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Article Artículo

Haitian Companies Still Sidelined from Reconstruction Contracts
In December 2010, the AP conducted an analysis of Haitian earthquake contracts given out by the US government, finding that only $1.60 out of every $100 went to Haitian companies. In the story, USAID responded: US AID says it is committed to increasing th

CEPR / April 19, 2011

Article Artículo

Economic Growth

Environment

Government

Trapped?
In his most recent column, “Middle-Class Tax Trap,” Ross Douthat laments what he sees as the unconscionable tax burden that a new CBO report projects for middle-class families in 2035. But, Douthat misses the most important part of the CBO projection: Eve

John Schmitt / April 19, 2011

Article Artículo

Questions for S&P on Its Potential Downgrade of U.S. Debt

S&P managed to capture the headlines yesterday when it announced that it had a negative outlook for the credit rating of the United States. After all, an actual credit downgrade for the United States government would be big news. While the immediate response was a boost to the deficit hawks’ efforts to cut programs like Social Security and Medicare, it is worth asking a few questions before we surrender these programs to the Wall Street numbers mavens.

The last time S&P was in the headlines it was for giving investment grade ratings to hundreds of billions of dollars of securities that were backed by subprime and ALT-A mortgages. These mortgages were used to buy over-priced homes at the peak of the housing bubble. Many of these mortgages not only carried high risks, but were fraudulent, with lenders having filled in false information to allow homebuyers to qualify for loans that their assets and income would not justify.

Serious people should ask what S&P has done to improve its ratings systems. Have they changed their procedures? Did the S&P analysts who gave AAA or other investment grade ratings to toxic junk get fired or at least get demoted? If not, should we assume that S&P used the same care in assigning a negative outlook to U.S. government debt as it did in assigning investment grade ratings to toxic assets?

Of course it was not just bad mortgage debt that stumped the S&P gang. It gave top quality investment grade ratings to Lehman until just before it imploded in the largest bankruptcy in history. The same was true of AIG, which would have faced a similar fate without a government rescue. Bear Stearns also had a top rating until the very end, as did Enron. In short, S&P has a quite a track record in missing the boat when it comes to assessing creditworthiness.

CEPR / April 19, 2011