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ANDERSON COOPER 360 DEGREES
S&P Downgrades U.S. Credit Rating; Interview With John Chambers, Head of Sovereign Ratings at Standard & Poor's
Aired August 5, 2011 - 23:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ANDERSON COOPER, HOST: Good evening, everyone.
If you're just joining us, there is breaking news to tell you about, another blow for the economy and a sharp condemnation of the way the government has been doing business.
America's credit rating just got clipped. It has been a solid AAA, best in the world since 1917. Not anymore. Tonight, the ratings agency Standard & Poor's issued a downgrade to AA-plus. And in just a moment, a 360 exclusive -- S&P's top man behind the decision will join us to tell us why.
The White House got wind of it earlier, trying this evening to challenge the assessment, saying S&P's economic model was off by trillions. A Treasury spokesman moments ago adding this, quote, "A judgment flawed by a $2 trillion error speaks for itself." And a frustrated senior administration official telling CNN's John King, who joins us shortly, these guys make Congress look good -- talking about S&P. But it is Congress that S&P seems to be taking specific exception to and, in general, dysfunctional Washington politics.
Quoting from their news release, "The political brinkmanship of recent months highlights what we see as America's governance and policy-making becoming less stable," this is S&P, "less effective and less predictable than what we previously believed."
The agency says that system produced a weaker long-term debt reduction plan than needed. It slams Democrats and Republicans for being unable to agree on steeper cuts in discretionary spending, laments the inability to reach consensus on trimming entitlements, and singles out Republicans for refusing to look at revenue.
Quoting again, quote "We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act."
Not a moment for anyone to be proud of tonight. It caps a day when markets were recovering from yesterday's 500-point carnage. And new jobless numbers came in mediocre but better than some expected and many feared.
Our expanded financial and political panel joins us shortly, but first John Chambers, the man behind the decision for the downgrade, Head of Sovereign Ratings at Standard & Poor's.
Thanks so much for being with us.
JOHN CHAMBERS, HEAD OF SOVEREIGN RATINGS, STANDARD & POOR'S: Well, thanks for having me.
COOPER: Why did S&P downgrade the United States' credit rating today?
CHAMBERS: Well, I think there were two reasons.
The first reason is the one that you've outlined, being our view of the political settings in the United States have been altered. We've taken them down a notch, the rating down a notch. The political brinkmanship we saw over raising the debt ceiling was something that was really beyond our expectations, the U.S. government getting to the last day before they had cash management problems.
There are very few governments that separate the budget process from the debt authorization process. And we also think more broadly that this debate has shown that although we do have an agreement that will and we do believe will deliver at least $2.1 trillion of savings over the next decade, it is going to be difficult to get beyond that at least in the near term. And you do need to get beyond that to get to a point where the debt-to-GDP ratio is going to stabilize.
COOPER: So it's interesting. You're saying without a doubt, the recent debate, the recent roadblocks in Congress, the tenor, the timing, the tone of the debate had a major impact on this.
CHAMBERS: Yes. I think that is what put things over the brink. In addition, we have a medium-term fiscal forecast that we see, you know, the debt-to-GDP ratio continuing to rise over the forecast horizon, and putting it in a position where it would no longer be compatible with many other AAA ratings.
COOPER: Already on Twitter, other places, Republicans and Democrats are pointing their fingers at each other, at President Obama, at Congress. Do you blame one side more than the other?
CHAMBERS: No, I think that there's plenty of blame to go around.
This is a problem that's been a long time in the making, well over this administration and the prior administration. The -- it's a matter of the medium and long-term budget position of the United States that needs to be brought under control, not the immediate fiscal position. It's one that centers on entitlements and its entitlement reform or having matching revenues to pay for those entitlements; that's at the crux of the matter.
COOPER: What kind of --- what could the United States have done to avoid -- have avoided this?
CHAMBERS: Well, I think it could have done a few things. I mean the first thing it could have done is to have raised the debt ceiling in a timely matter, so that much of this debate had been avoided to begin with, as it had done, you know, 60 or 70 times since 1960 without that much debate. So that's point number one.
And point number two is it could have come up with a fiscal plan similar, for example, to the Bowles-Simpson commission, which was bipartisan. Although it didn't have a supermajority vote, it did have a majority vote and came up with a number of sensible recommendations.
I mean you could envision other recommendations, but that would have been a start.
COOPER: I want to bring in two folks who are a lot smarter than I am on these subjects, Ali Velshi and also David Walker, the former comptroller of the United States. I know they would like to -- to just ask you a couple of questions.
COOPER: David, let's start with you.
DAVID WALKER, FORMER UNITED STATES COMPTROLLER GENERAL (via telephone): John thanks for coming on.
First, obviously, S&P said back in April that you were looking for something meaningful to happen and up to $4 trillion in deficit reduction over the next 10 years. That didn't happen. You know, what -- what are you looking for with regard to this new super committee that's being established?
