Jimmy Fallows Had An Axe

And gave the raters 40 whacks:

1) To repeat Clive Crook’s point, S&P knows nothing more about U.S. budget prospects than you or I do. They’re saying they have an opinion on the state of Congressional-White house dealings on the budget. Fine. Go on a talk show or start a blog.

2) To repeat James Galbraith’s different but also true point, as long as the U.S. government doesn’t tie itself up in debt-ceiling insanity, it is not going to default on dollar-based bonds. It can’t. It controls the “means of production” for the dollars to pay off those bonds. If you’re worried about inflation, fine. But that’s a different matter, with a lot of other variables that count for more than S&P’s feelings.

What I’d really like to know is who S&P likes in the Hornets-Lakers series, or this season of American Idol. Their views would carry just as much weight. Also I’d like to know why the news ecology treated this as such a big deal.

When I saw what he had done….

You finish it. My rhyming sucks. But Fallows has been on fire lately.

72 replies
  1. 1
    Catperson says:

    It’s a mistake to dismiss the S&P ratings as inconsequential. Not because they’re accurate or made in good faith but because people trust them even when they shouldn’t. (Just like Beltway pundits!) The scaremongering is turning into a self-fulfilling prophecy.
    If Obama’s smart, he’ll use it as leverage to raise taxes. But more likely he’ll agree to cut SS/Medicare and settle for letting the Bush cuts expire.

  2. 2
    Lolis says:

    This smells like a big scam. Cause a minor panic and savvy investors can buy lower than normal. I was pissed my stocks went down today.

  3. 3
    Omnes Omnibus says:

    @Catperson: Fallows’ first point would also apply to you.

    Also too, I originally read Fallows as Fallon and I thought to myself, “It was only a matter of time.”

  4. 4
    Corner Stone says:

    What does Jimmy Fallon have to do with this?
    Although I have to say the scene in Taxi where Gisele says, “In this skirt? I don’t think so.” was fucking awesome.

  5. 5
    Corner Stone says:

    @Omnes Omnibus: Ask and ye shall…

  6. 6
    Lolis says:


    Sure the president will suddenly oppose programs he has vocally supported within the past week and which are politically popular to appease Republicans. This makes total sense. His line “This will not happen while I am president” was just to prep everybody for his big cave. I don’t really mind people thinking Obama is a sellout but thinking he is dumb is just, well, dumb.

  7. 7
    Corner Stone says:

    @Catperson: “People” don’t fucking trust them.
    The money changers use them as an excuse to do whatever the fuck they were going to do anyway.

  8. 8
    Parallel 5ths (Jewish Steel) says:


    But more likely he’ll agree to cut SS/Medicare and settle for letting the Bush cuts expire.

    Likely because?

  9. 9
    MikeJ says:

    @Corner Stone: Except the money changers didn’t do that. People who really buy and sell treasury notes drove the price up today, not down.

  10. 10
    MikeJ says:

    @Parallel 5ths (Jewish Steel): Because the voices in catperson’s head said, “twas brillig and the black man sold us out!”

  11. 11
    Corner Stone says:

    @MikeJ: And?
    People who “really buy and sell” already knew this was coming and whiplashed everybody else in the market.
    It’s not too swift to think the “real” buyers didn’t know this head fake was coming.

  12. 12
    dr. bloor says:

    Ratings agencies…ratings agencies…where have I heard that phrase before….oh, yeah. “Mortgage backed securities.”

  13. 13
    srv says:

    … I gave McMegan forty-one

  14. 14
    Villago Delenda Est says:

    Given S&P’s very poor performance on mortgage-backed “securities”, why should we listen? Obviously, the guys down at the Treasury Department didn’t slip the S&P guys some vig to juice up the bonds.

    These guys think “fiduciary” means “distract the client long enough to transfer every one of his dimes to the Cayman’s accounts.”

  15. 15
    PsiFighter37 says:

    John…where have the Chuck open threads gone? I’m one of the few readers who’s a huge fan of the show…

    Totally OT I know, but just wanted to put it out there.

  16. 16
    Parallel 5ths (Jewish Steel) says:

    @MikeJ: My suspicion. catperson should stick to twine and naps.

  17. 17
    jl says:

    How do ratings agency make their money these days? Is the same as before the panic and Great Recession? Do they still make most of their money by pleasing big shot financial issuers?

