Former investment banker Nomi Prins is the author of "It Takes a Pillage: Behind the Bailouts, Bonuses and Backroom Deals from Washington to Wall Street" and the forthcoming novel "Black Tuesday."
The Standard & Poor's downgrade of U.S. debt from "AAA" to "AA+" late last week should have inspired Washington to pause and reflect. Instead, it gave Capitol politicians renewed opportunity for elaborate fits that won't lead to introspection or policy change.
That's too bad. Because while the United States certainly has a debt problem, more than that it has a priorities and accountability problem.
First, let's acknowledge the irony that this rating agency rubber-stamped $14 trillion of toxic assets in the five years leading up to the crisis of 2008. This green light enabled Wall Street to thrive while it manufactured these assets and sold them globally.
Then, let's sigh that Washington still doesn't get it. There are many reasons for the country's debt, including less revenue from fewer jobs, an antiquated tax system and the cost of three wars. But the predominant reason was the choice to subsidize Wall Street. The majority of the debt created by the Treasury since the financial crisis is either sitting on the Federal Reserve's books doing nothing or was used to bolster various elements of the banking system through providing cheap loans to banks, guarantees for their faulty assets and other forms of bailouts. While the TARP money was repaid, that program constituted only a small amount of the bank subsidization.
A few months ago, Treasury Secretary Timothy Geithner made the talk show rounds to declare that there was "no chance" of a downgrade of U.S. debt. On Monday, after the downgrade and with the stock market plummeting, President Barack Obama took to the airwaves to explain that the United States was "AAA" no matter what "some rating agency says."
As Obama opined that "there will always be economic factors we can't control," the stock market kept dropping. But the bond market shrugged. Global investors have been buying Treasury bonds, not selling them.
This puts the debt-cap drama and all the threats of catastrophic consequence in glaring context. Remember that the sky was going to fall, too, in late 2008, if we didn't bail out and subsidize the banks. Such political fear-mongering would be laughable if it didn't have dire consequences for the rest of us: an anemic economy unable to add jobs effectively and a banking sector floated on debt.
The S&P downgrade mattered insofar as it infused the market with more uncertainty. But, in terms of Washington economic policy, it means nothing. The GOP has blamed Obama for causing the downgrade by not cutting more spending from the budget. Obama and the Democrats have defensively blamed the Republicans -- some have called it a "tea party downgrade" -- even while dismissing S&P's action to begin with.
Beneath the banter lies the stark fact that most of the debt created in the past few years was designed to help Wall Street, and it didn't create jobs, stop foreclosures or reduce the poverty levels. Any future political fights about debt (and there will be many) that miss that point will fail to tackle the most important economic problem we face: lack of jobs and real growth in the United States and throughout the globe.
S&P got a bit of this right when it labeled Washington dysfunctional. But the agency continues to ignore its own actions in the crisis buildup and Washington's reaction to it: massive subsidies and a tepid bank regulation bill that didn't even break up the too-big-to-fail banks as Glass-Steagall did in the wake of the Great Depression.
On Monday, Obama said that Americans have come through the biggest financial crisis since the 1930s with grace (though, of course, we haven't come through anything yet; we're still in it). In the 1930s, the government made a bipartisan decision to smack the banking system into place and separate bank trading and commercial functions so banks couldn't take risks with other people's money.
We did no such thing this time around. Americans should be deeply concerned that our government supported, and continues to support, banks over people. We need honesty and accountability for how we got here. Then maybe we can begin to dig ourselves out.