If they were to come up with $3 trillion in additional deficit reduction over the next 10 years that would get to the $4 trillion target that you were talking about back in April, might that do it as far as being able to regain AAA status?
CHAMBERS: Well, it's going to take a lot to get back to AAA, because once you lose your AAA, it doesn't usually bounce back in that way.
But I think a key debate will be coming up regarding the extension of the 2001 and 2003 tax cuts, because if you did let them lapse for the high-income earners, that could give you another $950 billion. I think the question there is, A, would that be on top of we have already achieved with the $2.1 trillion, or would that -- if it was agreeable, which is a big if, I mean you could envision that being counted toward the $1.5 trillion that the congressional committee is looking to achieve.
WALKER: John, a couple other things real quickly.
First, there's obviously a public -- at least a dispute being discussed between the Treasury Department and S&P about the calculation of debt-to-GDP. And they are alleging that there was a several-trillion-dollar difference between what you guys came up with and what they asserted. We all know that there are real questions about the economic growth assumptions, the health care cost assumptions, the revenue assumptions, and the interest rate assumptions. Can you -- can you enlighten us at all as to what the nature of the dispute is and whether or not there is any validity to their protesting about it?
CHAMBERS: The nature of the discussion centered on which baseline to use. And we had a discussion over the baseline. We agree with the Treasury's position on this and our figures that we have published reflect that.
CHAMBERS: I mean I think the important thing to say in this is that, you know, the amounts that we're talking about, say up to about 2015, you're talking about 1.5 percent of GDP of difference in your debt. It doesn't make a material difference. It doesn't make -- it doesn't change the -- the fact that your debt-to-GDP ratio under most plausible assumptions will continue to rise over the next decade.
COOPER: John, I want to bring in Ali Velshi in just a moment, but I do want to ask you, jumping off on what -- on what David mentioned, unnamed White House officials or senior administration officials telling our John King: "This is a facts-be-damned decision. Their analysis was way off, but they wouldn't budge."
CHAMBERS: No, we come to our conclusions by applying criteria which is in the public domain. And it was in the public domain for comment while it was being updated most recently.
It looks at five factors. It looks at the political settings. And as I have said just now, we think the political settings, which -- are still strong, but not quite as strong as most highly-rated sovereigns. It looks at fiscal position, both on the deficit side and on the debt side. And again here, the United States' fiscal position is weak.
And then it looks at other factors, including the economy. And of course the United States has a very prosperous economy. Its growth prospects are as good as most high-income countries; so that's a credit strength.
It looks at the external position. And if you work into the calculation that the dollar is the key international reserve currency, and is likely to remain so, that's pretty much a credit strength.
And it looks at the monetary policy, which, of course, the credibility of the U.S. monetary policy is unquestioned.
COOPER: But John, tonight, I mean, you have unnamed administration officials saying -- quote -- "These guys make Congress look good," talking about the S&P.
They say that -- that S&P sent Treasury an error in their analysis that inflated the U.S. deficits by $2 trillion, and that -- that the agency acknowledged their mistake. Did you make a mistake of $2 trillion in your analysis? CHAMBERS: Our analysis is in the public domain. It's published. And the difference between baseline calculations out to 2015 is 1.5 percent of GDP.
ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: John, let me ask you this.
There are -- and this will apply to a lot of our viewers who have 401(k)'s, IRAs, and particularly pension plans. Those pension plans, those funds often have covenants to say that they have to invest in AAA companies.
Now, you have had a policy at S&P that a company can't have a higher credit rating than its sovereign nation, than the sovereign nation that it's in.
Does that handful of AAA companies that our viewers have investments in -- do they now get downgraded as a result?
CHAMBERS: The U.S. corporations, I think there are four of them.
CHAMBERS: They are not affected by this directly.
What applies -- we don't have a sovereign ceiling, per se -- what applies is whether or not you think the Central Bank will impose exchange controls so draconian that private entities won't be able to get foreign exchange to service the foreign debt. There's no question about that here in the United States. That is not a constraint.
In terms of other people who might be -- have portfolios that have AAA restrictions and the U.S. being downgraded, will that have an impact on them. We have spoken to a number of investors about that; they think that the impact will be pretty minimal. And they don't think that there will be massive forced selling because of this.
COOPER: I want to thank Ali Velshi and David Walker. We're going to talk with them in just a moment.
John Chambers, I know it's been a long day for you. I appreciate your time tonight. Thank you very much.
CHAMBERS: Thank you.
COOPER: As our panel members said last night after the crash, both the economy and markets are very fragile right now. Almost any piece of news can make a difference. The question right now is how much of a difference.
Joining us, as promised, John King, host of "JOHN KING, USA", he's on the phone. Also with us, Dan Lothian, who has been talking to sources here in Washington, and our financial panel, chief business correspondent Ali Velshi; Chrystia Freeland, global editor at large for Reuters; also Sean Egan, whose independent rating agency, Egan Jones, downgraded U.S. debt last month; and David Walker, who you heard, former comptroller of the United States. Currently, he heads up the Comeback America Initiative.
