Standard & Poor's: The Benedict Arnold of Our Time

“Neglected by Congress below, distressed with the small-pox; want of Generals and discipline in our Army, which may rather be called a great rabble, our credit and reputation lost, and great part of the country; and a powerful foreign enemy advancing upon us, are so many difficulties we cannot surmount them.” -Benedict Arnold, American traitor

Much has been debated over weekend since S&P downgraded the credit of United States. But let's look at the underlying motivations of the S&P, namely who are the S&P? 

S&P is owned by McGraw Hill and Co. On their board of directors are various pharmaceutical, insurance, and oil industry heads, along with companies that are heavily invested in the pharmaceutical and oil industries. Let's drop some names:

Sidney Taurel
Chairman Emeritus
Eli Lilly and Company

Edward B. Rust, Jr.
Chairman and Chief Executive Officer
State Farm Insurance Companies

Hilda Ochoa-Brillembourg
Founder, President and Chief Executive Officer
Strategic Investment Group (heavily invested in pharmaceutical industries)

Sir Winfried Bischoff
Chairman
Lloyds Banking Group plc

Director of Eli Lilly and Company

McGraw Hill and Co. also owns Platts, which is not surprisingly, an energy company focused on oil and coal.

 

When President Obama announced in April 2011 that he will increase taxes for the oil and pharmaceutical industries, the board of directors at McGraw Hill and Companies were not pleased. As such, Standard & Poor's countered President Obama's proposed tax increases with a threat to downgrade US Credit based on nothing but a political ploy to create a standoff in the debt ceiling bill to prevent the passage of these tax increases on the pharmaceutical and oil industries. 

Instead, Standard & Poor's created baseless accusations of Congress being deadlocked and that they were merely the messengers of an inept government that reached a debt ceiling deal at the last hour. In truth, they were never the messengers who spoke truth. They utilised their position to profit interminably throughout the 1980s and 1990s to the financial crisis that lead to the stock market crash of 2008. They had no compunction nor moral nor even financial numbers to validate the A nor AA+ nor AAA credit ratings they gave so easily to the companies they were heavily invested, but now suddenly, with President Obama as the sophomore Congressman who took the reign of the old boys club by sheer determination and forcible wit with a diplomatic centrist view, and had decided to do what he promised- to end the era of Reagan-economics, Standard & Poor's- who are now faced with increased taxes to their beloved pharmaceutical and oil industries, decided to suddenly slap the US with a credit downgrade. Under all the pontificating rhetoric they have issued over the weekend, what they really mean is this:

"Yo, Obama, if you don't knock if off and cut taxes for the pharmaceutical and oil industries, we're gonna push the US Dollar under a bus, then we will see who will win!"

A true traitor, what S & P have effectively accomplished is that they have thrown the first dice into a dismal fire. This credit downgrade is not merely "psychological", the credit rating will now be utilised in a political battle between the GOP and other members of Congress to push their own agenda. Not only that, but now China and other nations who hold US debt can openly justify why they will raise interest rates to further deteriorate the US economy. Standard & Poor's, an American company, have effectively betrayed their own long-term interests for short term gain.

 

And who will pay for this credit downgrade? The average American citizen. Gone are the days when one family member was able to comfortably support a family, since the 1950s- (when tax rates were the highest for oil industries), now in 2011 (when tax rates are the lowest in history for these industries) as a two-person income, most Americans were still struggling to support a family. 

So which industries will be impacted by President Obama's tax increases? It won't be the average American citizen who probably makes less than $500K/year. The industries that will be most affected are the oil, pharmaceutical and insurance companies, the very companies that are represented in McGraw Hill and Companies, the one who downgraded US credit on "principle": Standard & Poor's.