convened a global conference call of its sovereign rating committee including Mr. Beers, Mr. Chambers and others. By 10 a.m., they’d reached a majority decision — the United States no longer was entitled to its top rating. Mr. Beers would not say whether the verdict was unanimous.
Rumors of a downgrade were already swirling in the markets — a prime reason the Dow dove more than 200 points at lunchtime, and at 1:15 p.m., the three men called the Treasury to inform them of the decision. “They were not pleased with the news,” Mr. Beers said.
Half an hour later, Treasury Secretary Timothy F. Geithner called William M. Daley, the White House chief of staff, as well as Mr. Sperling, according to administration officials. They delivered the news to President Obama in the Oval Office, before he took off to Camp David for the weekend.
Inside Treasury, meanwhile, John Bellows, an acting assistant secretary, flagged a concern over S.& P.’s methodology. In its analysis, S.& P. had projected the nation’s debt as a share of gross domestic product to reach 93 percent by 2021. That was around 8 percentage points higher than the figure administration officials believed the rating agency should have used — what they now call a $2.1 trillion error.
In a Treasury blog entry, Mr. Bellows wrote that the difference raised “fundamental questions about the credibility and integrity of S.& P.’s ratings action.”
Around 5:30 p.m., S.& P. officials called the group of Treasury officials. “You were right,” Mr. Chambers told them, but said he was prepared to proceed because the revisions didn’t meaningfully affect S.& P.’s conclusion.
In one final effort to prevent what was once unthinkable from becoming inevitable, the Treasury officials again pressed S.& P. to reconsider. At 8 p.m., the ratings agency sent them the final press release on the downgrade. By 8:20 p.m., the news was out.
“For those who follow the fiscal situation of the United States, this shouldn’t be news to anyone,” Mr. Chambers said.

Jackie Calmes, Binyamin Appelbaum, Louise Story, Julie Creswell, Liz Alderman, Jack Ewing, James Risen and David Barboza contributed reporting.