A lot of talk about, a lot of very smart people here.
And also CNN's Erin Burnett is joining us; nice to have her on the program for the first time.
John, did the administration know this was coming and what exactly are they saying tonight on or off the record?
JOHN KING, HOST, "JOHN KING, USA" (via telephone): Well, they are incredibly frustrated, Anderson.
Did they know it was coming? They knew that S&P was in the process and that at 1:30 this afternoon I'm told S&P sent its analysis to the Treasury Department with essentially the press release that went out publicly and said we're going to do this. Here it is. If you have anything to say, say it now.
And I'm told the Treasury quickly caught what they call a $2 trillion mistake. And Mr. Chambers essentially just acknowledged that. The administration says when they pointed that out that their analysts went back and forth with S&P's side. S&P said, yes, you know you're right. We're going to change our numbers. You have it right. But then they refused to change their judgment or their announcement.
And what Treasury officials are saying and other administration officials are saying is that S&P had made its decision, had told some people in the financial industry and in the markets that it was about to do the downgrade and then simply refused to change its mind when they rebutted the analysis.
Mr. Chambers just made his case that there are other factors as well. The administration's position -- and again consider the source -- they're embarrassed tonight. President Obama will be the first president in history to have a downgrade on his watch.
They fought this and they lost. But their position is they caught S&P in a big mistake, but S&P had already essentially put the train on the tracks and refused to change its mind.
COOPER: And you can already imagine the mudslinging that is already occurring among liberals, conservatives, Republicans, and Democrats, pointing the fingers, throwing mud, throwing allegations back and forth. You see it on Twitter right now. We'll talk about that throughout this hour.
But Dan, the White House aware of -- of the implications of this for President Obama, at least among his critics. The White House is pushing back hard tonight.
DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: That's right. And I should point out, first of all -- and you touched on this at the top of the show, but a Treasury spokesman saying -- quote -- "A judgment flawed by a $2 trillion error speaks for itself."
Sources familiar with the matter are saying that, look, the U.S. has come a long way in getting its fiscal House in order since the beginning of the year. And certainly everyone was not happy with what they were able to get in the raising of the debt ceiling, the deficit deal. But nonetheless they felt that they had come a long way.
And as John and others had been pointing out, the feeling among these sources is that S&P really rushed to judgment, that they should have taken a step back after this $2 trillion mistake was pointed out. They should have taken a few days, reviewed it before reaching this decision.
And the sense among these sources is that a decision that initially was based on math and economics ended up becoming one that's based on politics.
Now, the big question is what happens going forward. And at least according to these sources, they don't believe at this stage that interest rates will go up or that the stock market will go down. But of course we will know much more about that when the reality hits next week.
Jeff Toobin, put this in context for us. I mean, how big a deal is this?
JEFFREY TOOBIN, CNN SENIOR LEGAL ANALYST: Well, I think it's also important to recognize that Standard & Poor's is not the voice of God here.
Standard & Poor's itself had an appalling record during the -- what led to the financial collapse of 2008. They were the ones who were giving clean bill of health to all these investment banks and banks that had invested in these horrible mortgage-backed securities.
So the idea that they have perfect insight into who is -- who is sound and who is not is simply incorrect. As for what this will mean, I mean obviously, it will be a political football. I don't think most voters have heard of this issue. I don't think most voters care. Most voters care about what they see in the real world, unemployment, whether houses are selling, whether the economy is moving. I think this is likely to be a big sideshow.
COOPER: Erin Burnett, who we're thrilled to have with us at CNN now, the other two agencies did not make this move, Moody's. Were they wrong?
ERIN BURNETT, CNN CORRESPONDENT (via telephone): Well, it's interesting, Anderson.
I think S&P saw this as a political moment, where they had been the ones to say, you have to hit this $4 trillion in cuts or else. And they were put in a position where they had to go through with it. I think, as John is pointing out, this error is an embarrassment for them.
But I have to say that the biggest bond investors in the world that I have been speaking with over the past couple of weeks have been adamant that the U.S. should be downgraded and in fact that was already priced in.
So in a sense, it would seem from talking to them the error -- the $2 trillion error you were referred to, doesn't really seem to matter.
You know, they're under a lot of pressure. Europe wants to start its own credit rating agencies to compete with them. China has already downgraded. So there's a lot of political pressure.
But I would note this, Anderson, that -- that I know Ali has pointed out before. Three-quarters of the top-rated debt on this planet is linked to the United States government. So there really isn't in -- just in pure technicality, anywhere else for the money to go. And that's a good thing for the U.S.
And -- and other economies like Japan, that have more debt and have a lower rating, have lower borrowing rates than we do. That's because the Japanese people own their debt. That's something we might consider as well. But I think this is a wakeup call that we needed. And it's not necessarily Armageddon.
