A Phil Hall Op-Ed: Perhaps the most dramatic economic story of the past week involved the decision by Fitch Ratings to downgrade of the U.S. credit rating from “AAA” to “AA+.” Fitch defined its decision as the result of “a steady deterioration in standards of governance over the last 20 years” and said “repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management.”
The Biden Administration, which has been trying vainly to sell Bidenomics as a saving grace to the nation, responded furiously to the Fitch decision by calling it “arbitrary” and “bizarre,” even going so far to question the “timing” of the announcement – after all, it did interrupt the coverage of the Biden Justice Department’s multiple indictments of former President Trump. The administration even called in A-list stooges like Clinton-era Treasury Secretary Lawrence Summers and JPMorgan Chase chieftain and top Democratic Party donor Jamie Dimon to lambast Fitch’s actions as “ridiculous.” The Biden re-election campaign spokesperson Kevin Munoz referred to Fitch’s action as the “Trump downgrade,” which might be a new low for those suffering from Trump Derangement Syndrome.
Biden himself said nothing – which is not surprising since his handlers have been working overtime to keep the visibly feeble leader off the microphone.
On the day after Fitch made its dramatic announcement, it also downgraded Fannie Mae’s and Freddie Mac’s Long-Term Issuer Default Ratings (IDR) and senior unsecured debt ratings to “AA+” from “AAA” and downgraded their respective Government Support Ratings (GSR) to “aa+” from “aaa.” But whereas the White House took Fitch’s action as a personal slur, the leadership of Fannie Mae and Freddie Mac refrained from name-calling and self-righteous indignation – because they knew the downgrade was not based on their leadership abilities.
“The downgrade of Fannie Mae’s and Freddie Mac’s Long-Term IDRs and GSRs is consistent with the recent action taken on the U.S. and is not being driven by fundamental credit, capital or liquidity deterioration at the firms,” said Fitch in its announcement, adding that the government-sponsored enterprises “are reliant on access to the capital markets. A sustained deterioration in available liquidity and/or inability to access the capital markets over an extended period, absent intervention by the U.S. government, may result in a negative rating action.”
The White House did not issue any comment on Fitch’s actions regarding Fannie Mae and Freddie Mac. But, then again, it never issued any comment on Fannie Mae and Freddie Mac – this White House has shown zero movement in seeking to end the GSEs’ conservatorship, which will mark its 15th anniversary next month.
Nor does it seem to be aware that the U.S. housing market is wobbling about in a state of record-breaking home prices fueled by inflated mortgage rates and an evaporated stock of available homes for sale. Instead, the administration’s only focused foray into housing was the hare-brained finagling with the Loan-Level Price Adjustment – the ultimate solution without a problem.
Nonetheless, the reputational damage from the U.S. credit rating resulted in reputational damage to the GSEs’ credit ratings. And Fitch’s warning about what could happen to the GSEs during “sustained deterioration in available liquidity and/or inability to access the capital markets over an extended period” cannot be spun away with name-calling and anti-Trump rhetoric. If the Biden White House won’t take this seriously, then perhaps we need to question whether a new leadership team is required.
Phil Hall is editor of Weekly Real Estate News. He can be reached at [email protected].
Photo by Gage Skidmore / Flickr Creative Commons