August 2, 2011

AAA Rating Is a Rarity in Business

By ERIC DASH

Hanging over the debt ceiling negotiations in Washington has been the threat that the United States could lose its AAA credit rating, a coveted measure of the federal government’s financial strength. But in corporate America, the top rating long ago became an anachronism.
Scores of big corporations have lost their AAA status in recent years — only four non-financial companies continue to hold the rating — as it became seen in board rooms as more of a straitjacket than a path to riches. Just as many consumers relied on their credit cards to finance a higher standard of living, companies took on more debt to reap bigger returns.
The choice did not appear to hurt them. The borrowing costs of companies with AAA ratings and those one level below are not that far apart. Investors, in other words, do not see much difference in quality.
“It’s like you are going from a Rolls-Royce to a Mercedes — not from a Rolls-Royce to a Yugo,” said Chris Orndorff, a senior portfolio manager for the bond giant Western Asset Management. “That’s nothing to be ashamed of.”
More and more, in fact, companies have found that a AAA credit rating is not something worth aspiring to if a more conservative approach means lower profits.
Today, markets often render credit judgments before the rating agencies can take out their pens, so a downgrade has a less noticeable effect. By that time, many of the traditional benefits of being deemed AAA, like lower borrowing costs and reputational glow, have evaporated.
In the early 1980s, around 60 companies had AAA credit. By 2000, the number of AAA companies was about 15. Today just four corporations— Automatic Data Processing, Exxon Mobil, Johnson & Johnson and Microsoft — can claim those once-coveted three initials. (Five big insurers and several government affiliated organizations can too.)
Analysts say corporate buyouts and acquisitions accelerated the trend. Many AAA companies lost their ratings when they were taken over and their new owners loaded them with cheap debt to help pay for the deal. Other strategic decisions also triggered downgrades.
UPS, for example, struck a long-term agreement with its union workers in fall 2007 that raised pay and benefits but froze certain pension obligations. Soon after, the ratings agencies started knocking down the company’s credit rating to AA because of the new pension arrangement.
“Maintaining a AAA rating is not a financial goal of this company,” a UPS spokesman said at the time. Investors barely reacted. In the three months after the downgrade, yields on UPS bonds responded by increasing about 0.4 percentage point from 5.32 percent. Today, with borrowers enjoying ultra-low interest rates, the bond yields are back to their levels in late 2007.
Meanwhile, the financial crisis and deep recession laid into several of the sturdiest pillars of American capitalism. Berkshire Hathaway, General Electric and Pfizer all lost their AAA ratings.
Still, a funny thing happened when these companies were sent down to AA. Investors shrugged off the change; the markets had already rendered their verdict. Borrowing costs for General Electric and Berkshire actually fell in the weeks after they were downgraded in spring 2009, amid a broader market rally.
“The rating agencies were late to the party,” said Mr. Orndorff, the bond investor.
Ratings for companies and countries are viewed differently, even if they are evaluated in much the same way.
For most Americans, the prospect that the government could lose its AAA credit rating is almost unthinkable — a blow to national pride and consumer confidence that could turn out to be more damaging than any increase in borrowing costs.
That is why even after President Obama signed a law on Tuesday that lifted the debt ceiling, some in Washington were worried that the plan’s spending cuts were not deep enough to appease all the major rating agencies.
For now, all three major rating firms continue to give the United States a AAA rating. But on Tuesday, Moody’s said its outlook was negative after putting the government on notice last month that it could be downgraded. Fitch said on Tuesday that it planned to complete another review of the government’s finances by the end of this month, and Standard & Poor’s has warned that the United States might lose its rating if it did not sharply rein in the deficit.
It helps, of course, that the dollar remains the world’s leading currency, ensuring that demand for United States debt is strong in spite of the nation’s myriad financial challenges.
But the truth is, even as the government maintained its AAA grade, the markets suggested long ago that the United States was no longer deserving of such a high rating.
The credit-default swap market provided one clue. During the financial crisis in early 2009, the price of insurance that would pay off if the United States government defaulted on its debt was similar to that offered for companies ranked just above junk. Even today, the price of insurance on a government default has been higher than that for Colgate Palmolive, the global toothpaste giant, which has a rating two notches below AAA.
The economic data also suggests that the United States has higher debt levels than most AAA corporate borrowers. Today, the United States debt as a percentage of the nation’s economic output is 75 percent and could top 84 percent by 2013, according to Standard & Poor’s research. The typical AAA-rated country has a ratio of about 11.4 percent.
By contrast, Exxon Mobil and Microsoft each had debt-to-income ratios exceeding 20 percent, while Automatic Data Processing had a ratio of 1.8 percent, according to Capital IQ, a business owned by Standard & Poor’s. Johnson & Johnson had a ratio of 92 percent.
But unlike Washington, there is no threat to the AAA credit rating of Johnson & Johnson. That Johnson, the 125-year-old maker of Tylenol and Listerine, could have a better rating than the country in which it resides would be unusual but not a first
Toyota retained its AAA rating for several years after a sluggish economy led the rating agencies to start downgrading Japanese government debt in 1998.
Today, a handful of European corporations, like Portugal Telecom or Helecom of Greece, have received higher ratings than their fiscally troubled homelands. That is because a big portion of their revenue comes from foreign customers. In the last few weeks, the ratings agencies have made it clear that lowering the AAA rating of the United States government was unlikely to cause any AAA-rated American company to lose its rating— at least in the coming months.
But longer-term, top-flight ratings for American companies could be jeopardized if the government’s effort to get its own finances under control caused a slowdown in economic growth.
“What agreement there is on the deficit, and what spending is going to be or not be, will have an impact,” said John J. Bilardello, the head of corporate ratings at Standard & Poor’s.
A downgrade of a country rating can ripple through other entities that rely on the government for support, potentially raising borrowing costs across the economy. These include mortgage bonds issued by Fannie Mae and Freddie Mac, as well as debt sold by dozens of states and counties whose local economies have strong ties to Washington. It also could affect about a dozen insurance companies and too-big-to-fail banks, whose ratings benefit from the perception that the government would bail them out if they ran into trouble again.
But could an American company’s credit really be more solid than the full faith and credit of the United States? The ratings agencies may say so one day, but lawmakers and citizens might have a reaction like that of Warren E. Buffett, after his Berkshire Hathaway lost its prized AAA status in 2009.
“We’re still AAA in my mind,” he said.