COOPER: Everybody, just stick around. We have more on the political repercussions, as we continue to follow the breaking news throughout the hour.
Let us know what you think. We're on Facebook. Follow me on Twitter. I tweeted about this before this program. I'm getting a lot of responses @AndersonCooper. I'll try to respond tonight, if I can.
Later: the Syrian regime's brutal and growing crackdown on its own people. We have late reporting on what it is like in the heart of the city of Hama, with government tanks in the streets, snipers on rooftops targeting civilians, shooting people dead in the streets -- details ahead.
COOPER: Our breaking news tonight: for the first time in history America's credit rating has been cut; Standard & Poor's issuing the downgrade from AAA to AA-plus.
The administration challenging S&P's assumption, but it's the agency's assessment of American politics that really stands out tonight.
Reaction starting to come in. This from 2012 GOP front-runner Mitt Romney, quote, "America's creditworthiness just became the latest casualty in President Obama's failed record of leadership on the economy. Standard & Poor's rating downgrade is a deeply troubling indicator of our country's decline under President Obama." Back now with our panel: John King, Dan Lothian, Ali Velshi, Chrystia Freeland, Sean Egan, David Walker, Erin Burnett, Jeffrey Toobin.
Sean, you actually downgraded several weeks ago. What led to your decision to downgrade? And are you surprised? And I'm wondering because when I talked to Chambers from S&P, he was saying the -- the tone, the tenor and the timing of the debate in Capitol Hill played a big part in this decision.
SEAN EGAN, PRESIDENT, EGAN-JONES RATING COMPANY: Well, actually, we put the U.S. on negative watch as of March 1st and we downgraded it as of July 16th.
This is a watershed event. Never in the country's history has this happened. Furthermore, it's happening at the same time that Europe is having a lot of difficulty. We've been here before in terms of a high debt-to-GDP, approaching 100 percent. But that was after World War II when the rest of the globe was in terrible shape and the GDP for the U.S. was very high.
Therefore we could grow the GDP. We didn't decrease the debt. We could grow the GDP and get out of the problems very easily.
Now we don't have that situation. The GDP isn't growing to speak of. It was 0.4 percent in the first quarter, 0.3 percent in the second quarter. So it's -- our problems are much more intractable at this point.
COOPER: Sean, do -- do you look to Congress? Do you believe that they need to raise revenues?
EGAN: You have to be careful about that.
Our financial flexibility is limited right now. If you believe in the neo-Keynesians, the worse thing to do is to raise revenues, increase taxes, and dampen what little additional economic activity there is. You want to be very careful about how you handle it so that you don't push the country back into a recession.
COOPER: David Walker, could this have been avoided?
WALKER: Well, it could have been.
Look, let's -- let's focus on a few things. There may have been a math error by S&P, but that math error while being embarrassing may not be enough of a difference to change their judgment that this downgrade was still appropriate.
Secondly, there's absolutely no question that the political system in Washington is dysfunctional. And thirdly, there's no question that both political parties are to blame. The last 10 years have been the most fiscally irresponsible in the history of United States.
They took the big four issues off the table in this latest deal. They took off Medicare, Medicaid, Social Security, and comprehensive tax reform. These people need to grow up and start getting serious, because we've got more time than some of these European nations, but we're not exempt from the laws of prudent finance.
COOPER: Chrystia, we already have heard from -- from Mitt Romney with the GOP. Interesting, though, in talking to Chambers from S&P, he is saying, look, there is plenty of blame to go around on both sides of the political aisle.
CHRYSTIA FREELAND, GLOBAL EDITOR AT LARGE, REUTERS: I think that's absolutely right. And I would love to hear Mitt Romney and really all of the Republican candidates respond to the point that we heard from Chambers about higher taxes and particularly about the expiration of the Bush tax cuts.
That is the part in this verdict that is going to be unpalatable to the Republicans. The other thing that I think is really important to bear in mind, we heard from Sean Egan talking about how it's not just the U.S. which is in trouble. We're also seeing lots of sovereign debt issues in Europe.
Ironically, the fact that the rest of the world is in trouble, too, is in the short term really to the advantage of the United States. PIMCO, the world's biggest bond trader, likes to talk about the U.S. as the cleanest dirty shirt. You have to put your money in somebody's treasury and right now, notwithstanding the verdict of S&P, the U.S. is still looking like a pretty good bet and we saw that verdict in the markets this week.
Just today the U.S. 10-year treasury was -- the yield was down to 2.34 percent. That's still really cheap. So in the short term, investors are still putting their money in U.S. treasuries.
COOPER: David Walker, what about that? To Chrystia's point, I mean Chambers has suggested letting the Bush-era tax cuts expire.
WALKER: I don't think it should be the business of S&P or any rating agency to tell a sovereign nation how to put its finances in order.