    Looking into that might solve the mystery of nonsense ratings like this one.

  18. 18
  19. 19
    Sharl says:

    Those rating agencies don’t get nearly the attention they deserve for their key role in bringing the House down. (Just one example)

    Excellent post Mr. Fallows – keep punching.

  20. 20
    jl says:


    BTW, the questions in my previous comment are not rhetorical. I haven’t had time to follow what has happened to credit rating agencies in financial reform.

    I’m cynical enough to believe that, if nothing has changed, some issuers made it known that such a rating would be useful for industry lobbying purposes.

  21. 21
    STUCKZILLA! says:



  22. 22
    kdaug says:

    Why isn’t obvious to everyone that Standard-ly Poor has a vested interest here?

  23. 23
    ixnay says:

    Jimmy Fallows took an axe,
    and gave the raters forty whacks.
    And when he saw what he had done,
    He gave Paul Ryan forty-one.

    Apologies to Lizzie Borden

  24. 24
    jl says:

    @kdaug: I have not followed this closely enough lately to know for sure. But it seems to me that a lot of important financial institutions want low interest rates and low inflation while they fight over the remaining bad debt. All of them think that they will be one one who will win and they want that hopefully eventually good paper worth a lot. And they have to finance carrying a lot of bad debt that they hope one day will still be good.

    And if the rating agency industry regulation is that same as before (nonexistent or corrupt) then the credit agencies’ masters are requesting some special ratings efforts for governments that need influencing.

    Amirite or wrong?

  25. 25
    catclub says:

    @jl: 1. Nothing has happened to the rating agencies.

    2. The ratings agenicies were paid to give good ratings to MBS securities and they did. If the US Government bothered to pay them to rate US bonds, they would give those good ratings too.

    The response of posters HERE is much more intelligent than in the rest of the punditocracy. Quel surprise!

  26. 26
    Catperson says:

    @Parallel 5ths (Jewish Steel): Because he and the Dems have shown a pattern of ceding ground before negotiations even begin.

  27. 27
    lamh34 says:

    Looks like Jan brewer vetoed the Arizona Birther. It’s being reported on twitter,

  28. 28
    STUCKZILLA! says:


  29. 29
    Catperson says:

    @MikeJ: Jesus. WTF did I say to deserve that?

  30. 30
    Catperson says:

    @jl: Interesting. How much bad debt are they really carrying at this point? I thought, perhaps wrongly, that TARP had taken most of it off their hands.

  31. 31
    Parallel 5ths (Jewish Steel) says:

    @Catperson: Ground ceded being equivalent to a bag of balls and a 12th round draft pick.

  32. 32
    Martin says:

    @Catperson: Going straight to screaming that the Obama sky is falling. It didn’t fall in the budget negotiations. It didn’t fall in his speech. It’s not falling, okay? He’s not going to sell out Medicare/SS.

  33. 33
    browser says:

    Jimmy Fallows had an axe
    And gave the raters 40 whacks
    And when he saw what he had done
    He gave the banksters 41.

    He knew that this was quite the task
    So of Matt Taibbi’s help he asked
    Matt chopped the bondsters into glue
    By clocking in at 42.

    But when they asked John Cole for help
    He muttered something ’bout a whelp
    “Rosie’s driving me up the wall,
    When I quit complaining, gimme a call.”

  34. 34
    Catperson says:

    @Martin: I didn’t go straight to the sky is falling. Sky is falling would be cutting Medicare and SS AND renewing the Bush tax cuts. ;-)
    And that still wouldn’t justify going to “you must be a racist”.

  35. 35
    kdaug says:


    Amirite or wrong?

    Dunno, don’t care. I tend to deal in ideas, not binary absolutes.

    But what I do find interesting is that not long ago, S&P were stamping “AAA” on mortgage-backed CDOs that they knew – or should have known – were complete shit. In some corners of the coherent collective, they were vilified, and in my opinion rightly so.

    And yet today S&P expresses their “concern” about our full faith and credit, and everyone from CNN to NPR to Fox rushes out to tell us how this means we simply must take “austerity measures.”

    To paraphrase a quote one of you jackals reminded me of a couple days ago –
    “The world rests on bullshit!”
    “Well, yes, ma’am, but what does the bullshit rest on?”
    “It’s bullshit all the way down!”