Op-Ed

How the GOP lost on the debt deal

The deal reached by Congress eliminates the leverage that would have been created by another imminent default until after the next election, where it will be exercised by new and possibly differently constituted players.

President Obama speaks from the Rose Garden at the White House after final passage of a debt-ceiling increase in Congress on Tuesday. (Jim Watson / AFP/Getty Images)

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By Daniel Markovits

August 2, 2011, 7:10 p.m.

The chorus of liberal lament began even before the details of the deal to raise the debt ceiling were known. Rep. Raul Grijalva, co-chair of the Congressional Progressive caucus, complained that the deal "trades peoples' livelihoods for the votes of a few unappeasable right-wing radicals." Paul Krugman, writing in the New York Times, called the deal a policy "catastrophe" and "an abject surrender on the part of the president."

In the bigger picture, however, the debt deal represents a substantial success for President Obama and the Democrats. It does indeed impose cuts that will slow the economic recovery and unjustly burden working Americans. But the deal is much nearer an affirmation of the president's core commitments than a surrender. Moreover, the deal that the president got is much, much less bad, from the progressive point of view, than a coldly rational observer would have predicted. The reason the president beat the odds is simple: The Republicans blinked.

Begin by reviewing some basic facts. The need to raise the debt ceiling made the default position, well … default. To avoid default required a deal. And under our system of checks and balances, a deal required the president and both houses of Congress to say yes. To block a rise in the debt ceiling and trigger default, one party need control only the House or, given the filibuster rule, just a substantial minority in the Senate. And the Republicans — until now the party of no — have both.

Next, consider some basic negotiation theory. Every negotiator begins by looking to what is inelegantly called the BATNA, or Best Alternative to a Negotiated Agreement. No one will rationally accept a deal that is worse than his BATNA. That's why the party that can do well without a deal almost always does better with a deal.

Now apply these considerations to the debt ceiling debate.

Obama and the Democrats made it clear that default would be catastrophic. They believe, as a matter of economic fact, that default would have sent the economy back into recession and possibly depression. And they believe, as a matter of moral principle, that such a downturn would inflict wanton cruelty on hardworking Americans. The Democrats' BATNA was not much of an option.

Congressional Republicans, especially the House "tea party" types who are commonly said to be calling the Republican shots, were in a different position. Republican economists ranging from the Cato Institute's John Tamny to Christian evangelical Gary North have long argued that default would not be that big a deal. And the House Republicans' moral position, as their nearly unanimous support for the Cut, Cap and Balance Act made clear, approves a draconian roll-back of the core entitlements — Social Security, Medicare and Medicaid — that drive the debate on the national debt.

Because the United States is constitutionally required to honor its debts, cuts following a failure to raise the debt ceiling would have fallen on these programs. And so the Republicans' BATNA fell strikingly near their ideal policy. On the issue of default, in other words, the tea party and its fellow travelers had very little to lose.

Given this posture, and given the tea partyers' apparent commitment to ideological purity over electability, basic negotiation theory predicts that only deals close to the Republican negotiating position — the position embodied in Cut, Cap and Balance — would ever be made. The most that the Republicans should have agreed to is a short-term stop-gap rise in the debt ceiling, insisting on some cuts in social spending now while retaining all of their leverage for demanding deep, structural cuts in a subsequent negotiation in the fall.

The deal that was struck is dramatically — shockingly — better from the Democrats' point of view.

The deal eliminates the leverage created by another imminent default until after the next election, where it will be exercised by new and possibly differently constituted players.

And today's Republicans have not gotten much for giving up their leverage; certainly nothing close to what they asked for in Cut, Cap and Balance. The current deal cuts social programs rather than raising revenue, to be sure. But while the cuts are significant and will hurt, they leave the basic core of the American social safety net intact. And the bipartisan committee charged with negotiating a grander bargain in the fall is free to revisit the possibility of new taxes. In addition, it will take up the orthodox anti-tax position (represented by the balanced budget amendment) in a manner guaranteed to be purely symbolic.