What they need to be concerned about is where are we headed with regard to deficits, where are we headed with regard to debt-to-GDP. And it's the part of the elected officials to decide how to be able to bring those numbers under control. And as has already been said, there is no question we're going to need revenues in excess of 18.2 percent of GDP, which is our historical average, over time, in addition to entitlement reform, defense and other spending cuts and constraints.
But you've got to be careful about when you do that because we're dealing with a very delicate economic recovery right now. We have very high unemployment and it's not just a matter of what you do. It's how you do it and when you do it that matters.
COOPER: Ali, what do you think this means for -- for ordinary -- go ahead, Ali. (CROSSTALK)
VELSHI: Well -- let me just say, to David's point, there's a bit of a problem with that analysis. And that is that S&P has been very clear that the very public threat of not upgrading the debt ceiling and not paying some bills being used as a political tool was part of this decision.
Now, generally when you pay your mortgage, the bank doesn't see the arguments that go on in your house until the day you make the payment and that's all they care about. They don't care what led up to it. But in this case the process actually matters.
And the fact that they saw this play out with a number of fiscally conservative Republicans and Tea Partiers to the end saying do not increase this debt ceiling should and did threaten our credit limit. I think America lost its right to a AAA credit limit with that show.
So I'm not sure when David says it's not the S&P's business to talk politics, the fact is that politics so publicly played out did cause a problem. And I think it's akin to this, Anderson. It's akin to you and your spouse and your kids going to the bank, speaking to the bank manager on the day that your mortgage is due, and having an argument there about the fact that we are not going to pay that, we are going to pay that.
If they see that play out, they may think they are not going to get their next payment. So I'm not sure that it's not the S&P's place, David, to comment on this.
WALKER: Yes, let me come back.
First, let me agree that the dysfunctionality and the process that we really went through recently with regard to the debt ceiling limit is appropriate for them to consider. That's not what I'm saying. So I agree with Ali on that.
What I'm saying is, is that they should be focused on making sure that we get our structural deficits under control and our debt-to-GDP down to reasonable and sustainable levels. It's not their job to say how much of that should be done through entitlement reforms, through defense and other spending cuts, through revenue increases. That's not their job.
But -- but the fact that we have a dysfunctional democracy and it played out the way that it did is very relevant because it lessens their confidence in our ability to be able to make the difficult choices.
FREELAND: Yes, I would just like to -- to push back a little bit against David's point. S&P, they are not God, for sure. This is just an opinion. But they -- they -- their job is to give an opinion on the creditworthiness of companies and of countries. And part of their judgment on the creditworthiness is about how the county -- how the country's budget is put together.
And if their judgment is more revenue is part of what makes the economy stronger and more able to pay its bills, I think that's absolutely reasonable for them to say that.
COOPER: We have a lot more to talk about as our breaking news coverage continues. We're going to "Dig Deeper" on the political fallout for President Obama and what it means for the election coming up. We'll be right back.
COOPER: Well, the breaking news tonight. America's debt downgraded for the first time ever means higher interest rates for you, possibly -- possibly; we've been talking about this at this hour. And there's almost certainly political fallout. The question is: what kind of political fallout and for whom.
Digging Deeper now on how this may affect President Obama and the Presidential campaign, with John King and Dan Lothian; also joining us, Jeffrey Toobin, Chrystia Freeland and Ali Velshi.
So Dan, the reports I've seen indicate the White House led the Treasury Department to take the lead in pushing back against S&P tonight. Do you expect some sort of a statement from the President tonight or this weekend? What are you hearing from sources?
DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: It's unclear if the President will release any kind of statement or even come out on camera over the weekend. He is away at Camp David. That doesn't mean he can't come back and appear on camera.
But right now what we're hearing from sources is that it really is Treasury taking the lead on that. In fact, during the pushback that occurred before 2:00 p.m. this afternoon, I'm told that the White House was not involved in the pushback; that it was really between Treasury and S&P.
COOPER: Dan, I understand where you have a statement from John Boehner that I'm just literally waiting for a print-out of it.
John, we've seen some Republican presidential candidates already releasing statements, blasting -- no surprise -- President Obama for all of this. The campaign ads probably write themselves politically. For the President of the United States, how big of a problem is this moving forward?
KING (via telephone): Look, it's a big problem, Anderson. S&P's decision says essentially a pox on all their houses. You'll see a lot of political arguments saying the agency should have stuck to where the United States should get in terms of deficit reduction, not how to get there; Mr. Chambers making this case with tax increases there. And Republicans will say that's a political statement, not an economic statement.
But look, you can say a pox on all their houses. We only have one president and he's the incumbent up for re-election next year. And here, let me cut the instant ad for you. He says he would change Washington. It's still partisan gridlock. He says his stimulus plan -- unemployment would never go above 8 percent. It hit 10 percent, and it's still above 9 percent. And he said he would improve America's standing in the world; the first president in American history to have the credit rating downgraded. That's the Republican ad.