  36. 36
    Steve says:

    I find it interesting that the White House’s response was basically defensive (along the lines of Fallows’ “S&P is just some guys with an opinion”) rather than aggressive and partisan (which would be something like “This is an early indication of what Republican brinkmanship on the debt ceiling threatens to do to our economy”). I don’t know if this is weakness or sound leadership. Maybe they don’t want to send any more negative signals to the market by escalating the rhetoric, or maybe they’re afraid that S&P could issue a politically-motivated statement that would make the WH look silly.

    If anyone is genuinely on the fence about what this means, it’s worth pointing out that S&P didn’t take this action in 2009 or 2010 when Obama was passing his big-spending stimulus and his civilization-devouring health care bill. No, they did it in 2011, which sort of refutes the Republican narrative that they have reintroduced an element of fiscal sanity to government. Instead, it’s their utter recklessness that causes the market to worry that these are the guys who might actually wreck the place.

  37. 37
    Sharl says:

    While we’re momentarily stuck with these useless credit agencies, maybe there is some flicker of hope to be found in business journalism. From NYT’s article 2011 Pulitzer Prize Winners Announced:

    And for the first time, a prize was awarded to reporting that did not appear in print: ProPublica’s online series “The Wall Street Money Machine,” which won for national reporting.

  38. 38
    NaveenM says:

    This is a tough nut to crack. The children (Republicans) are playing with matches (the debt-ceiling). The insurance company (S&P) thinks they need to raise rates because of this. The adults (Obama and the Dems) obviously wouldn’t play such childish games. But every time they take the matches away, the children don’t realize what a dangerous game they’re playing, and they find new matches to play with.

    At what point do you let the childish GOP start that fire so that they burn themselves and learn their lesson? Of course, they risk burning the whole house down in the process — and there in lies the dilemma.

  39. 39
    General Stuck says:


    The wingnuts fucking around with the CR and funding the US government is one thing, winger threats to default the US of A on it’s debt is quite another. Weakness? maybe. Probly scared shitless they will escalate the showdown even more with anything they say. This is a republican problem, and John Boehner is the cat on the hot seat to tame the passions of the idiot tea baggers playing with what amounts to political nuclear weapons./ The old guard is not up for this sort of dangerous bullshit and neither are their wealthy puppet masters. The fuckers funded a monster that has grown and wants to eat.

  40. 40
    Catperson says:

    @General Stuck: Agreed. But Boehner’s problem with the Teabaggers would be mitigated if he wasn’t so reticent to pass legislation with Dem votes.

  41. 41
    kdaug says:

    @jl: Oh, and hey, jl – that was more harsh than it needed to be. Ain’t about you. It’s about angry kdaug.

    No need to be rude. Apologies.

  42. 42
    Omnes Omnibus says:

    @kdaug: I prefer the turtles.

  43. 43
    Redshift says:

    @Catperson: I don’t think “I’ll only accept a bill that can pass with only Republican votes” is going to go very far any more. I don’t think it was a ploy by Boehner; I think some of his caucus made their votes conditional on that, and then they (or others) didn’t deliver. So why should anyone listen if he (or they) demand it again?

  44. 44
    General Stuck says:


    But Boehner’s problem with the Teabaggers would be mitigated if he wasn’t so reticent to pass legislation with Dem votes.

    This is true, and no majority in the House wants to have to depend on the other party to pass it’s legislation. Not in our two party republic system. What we have in practical effect is a problem where the only solution from disaster is the GOP forming something like a Parliamentarian style of coalition governing. And doing That is most likely a personal pol death knell for Boehner to do, with the alternative of destroying ours and the worlds economies. I am almost feel sorry for the orange fucker, not quite though.

  45. 45
    Steve says:

    @General Stuck: I personally do not think the WH believes there is an actual risk of the Republicans failing to raise the debt ceiling. There aren’t enough lunatic freshmen for that. Even the question of whether they will screw around with it for a while (cf. Cantor’s trial balloon from last week) is being rapidly settled. There is a school of thought that says the goal here should be to extract the maximum political benefit from the existence of the GOP lunatic fringe.