Perhaps most important, this week's debt deal does nothing to change the fact that the George W. Bush tax cuts will expire at the end of 2012. Obama and congressional Democrats will be able to bargain for increased taxes on the wealthy, in a situation in which they have much less to lose.

The radicals in the Republican Party dragged the country to the edge of a cliff, but they failed to push us off; and they were even forced, at the last moment, to pull back.

Progressives have reason to lament the incremental cuts in the deal. But that which does not kill a social contract may make it stronger. And neither progressives nor the country should lose sight of the fact that the core institutions of ours — Social Security, Medicare and Medicaid — have all been reaffirmed.

Daniel Markovits is a professor of law at Yale Law School, where he teaches contracts.

Debt deal raises pressure on Medicare providers

Payments to them would be cut 2% if a deficit reduction plan is not put in place this year. Advocates for the elderly fear a loss of services.

President Obama speaks from the Rose Garden at the White House after final passage of a debt-ceiling increase in Congress on Tuesday. (Associated Press)

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By Noam N. Levey and David S. Cloud, Washington Bureau

August 3, 2011

Reporting from Washington—

Washington policymakers demanded more savings from hospitals, doctors and other medical providers in the debt deal President Obama signed Tuesday, a move designed to protect seniors and others who rely on Medicare.
But the budget cutting may end up hurting some of the neediest seniors as the federal cuts take a disproportionate toll on family physicians with many elderly patients and on hospitals that serve them.
Medicare is among many government programs, including the military, that could face significant cutbacks as a result of the debt compromise.
Advocates for the elderly say the Medicare cuts, though relatively small, could force medical providers to scale back services, or even stop serving them entirely.
"These kinds of cutbacks do build, and you are always wondering if this is the straw that breaks the camel's back," said Joe Baker, president of the Medicare Rights Center, a New York-based advocacy group.
The debt compromise will not impose any immediate cuts in Medicare spending. But if Congress does not come up with a plan by the end of the year to reduce the deficit by $1.5 trillion over the next decade, the plan requires the federal government to impose a 2% across-the-board reduction in payments to Medicare providers starting in 2013.
That is one of several so-called triggers that would also slash domestic discretionary spending and cut hundreds of millions of dollars from the defense and domestic security budgets if Congress fails to pass a deficit reduction plan.
The Pentagon is potentially facing cuts of $850 billion, including $500 billion if the trigger is tripped. Pro-defense lawmakers in both parties and the White House are signaling that they will resist such deep cuts.
"There is no scenario in the second phase of this proposal that does not turn a debt crisis into a national security crisis," said House Armed Services Committee Chairman Howard P. "Buck" McKeon (R-Santa Clarita).
But Gordon Adams, who oversaw the defense budget in the Clinton administration, said pressure to reduce the deficit would force cuts of $1 trillion or more over the next decade, especially with the U.S. drawdown in Iraq and waning public support for the Afghan war.
"By 2021, it will still be a very capable military, but we will look back and see that $1 trillion has come out of the Defense Department," Adams predicted.
The Obama administration and its Democratic allies have billed the Medicare trigger as a relatively benign way to control federal healthcare spending by forcing the healthcare industry to come up with the savings.
In the past, that approach has usually shielded seniors from big jumps in co-pays and deductibles. It was used most recently in the healthcare law enacted last year.
And despite cries from hospitals, doctors and other medical providers and warnings that they would stop accepting Medicare, most have adapted to the changes and continue to serve Medicare patients.
Many likely will again, according to healthcare experts. But the landscape has always been more challenging for hospitals and primary care doctors that serve large numbers of Medicare and Medicaid patients.
Without as many privately insured patients who typically pay more than Medicare, these providers are more sensitive to Medicare cutbacks.
And their disappearance would likely deprive seniors and other Medicare beneficiaries of vital medical services.
"If there is a 2% reduction, it will put unbelievable stress on our business," said Michael Rembis, chief executive of Hollywood Presbyterian Medical Center in Los Angeles, a so-called safety net hospital that serves primarily Medicare and Medicaid patients.
"Something has to break," he said, noting that costs for labor, supplies and drugs continue to go up. "If I can't make revenues to pay for cost increases … how does a hospital continue to provide quality care?"
In Sioux Falls, S.D., the Evangelical Lutheran Good Samaritan Society, a leading national nonprofit nursing home provider, has already begun to look at whether service cutbacks will be necessary.
(Last week, the Obama administration moved to reduce payments by 11% for skilled nursing facilities amid evidence of overpayments, particularly to for-profit providers.)
And across the nation, many primary care doctors are watching nervously after a year in which Congress almost allowed double-digit cuts in Medicare payments to go into effect. Those cuts are next up for review at the end of 2012.
"It pulls at people's sense of what's right," said Dr. Glen Stream, incoming president of the American Academy of Family Physicians.
"Those primary care doctors who are seeing a disproportionate share of Medicare patients are going above and beyond, providing a service to the community," he said. "But they are the ones most impacted. We're potentially punishing those who should be rewarded."