Is that fair? Leave that up to the voters to decide. But that's what you're going to hear now, because this president's economic record will be the choice, the referendum in the campaign. And when something embarrassing like this happens, whether you think it's right or wrong, whether you think it's fair or unfair, that is how it will play out politically.
COOPER: We just showed a little bit of video from President Obama, I think, and Tim Geithner from earlier today at the White House.
John, I -- I have this statement now from -- from Speaker Boehner. I'm just going to read the first paragraph, because it does seem to sort of go against or ignore, I should say, what Mr. Chambers from the S&P said on this broadcast earlier, in which there's plenty of blame to go around on both sides of the political aisle. And they did, in particular, point out Republicans.
"The decision by S&P," says Speaker Boehner, "is the latest consequence of the out-of-control spending that's taken place in Washington for decades. The spending binge has resulted in jobs destroying, economic uncertainty, and now threatens to send destructive ripple effects across our credit market."
So, no acknowledgement obviously, from Speaker Boehner that there's blame on both sides of the aisle, John.
KING: None whatsoever. But the Senate Majority Leader, Harry Reid, who is -- next to Speaker Boehner, is the most important man in Congress, his statement tonight pointed specifically to what S&P said about the need for revenue increases. So that is the political divide.
The Republicans will say, "We need to cut more spending to have credible deficit reduction."
The Democrats will say, "Look, they downgraded our credit rating in part because the Republicans refused to raise some revenues." And so we'll have this partisan political sniping, which is one of the reasons we're here in the first place.
The question, though, is, when you shove all that aside, when the super committee gets to work, will they take some impetus here? Will they be embarrassed? Will they be shamed into doing actual deficit reduction?
They're charged for coming up with $1.5 trillion. But there's no rule that says they can't come up with $2.5 trillion or $3 trillion. There's no rule that says they have to do this in spending cuts or that in tax increase. They can do anything, as long as it equals $1.5 trillion or more.
The question is, once all this rhetoric clears, will they feel a kick in the you know what, Anderson, to do more serious business, and find a way to resolve their differences? You can have revenue increases and a big tax reform proposal in which a lot of Republicans have said they would support because it doesn't raise rates. It cuts everybody's rates and just takes away a lot of loopholes so you create more taxpayers and you get more revenue in Washington.
The question is will they now actually sit down and agree to do it before we head into a big election year. A lot of people have thought there's not a reason to do it before a president election if you thing that big deal would benefit President Obama, why would you cut it?
Maybe now Republicans and Democrats will sit down and -- forgive the term -- behave like grownups instead of children.
COOPER: Joining now, Alex Castellanos. I believe he's just on the phone for us, a Republican strategist.
Alex, I think you've written some campaign commercials in your term. John King just kind of laid out what Republican strategy or Republican tag lines might be against President Obama moving forward. But do you think, given what the S&P is saying, that there's blame on both sides of the aisle for this, that they need to look at ways to raise revenues, do you think that this will motivate the so-called super committee to actually compromise, to move forward in a way in which all options are on the table?
ALEX CASTELLANOS, REPUBLICAN STRATEGIST: I think, Anderson, I've written a lot of campaign commercials, but as a political advisor, I wouldn't be writing any tonight. Instead, I would be calling candidates and elected officials that I worked for and I would be telling them, settle down. This is serious. It would be better for you politically and better for the country financially to look like a leader, to reach across the aisle tonight and tomorrow and say, we all know how serious this is. We can do something about it. This is a moment we don't have to pass on to our kids.
This is one of those rare moments where what's good for candidates, politically is what's good for the country.
COOPER: That's one of the nicest advice I've heard. That's the most hopeful advice. Do you think people are actually going to -- would actually listen to that advice right now? Because already we're seeing these statements and we just saw a statement from Mitt Romney, which is pointing fingers squarely at President Obama and saying, you know, this is his -- this is his leadership issue. CASTELLANOS: It's a missed opportunity for candidates who do that tonight chance. They have a chance to be small or they have a chance to be big. And the country is looking tonight for big leaders to help us deal with the big problems. So the finger-pointing is going to lessen them. And that's what I'd be advising candidates and Congressmen tonight.
COOPER: We're going to have more on the politics of this coming up. We've got to take a quick break. Our coverage continues in just a moment.
COOPER: And good evening again.
Continuing our breaking news coverage; for the first time in history, America's credit rating has been cut. Standard & Poor's issuing the downgrade from AAA to AA plus.
We're already now getting a number of statements. I read you a statement from Speaker Boehner a short time ago. This is speaker from -- from Democrat Harry Reid. Quote, "The action by S&P reaffirms the need for a balanced approach to deficit reduction that combines spending cuts with revenue-raising measures like closing taxpayer- funded giveaways to billionaires, oil companies, and corporate jet owners.