  46. 46
    Catperson says:

    @Redshift: Not sure what you mean. That non-TP Repubs said they’d only vote for the budget if it was Repub votes that carried it?
    Either way, you’re right that Boehner should have learned a lesson from it. I continue to be surprised by the hubris shown by these deadenders.
    I believe that Boehner is being more reasonable behind closed doors but the constant public chest-beating just sets up a “we can’t be seen to lose” dynamic that leads to bad decisions.

  47. 47
    Catperson says:


    There is a school of thought that says the goal here should be to extract the maximum political benefit from the existence of the GOP lunatic fringe.

    This. It’s a constant game of chicken.

  48. 48
    Martin says:

    @lamh34: ZOMG! Brewer is in on it!

  49. 49
    El Cid says:

    Krugman notes that after S&P’s dour announcement about how OMG they will take their AAA back, US bond prices went up.

  50. 50
    General Stuck says:


    I don’t think there is a chance of the worst happening either. But there are enough true believer crazy tea tards to make it a close vote (for a gop majority), unless Obama really gives up a lot, which of course is funding his HCR. Obama can’t politically give in much on what amounts to a form of partisan pol terrorism. He can give Boehner something like what JFK gave Khruschev, or obsolete missiles in Turkey scheduled already for decommission, but not the dem party crown jewels.

    And there is the likely uncertainty and market instability that will occur, even if they don’t mean it and take it to the brink. It makes me so mad when I think about it sometimes, that the oppo party has come to this sorry state, that I wouldn’t mind seeing them arrested for treason, or at least depraved stupidity.

  51. 51
    Steve says:

    @El Cid: I’m not sure you can really tell anything by a few hours of bond prices (if the prices had moved in the other direction, would we conclude the announcement was a huge deal?) but Krugman’s bit on the Japanese bond market was awfully convincing. For those who missed it, he pointed out that S&P downgraded Japan’s bond rating in 2002, and all the people who assumed interest rates would shoot through the roof as a result lost their shirts, because it simply never happened.

    McMegan swiftly disposed of this argument today, however, by noting that we cannot afford to wait to see if interest rates go up, because once they do that means we are already in crisis. So we must, instead, listen to our magic beans and assume interest rates are going way up, because the price of waiting for actual evidence is too high!

  52. 52
    Suffern ACE says:


    I’m not sure you can really tell anything by a few hours of bond prices.

    Nope. Nor is a 1% change in the S&P worth the ink spilled. It seems to have done that dozens of times in the past three years alone.

  53. 53
    Martin says:

    @Suffern ACE: Shit, it fell almost 3% in 2 days after the tsunami. 1% drops happen all the time. The market is emo. All investors cope.

  54. 54
    El Cid says:

    @Steve: You may not be able to tell a lot by a few hours of bond prices, unless you want to scream that OMG TEH DEFFSIT GON KILL US NOW THE BONDS GON FALL WE ALL DIE.

    What I think the main point of the snippet was that an announcement treated by the major US news media (and listen to the radio or see it on the TV box) as a thunderclap of God heralding investment death was apparently not seen as an urgent call in the purchases of bonds.

    If it’s not reasonable to conclude that a few hours’ positive uptick in bond prices are meaningful, it should be equally reasonable to conclude that there was as yet little evidence of market following of the S&P announcement.

  55. 55

    @Parallel 5ths (Jewish Steel):

    Ground ceded being equivalent to a bag of balls and a 12th round draft pick.

    I think that comment was just a bit too much inside baseball for my taste.

  56. 56


    But what I do find interesting is that not long ago, S&P were stamping “AAA” on mortgage-backed CDOs that they knew – or should have known – were complete shit

    No “or should have known” about it. There’s the famous quote about giving a CDO a rating if it were put together by cows. They knew damn well they were rating shit, but they were being paid to give it a good rating so that’s what they were going to do. That’s what happens when the ratings are paid for by the issuers, not the buyers.

  57. 57
    Comrade Mary says:

    @Martin: This little scene from a commenter at TPM is great.

    However, the bill may be veto-proof because it passed with a large margin of votes and legislators may yet try to override the veto.

  58. 58
    Amanda in the South Bay says:

    The market is emo? Just a minute, I thought the financial Wall Street fuckers were all macho tough guys who eat raw steak and threatened to go Galt and take over all sorts of shitty low paying jobs not too long ago?

