On the heels of its headline-grabbing downgrade of the United States' (formerly) AAA credit rating on Friday, Standard & Poor's has elected to demote the rating of troubled federal housing giants Fannie Mae and Freddie Mac from AAA to AA+, as well:
The fallout from the nation's credit downgrade continued Monday, as Standard & Poor's announced government-sponsored housing giants Fannie Mae and Freddie Mac were also getting their top rating slashed. The two government-sponsored enterprises saw their credit rating from S&P fall from AAA to AA+ after the rater dropped the nation's rating to the same level on Friday. Raters have noted that the two government-sponsored enterprises' (GSEs) ratings are closely tied to the nation's, especially since the federal government brought the two under federal conservatorship during the 2008 subprime mortgage crisis.
Philip Klein notes that the ratings agency cited the two institutions' "direct reliance on the U.S. Government" as the principle rationale for its downgrade decision. Fannie and Freddie's reckless lending practices -- which helped create a glut of government-backed subprime mortgages -- contributed significantly to the financial meltdown of 2008. Democrats' ex-post-facto legislative remedy to the crisis was a financial reform bill that left Fannie and Freddie unscathed. The law is known as Dodd/Frank, after Sen. Chris Dodd and Rep. Barney Frank -- a positively Orwellian flourish. In the wake of the crisis, it was revealed that Dodd had received special favors from a mortgage company whose lending practices fueled the housing bust. He also lied about his role in orchestrating a controversial element of the TARP bailouts, got caught in that lie, and retired under an ethical cloud last year. For his part, Barney Frank has long been one of the leading Congressional defenders of Fannie and Freddie. He starred in an infamous video of a Bush-era House Financial Services Committee hearing, at which Republicans expressed alarm over the lending practices of the GSEs and practically begged for more stringent regulation. Democrats doggedly insisted that their opponents' "safety and soundness" concerns were wildly exaggerated, darkly hinting that criticism of the mortgage institutions was racial in nature:
"I don't see anything in your report that raises safety and soundless problems."
Former Townhaller and current aide to Sen. Jim DeMint, Amanda Carpenter, thinks it's high time to disentangle the federal government from its dysfunctional addict/enabler relationship with Fannie and Freddie. I'd imagine that Barney Frank -- in his pristine financial judgment -- would beg to differ. Meanwhile, the stock market is reacting to S&P's first-ever US national downgrade...predictably. Stocks have slid nearly 350 points since the opening bell. The bond market, however, seems to have taken the downgrade in stride; US treasuries have actually rallied in early trading, a development that temporarily vindicates some of S&P's critics from across the political spectrum. Moody's has reaffirmed our AAA rating for now, but admonished Washington that a downgrade is still possible, especially in the absense of deeper deficit reductions.
The president will speak from the White House at around 1:30 pm ET this afternoon. His top political advisor has already blamed the S&P downgrade on the Tea Party; we'll see if the president repeats that clunky, implausible talking point today. The Left's "Tea Party downgrade" meme smacks of utter desperation, especially when juxtaposed with charts like this:
Blame the tea-jadists!
Guy Benson is Townhall.com's Political Editor. Follow him on Twitter @guypbenson. He is co-authors with Mary Katharine Ham for their new book End of Discussion: How the Left's Outrage Industry Shuts Down Debate, Manipulates Voters, and Makes America Less Free (and Fun).
Author Photo credit: Jensen Sutta Photography