This makes the work of the joint committee all the more important and shows why leaders should appoint members who will approach the committee's work with an open mind instead of hard liners who have already ruled out the balanced approach that the markets and rating agencies like S&P are demanding."
We've also now seen a statement from GOP frontrunner Mitt Romney. I want to put that up on the screen. "America's credit worthiness just became the latest casualty in President Obama's failed record of leadership on the economy. Standard & Poor's rating, downgrade, is -- excuse me -- Standard & Poor's rating downgrade is a deeply troubling indicator of our country's decline under President Obama.
Standard & Poor's issuing the downgrade from AAA, as I said, to AA plus.
Joining us now, John King is with us on the phone; Dan Lothian, who's been working his sources as well; Alex Castellanos, Republican strategist; also John Avlon is with us, CNN contributor.
John, you're just joining us. You know, we've heard Alex Castellanos saying that this is an opportunity to show real leadership on the part of politicians on all sides of the aisle. To step up, to not necessarily be using this to score some political points by throwing darts, but by actually saying, "You know what? This is a serious time for the county. I know this is serious, and we need to start doing something"?
JOHN AVLON, CNN CONTRIBUTOR: Well, that's exactly right. It does in increase dramatically the importance of the joint special committee to really do some serious -- serious long-term deficit and debt reduction.
But -- and the S&P cited specifically the political brinksmanship of the debt ceiling debate as one of the factors that led to this unexpected downgrade.
The other factor, of course, is that the deal that was ultimately struck had $2 trillion in deficit reduction, instead of the $4 trillion that S&P had set out as a benchmark. But it is a major wakeup call about the need for long-term sustainable fiscal responsibility, and this will send a really difficult message to the markets.
But not only that, it could end up increasing the cost of borrowing and compounding the fiscal hole we're in, not only at the federal level but also in states and localities by increasing the cost of borrowing.
COOPER: John King, for those folks who are going to be on this so-called super committee, obviously, I mean do you think tonight changes things for them?
KING: Yes, although, it would be an easier question to answer if we knew who they were.
KING: We are awaiting the leaders, the speaker -- the Democratic leader of the House, the majority leader and Republican leader in the Senate, the four leaders get to appoint these members. They have two weeks from when the President signed the legislation. So we won't know for two weeks.
We assume that they're going to turn to the people on the budget committee, to the people on the appropriations committee or the people who have a history of making these fiscal issues a priority. That doesn't mean those people necessarily want deep cuts in spending. It doesn't mean, on the Republican side, that those people are necessarily open to revenue increases.
But there are a group of lawmakers, whether you look at the Gang of Six proposal from the Senate, whether you look at some of the centrist Democrats and some Republicans in the House. There is a way to get there, Anderson, whether you take the Simpson Bowles commission report. The organization John Avlon is involved with, No Labels has put out proposals of its own. David Walker's group has put out some proposals of its own. There are ways to get there.
What you need to do is set aside your ideology. Set aside the fact that liberal groups will scream if Democrats agree to significant Medicare cuts or cuts to Social Security. The conservative groups will scream if you have significant tax reform. Even if it lowers rates for everybody and closes loopholes, some of those conservative groups will scream if it brings one more penny into Washington, let alone billions or trillions into Washington over ten years in the current tax code.
But there are many proposals to pick from to get there. What it's been missing is political trust and political will. Will this embarrassment give them the kick to do that? It can. Will it? Especially when the reporting deadline is in November, then you debate in December. Then you flip the page and we're in a presidential/congressional election year.
I've been in Washington for a long time. I'm skeptical it will find that will. But it is not out of their reach.
COOPER: There's got to be a lot of reasons, obviously, for skepticism.
Dan is there a lot of -- I mean there must be a lot of concern at the White House tonight; they can't not be concerned.
LOTHIAN: Well, obviously there's a lot of concern about it. You know, over the past week we have been talking to sources at the White House, and what they've been saying is, look, this is not something we can control.
Certainly, it was hoped that, with the debt ceiling solution, that perhaps something like this could be avoided. But, you know, that was not seen as sort of the perfect anecdote to it. Everyone at the White House and certainly Democrats wanted the big deal, because they felt that that was something that could really satisfy not only the markets but certainly prevent a downgrade from happening. That did not happen.
But how do they get back on track? I think that's unclear. And sources talking to them tonight, they say that the S&P has not made it clear as to how they can regain that AAA rating. And listening to -- to rather S&P, they say that this is not something that will happen very quickly.
So I think that's what we'll be watching over the next few days and weeks, to find out what the U.S. can do to get that rating back, Anderson.
COOPER: Dan Lothian, John King, John Avlon, Alex Castellanos, all our panelists, thank you so much for bringing us all up to date and keeping things in perspective and context for us.
A quick check on some other stories making news when we continue. We'll be right back.
COOPER: We had plenty of extensive coverage on Syria tonight. We've had to, obviously, move that. We'll have that next week.