  59. 59
    Martin says:

    @Comrade Mary: Ha! That’s brilliant. I wonder if any of the douchenozzles in AZ realize that most Kenyans don’t get circumcised until they’re between 10-20. Plenty of time to have your white mom haul you back to the states to get the deed done and eligible to be President.

    What a bunch of fucking loons.

  60. 60
    Martin says:

    @Amanda in the South Bay: Yeah, it turns out that they’re all WATBs that complain about the vintage of Dom that they serve in the legacy seats at Yankee Stadium. So yeah, emo as hell. But what do I care, I was up 1.5% today.

  61. 61
    ranger3 says:

    Lakers are in trouble. Don’t know if the Hornets have the juice to win this thing but, damn… Chris Paul was legit in game 1!

    Vegas had the Hornets at 6.5 to 1 dogs Monday afternoon. Now it’s 5.5 to 1. Seems like some sharp money is moving to NOLA. I think the Lakers can still adjust and get through the 1st round. But they are not going to 3peat.

  62. 62
    Mnemosyne says:

    @Comrade Mary:

    They just can’t wait to get a look at Obama’s dick, can they? Seriously, it’s the only logical explanation for putting that weird-ass circumcision provision in there.

  63. 63
    Mary says:

    @Roger Moore: I think you may be giving the rating agencies too much credit. I think it’s entirely possible that they’re really just not very bright.

  64. 64
    rickstersherpa says:

    1. The SP “going negative” on U.S. credit rating and the play it got in the U.S. economy was to serve as more support for the meme that “the U.S. must cut its entitlement programs to reign in spending, thereby immiserating about 90% of the population, and cut taxes on the rich so they can keep all the money.” Then it won’t be like those terrible European social democracies. No it can be like the 3rd world kleptocracies like Paraguay, Columbia, and Peru.

    2. Interest rates on 10 years treasuries actually fell on this news. If there was a real risk of default, or even of inflation, they would rise. But the market viewed the warning not as sign of future default, but as future “austerity,” slower economic growth, continued high unemployment, and further deflation in real median income of wages and salaries. Certainly Government Fiscal spending, state and Federal, is being reduced, and come January the social security FICA tax goes back to 6.5% from 4.5% increase. Meanwhile, the rise in gas prices and food in tamping demend down on other goods. Like last year, there may be well a slow down, in what is a rather weak recovery anyway.

    3. Earnings have been surprising on the downside this quarter, after a long winning streak. Although the inflation hawks and bonds vigilante sightings will still dominate the news cycle through the debt ceiling debate, I expect the economic stories in the late summer and fall will be full of downsize surprises. And unfortunately, this is not good news for the President.

  65. 65
    Alex S. says:

    I don’t know… rating agencies should reflect the news, not make them. To treat them like the new Greenspan-like oracles is very questionable since the Lehman Brothers collapse.

  66. 66
    OzoneR says:


    But more likely he’ll agree to cut SS/Medicare and settle for letting the Bush cuts expire.

    Which, quite frankly, you’re going to have to do if you’re going to solve the deficit. Raising taxes alone isn’t going to solve the problem unless you really loot everyone’s income and that’ll cause a revolution Egypt-style.

  67. 67
    AnnaN says:

    And when Fallows saw what he had done, he gave Paul Ryan forty-one.

    Very familiar with the original ditty as we used to sing it while jumping rope during recess at Immaculate Heart of Mary.

  68. 68
    hippobippo says:

    …i said “gimme that axe–it looks like fun!”

    didn’t S&P along with Moody’s do their part to start this mess by slapping “AAA” on empty pizza boxes?

    i think that it’s frightening that a private entity should possess this sort of power. seems to me an ideal vehicle for corruption–a ferrari. kinda like the national Ds and Rs controlling the presidential debates?

  69. 69
    HyperIon says:

    @STUCKZILLA!: FYI BIRDZILLA never affected a hick accent. Try harder.

  70. 70
    Bill Arnold says:


    But the market viewed the warning not as sign of future default, but as future austerity,…

    That was my reading too – that “the market” saw S&P’s report as causing increasing odds that the political leadership of the U.S. would do further damage (short term, maybe long term) to the economy.

  71. 71

    […] That would be James Fallows, suffering the blistering assault of one Megan McArdle over this piece, the one John lauded here. […]

  72. 72

    […] That would be James Fallows, suffering the blistering assault of one Megan McArdle over this piece, the one John lauded here. […]

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