Dow dives below 12,000

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By Ken Sweet, contributing writer August 2, 2011: 3:34 PM ET

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NEW YORK (CNNMoney) -- Stocks fell sharply and bond yields dropped to a nine-month low Tuesday as a investors worried about the weak economy following another disappointing economic report.
"Now that we have solved the debt ceiling issue the market has moved onto the other data, which has taken a significant turn for the worse," said Ryan Detrick, senior technical strategist with Schaeffer's Investment Research.

The Dow Jones industrial average (INDU) sank 210 points, or 1.7%, with less than 30 minutes left in the session. The S&P 500 (SPX) was down 26 points, or 2%; and the Nasdaq Composite (COMP) was down 57 points, or 2.1%.
The Dow is on pace for its eighth straight day of declines -- its first first since October 2008, when the financial system was in the depths of the crisis. The Dow was also below the psychologically important 12,000-point mark.
The S&P 500 has broken through several key technical resistance points as well, including the index's closely-watched 200-day moving average.
As the selling gained momentum, investors quickly shifted gears and started pouring money into the traditional safe-havens - bonds and gold.
Yields on the 10-year Treasury note declined to their lowest levels since early November, hitting 2.62% after earlier nearly falling below the 2.6% level. Prices and yields move in opposite direction.
Meanwhile, gold prices surged, hitting a fresh record high of $1,644.50 an ounce.

Is the bull market over?

Stocks started the day lower after a weak report on personal income and spending showed Americans cut spending for the first time in 20 months in June.
"There are still a lot of fears about how slow the economy is growing," said Hamed Khorsand, analyst at BWF Financial.
Stocks took a wild ride Monday, with the Dow finishing lower for the 7th straight session, following a report showing poor manufacturing activity.
Economy: Monday's dour manufacturing report came on the heels of last week's GDP report, that showed the U.S. economy grew at an annualized pace of just 1.3% in the second quarter. More disturbingly, the first-quarter reading was revised down to 0.4%.

Debt deal won't fix job market

Investors will get a number of fresh data points on the economy this week, with the most important coming Friday in the July jobs report.
The U.S. economy is expected to have created 84,000 jobs last month, according to a consensus of analysts surveyed by Briefing.com. In June, the economy added a paltry 18,000 jobs. The unemployment rate is expected to hold steady at 9.2%.

Dollar: The 'last resort' safe haven

Currencies and commodities: The dollar gained ground against the euro, the Japanese yen and British pound.
Oil for September delivery dropped $1.43 to $93.44 a barrel.
Companies: Shares of NYSE Euronext (NYX, Fortune 500), the parent company of the New York Stock Exchange, fell 4%. The stock exchange operator posted a 19% drop in second-quarter profit, due in part to costs associated with its Deutsche Boerse merger.
General Motors (GM, Fortune 500) said its July auto sales rose 7.6%, which was mostly in line with analysts' expectations. Shares were down 3%.
Meanwhile Ford (F, Fortune 500) posted a 8.9% increase in its July sales. While that was better than expected, shares were down 3%.
Pfizer (PFE, Fortune 500)'s stock slid 4%, after the Dow component and pharmaceutical maker posted earnings and sales that slightly beat expectations, but fell from a year earlier.
Archer Daniels Midland (ADM, Fortune 500)'s stock sank 4%, after the agricultural products company posted a fourth-quarter profit that dropped 15% from a year ago, amid higher corn prices. The results were well below Wall Street's estimates.
Shares of Metro PCS (PCS) plunged 33%, after the prepaid wireless provider's second-quarter earnings and sales fell short of expectations.
After the closing bell, media company CBS (CBS, Fortune 500) will announce results.
World markets: European stocks ended broadly lower. Britain's FTSE 100 fell 1%, the DAX in Germany dropped 2.3%, and France's CAC 40 slipped 1.8%.
Asian markets also finished in the red. The Shanghai Composite dropped 0.9%, the Hang Seng in Hong Kong tumbled 1% and Japan's Nikkei lost 1.2%. 