Want to also tell you about the situation in Somalia, where millions of people are now starving, desperate for food. I'll be reporting from the area on Monday night. There's breaking news. At least seven people, all civilians, were killed and several others wounded in a fight over food at a refugee camp in Mogadishu, the capital of Somalia. A witness tells CNN the gunfire rang out when looters took food at the camp, and government troops then exchanged fire with the looters.
A worker with the World Food Program says the incident shows the challenges facing humanitarian agencies in Somalia. And the challenges are enormous.
The crisis staggering: about 12 million people in the region need food and other supplies. U.N. estimating 29,000 children have died in just the past month; their estimate is that that number may climb up to 600,000.
The catastrophe was triggered by the worst drought in decades. It's been long coming, and adding to the chaos, an offensive by El Shabaab militants, who are affiliated with al Qaeda. They've thrown out aid workers.
Join us Monday night for our live coverage, "Somalia: On the Front Lines of Famine," 8 p.m. Eastern. That's our new time slot, 8 p.m. Eastern. And we'll still be on, of course, at this time slot, at 10 p.m. Monday night. I hope you join us for that.
And we're following a number of other stories tonight. Susan Hendricks is with us. She has the "360 News & Business Bulletin" -- Susan.
SUSAN HENDRICKS, CNN CORRESPONDENT: Anderson, polygamist sect leader Warren Jeffs asked to leave the courtroom today and will not be representing himself in the penalty phase of his sexual assault trial; really, some bizarre moments today. Before he left the Texas courtroom, Warren Jeffs demanded that jurors end the proceedings. One of his defense attorneys, who he fired earlier in the trial, will now represent him.
The jury convicted him yesterday of sexually assaulting two teenage girls who were his spiritual wives. He could face up to life in prison.
In New Orleans, federal convictions in connection with several shootings and cover-ups in the chaotic aftermath of Hurricane Katrina; five current or former police officers were found guilty of violating the civil rights of six unarmed people they shot on the Danziger Bridge. Two of the victims died. Sentencing is set for December.
The miraculous rescue of the Chilean miners last October captured the attention, really, of the world. The men had been trapped underground for 69 days. It was one year ago today the mine collapsed, and it would be 17 days before the world knew that the 33 men were alive.
And an unwanted guest at the Maritime Aquarium in Connecticut; you have to see it there. Somehow a deer fell into the seal tank and someone posted it on YouTube. Here it is. You see the deer swimming around a bit before being helped out by aquarium staffers. It's been hot in the northeast, and maybe the deer was trying to cool off -- Anderson.
COOPER: A lot of deer around these days.
HENDRICKS: Very true.
COOPER: Thanks so much, Susan.
Up next, meet this week's CNN Hero. See how she's helping women battling breast cancer when 360 continues.
COOPER: More than a quarter of a million women in the United States have been diagnosed with breast cancer before their 41st birthday. This week's CNN Hero the young breast cancer survivor is helping other women battling the disease.
Meet Debbie Cantwell.
(BEGIN VIDEO CLIP)
DEBBIE CANTWELL, COMMUNITY CRUSADER: When I was diagnosed with breast cancer, my kids are really young and I was working full-time. We're struggling. And when you start adding hospital bills and medication costs it throws your world upside down.
My husband took care of me, took care of the kids. My parents and my friends did everything for me but through treatment, I was meeting women that just didn't have it as easy as me. All these people were there for me and I couldn't possibly pay everybody back. So I decided I was going to pay it forward.
My name is Debbie Cantwell and I provide care and comfort to you women fighting breast cancer.
We, at Subway, get 225 subways (ph); we send out gas cards, restaurant gift cards, grocery gift cards and housecleaning services.
UNIDENTIFIED FEMALE: I was really bottoming out emotionally and then, all of a sudden, I can buy diapers and I can get food.
Yes, there's a card. Look at that.
UNIDENTIFIED FEMALE: Thank you.
UNIDENTIFIED FEMALE: It's so much more than just tangible things. It's hope.
CANTWELL: I help young women that can't wait for a cure. These women are sick right now and they need help today.
Hi, Rachel, how are you? Did your groceries come?
UNIDENTIFIED FEMALE: They did. I just got them. And I appreciate it. It's such a huge help.
CANTWELL: They are my sisters and I honestly would do anything to help them out.
I take it really personally. It's hard when I lose somebody, but it's just part of the job. I'll probably die of breast cancer someday, but I want to really make the most of the time I have by doing some good in the world and being the best I can for whatever time I have left.
(END VIDEO CLIP)
COOPER: Wow. What a great lady. Since 2008, Debbie's organization has provided assistance to more than 150 young women with breast cancer.
Now remember, every CNN Hero is chosen by you, from people that you tell us about. You still have time to nominate someone you know who's making a big difference in your community or another community. Just go to CNNHeroes.com
That does it for 360. Thanks for watching.
"PIERS MORGAN TONIGHT" starts now.
I'll see you Monday from Somali.