First Published: August 2, 2011: 9:49 AM ET

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U.S. Stocks Fall Despite Senate Vote

Stocks are on pace for the longest losing streak in nearly two years, as additional signs of economic weakness trumped Senate approval of the debt deal, sending shares tumbling.
The Dow Jones Industrial Average slid 182 points, or 1.5%, to 11950, in midafternoon trading. The blue-chip index is on track for its eighth consecutive decline, which would be its longest since October 2008. It has lost more than 700 points during the skid, dating back to July 22.

Obama signs debt ceiling bill, ends crisis

By Alan Silverleib and Tom Cohen, CNN

August 2, 2011 3:03 p.m. EDT

Washington (CNN) -- President Barack Obama signed a last-minute compromise plan to raise the nation's $14.3 trillion debt ceiling Tuesday afternoon, narrowly averting what could have been an unprecedented default with calamitous economic consequences.
The U.S. Senate passed the plan, which imposes sweeping new spending cuts over the next decade, shortly after noon ET. The bill was approved in a 74-26 vote; 60 votes were required for passage.
The measure was approved by the House of Representatives on Monday by a 269-161 vote, overcoming opposition from unhappy liberal Democrats and tea party Republicans.
Obama praised the deal moments after the Senate passed it, calling the measure "an important first step for ensuring that as a nation we live within our means."

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But the American economy "didn't need Washington to come along with a manufactured crisis," the president noted. "It's pretty likely that the uncertainty surrounding the raising of the debt ceiling -- for both businesses and consumers -- has been unsettling, and just one more impediment to the full recovery that we need. And it was something that we could have avoided entirely."
"Voters may have chosen divided government, but they sure didn't vote for dysfunctional government," the president said.
If the debt ceiling had not been increased before the end of Tuesday, Americans could have seen rapidly rising interest rates, a falling dollar and shakier financial markets, among other problems.
The end of the triple-A world
Regardless, the federal government could still face a credit rating downgrade.
The agreement -- reached Sunday by Obama and congressional leaders from both parties -- calls for up to $2.4 trillion in savings over the next decade, raises the debt ceiling through the end of 2012 and establishes a special congressional committee to recommend long-term fiscal reforms.
Emotions ran high during the final debates on Capitol Hill. Numerous Republicans remain worried about cuts in defense spending and the lack of a required balanced budget amendment to the Constitution. Progressive Democrats are livid over the extent of the deal's domestic spending cuts, as well as the absence of any immediate tax hikes on high-income Americans.
Debt ceiling: What the deal will do
"On this matter, my conscience is conflicted," Sen. Dick Durbin, D-Illinois, said Tuesday morning. "If we should default on our debt, terrible things will ensue." But if "we continue to move toward more and more spending cuts, we will literally disadvantage the poor and working families of America to the advantage of those who are well off."
But Sen. Mark Kirk, R-Illinois, praised the agreement, calling it "a down payment on further ways to bring common sense ... to the spending of our government,"
"If we fail, we deliver a free people into the hands of financial bondage," he warned.
Sen. Joe Lieberman, I-Connecticut, called the deal a first step in "a long, hard march back to fiscal responsibility in our country."
"Nobody seems perfectly satisfied with it, but that's inevitable," Lieberman said. "For me, the positive outweighs the negative."
What's your message to Congress and the White House?

Giffords' special appearance

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The debt rhetoric: How we got here

GOP leaders sold the deal to skeptical rank-and-file Republicans in recent days by arguing that it will finally begin the process of reforming spending and taming the growing debt, a key goal of conservatives who fueled the GOP takeover of the House in last year's midterm elections.
Top Democrats have focused on the fact that the bill preserves benefits from popular entitlement programs such as Medicare and takes the politically problematic debt ceiling issue off the table until 2013.
In the end, the majority of both Democrats and Republicans supported the legislation in the Senate.
In the House, Speaker John Boehner, R-Ohio, was able to round up the support of most of his GOP caucus, while the chamber's two top Democrats -- Minority Leader Nancy Pelosi of California and Minority Whip Steny Hoyer of Maryland -- voted for the plan along with more than 90 of their caucus members.
One of those supporting the plan was Rep. Gabrielle Giffords, D-Arizona, who cast her first House vote since being shot in the head in an assassination attempt in January. She received an emotional ovation when she entered the chamber.
Giffords' return to Congress sparks re-election talk
The final agreement revolves around a two-stage process.
The first stage includes $917 billion in savings, including a roughly $420 billion reduction in the national security budget. The cuts would be accompanied by a $900 billion increase in the debt ceiling.
Because of the pending Tuesday deadline, Obama would have immediate authority to raise the debt ceiling by $400 billion, which will last through September, according to the White House.
The other $500 billion increase in the debt limit would be subject to a congressional vote of disapproval that can be vetoed by Obama.
Debt bill cheat sheet
In the second stage, a special joint committee of Congress would recommend further deficit reduction steps totaling $1.5 trillion or more, with Congress obligated to vote on the panel's proposals by the end of the year.
The committee would comprise 12 members, six from each chamber, equally divided between Democrats and Republicans. The panel's recommendations would be due by November 23 and guaranteed an up-or-down vote without amendments by December 23.
The committee is expected to consider politically sensitive reforms to the tax code and entitlement programs, though Democrats and Republicans disagree on the likelihood of any eventual revenue increases.

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If the committee's recommendations are enacted, Obama would be authorized to increase the debt ceiling by up to $1.5 trillion. If the recommendations are not enacted, Obama can still raise the debt ceiling by $1.2 trillion. At that point, however, a budget "trigger" would kick in, imposing mandatory across-the-board spending cuts matching the size of the debt ceiling increase.
The cuts would be split between defense spending and non-defense programs, an unpopular formula intended to motivate legislators to approve the committee's recommendations.
"You want to make it hard for (lawmakers) just to walk away and wash their hands," Gene Sperling, the director of Obama's National Economic Council, said Sunday. "You want them to say, if nothing happens, there will be a very tough degree of pain that will take place."
The final debt ceiling increase in the agreement would also be subject to a congressional vote of disapproval that can be vetoed by Obama.
The agreement calls for both houses of Congress to vote on a balanced budget amendment to the Constitution, though it does not make a further increase in the debt limit subject to congressional passage of such an amendment -- something tea party conservatives were initially demanding.
Leaders on both sides of the aisle have openly conceded that the deal is far from perfect.
"Neither side got what they wanted," Senate Majority Leader Harry Reid, D-Nevada, said Tuesday. "Each side laments some of the things we had to give up, but that's the way it is."
A new CNN/ORC International Poll shows that only 44% of Americans approve of the debt ceiling deal, while 52% disapprove.
Debt deal: We can, and must, do better
According to the Monday survey, Republicans dislike the fact that the deal raises the debt ceiling through 2013, while Democrats dislike the lack of any tax increases on businesses or higher-income Americans.
Only 17% of Americans believe that their elected officials have behaved like "responsible adults" during the debt ceiling debate, while 77% believe they have acted like "spoiled children."
What will restore faith in lawmakers?
"I think all of us need to reflect on how these institutions are conducting themselves, how members are conducting themselves," Sen. Kent Conrad, D-North Dakota, said Tuesday.

"We need to think about why are we really here. We're here to solve problems. We're not here to worry about the next election, and unfortunately there's too much focus on pure partisan politics and not enough focus on solving problems confronting the country."

CNN's Ted Barrett, Kate Bolduan, Gloria Borger, Keating Holland, Brianna Keilar, Jeanne Sahadi, Xuan Thai, Jessica Yellin, Athena Jones, Lisa Desjardins, Dan Lothian and Deirdre Walsh contributed to this report.