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The Rachel Maddow Show, Transcript 08/05/11

Guests: Ezra Klein, Jared Bernstein, John Harwood, Rep. Barney Frank, Louise Storm, Nick Colgin, Todd Bowers

RACHEL MADDOW, HOST: Good evening, Lawrence. That was spectacular. LAWRENCE O`DONNELL, "THE LAST WORD" HOST: Just the cutest interns in the building, don`t you think? MADDOW: Excellent. Of course, except for mine. All right. Thanks, you guys. And thanks to you at home for staying with us for the next hour and what has turned out to be a busy, news-y, rather shocking Friday night. Standard & Poor`s credit rating agency tonight has downgraded America`s AAA credit rating for the first time in U.S. history. The downgrade is from AAA to AA-plus, which sounds better when you say it out loud but is actually worse. Standard & Poor`s is rating the United States now as AA-plus with a negative outlook. The decision by Standard & Poor`s has prompted fierce criticism, with allegations that Standard & Poor`s not only made the wrong call and used wrong assumptions to make that call, but that Standard & Poor`s basic math may have been wrong in calculating what they needed to calculate in order to decide on this downgrade. A little later in the show, we will be joined by Jared Bernstein, former chief economic advisor to Vice President Biden. We`ll get Jared`s help in understanding this. We`ll also be joined over the course of this hour by some of the top economic reporters in the country who have been covering both this dramatic action today and the controversy that surrounds it. Here`s how this started late today: after the markets closed, an ABC News report about the possibility of a downgrade frankly sent several million stomachs lurching into several million throats. Jake Tapper, ABC`s White House correspondent, reported late today that the U.S. government was bracing for a possible downgrade of the country`s credit rating by Standard & Poor`s. Mr. Tapper`s reporting citing two U.S. government officials. But then what started off as an alarming story frankly became a weird story when a third government official told ABC that S&P had, quote, "made a serious mistake in its analysis base d on flawed math and assumptions and that the administration was fighting back against any potential downgrade." Boy, was it ever fighting back? CNBC`s John Harwood telling us that after the S&P notified the administration at 1:30 Eastern Time this afternoon, that they were going to downgrade, the Treasury Department argued to S&P that their math was wrong, that there were errors in the computation of their data, calculations that one source told John Harwood were off by trillions of dollars. John Harwood, again, will be joining us shortly for more on that. He reports that since the downgrade, the White House is denouncing it -- denouncing Standard & Poor`s as going through amateur hour, calling it amateur hour at that credit rating`s agency, for having gone ahead with the downgrade even though the administration says the downgrade is based quite literally on a math error. Word of the controversial S&P downgrade coming tonight, of course, in the wake of yesterday`s 513-point drop in the Dow Jones, when markets around the world doing the same yesterday. Today, the U.S. stock market had finished largely flat to other big credit rating agencies, Moody`s and Fitch, thus far, have maintained the nation`s AAA rating, although they have warned lawmakers that downgrades were possible in the future. A downgrade, of course, is what the Obama administration and Congress were hoping to avoid when the president signed a deal to raise the debt ceiling at the very last minute to keep the U.S. from defaulting on its debt. Here`s what S&P says tonight about what they went ahead and downgraded just a week after the debt ceiling deal was reached. The downgrade, again, reading directly from S&P`s press release here, "The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what in our view would be necessary to stabilize the government`s medium term debt dynamics. More broadly, the downgrade reflects our view that the effectiveness" -- listen to this -- "the effectiveness, stability, and predictability of American policy making and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook on the rating in April 18th of this year." "Since then" -- S&P`s last point here -- "we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government debt dynamics any time soon." As you hear in there, even if you do not give a hoot about economic policy and bond ratings, this downgrade of the nation`s credit rating is essentially an indictment of the nation`s political process. At roughly 8:20 p.m. Eastern Time tonight, after a night full of confusion over this would happen, and whether this should be seen as legitimate if it did happen, S&P went ahead with their downgrade decision. Congressman Barney Frank joins us on the phone. He, of course, is the ranking member of the House Financial Services Committee. Congressman Frank, thanks very much for joining us on short notice. REP. BARNEY FRANK (D), MASSACHUSETTES (via telephone): Oh, you`re welcome, Rachel. It`s a very broad topic. I`m glad you`re available to give it the airing it should get. MADDOW: Do you think this action was -- was warranted? What is your reaction to this? FRANK: Absolutely not. In the first place, let`s recall -- this Standard & Poor`s, this is the rating agency that took money from the people who are selling junk bonds and told other people to buy it. These are the people who have one of the worst records of incompetent and irresponsibility around. And what`s interesting about them, people are well aware that Standard & Poor`s and other rating agencies, to be honest, did a terrible job by overvaluing securities by private companies that were not worth much. But it`s not surprising that they`ve done this to the U.S. government because I don`t know whether it`s some kind of conservatism of a perverse sort. It`s not honest conservatism. While they have been overvaluing private debt, they consistently undervalue public debt. These people have for years been giving cities and states and counties varying ratings, despite the fact the cities, states and towns almost never default. And that`s where we have to be clear. People -- the amount of interest people pay the U.S. government shouldn`t be depending whether the U.S. government pays them to borrow money. It doesn`t depend whether they like this or that political sanction, the question is, only question that`s relevant it seems to me, if you`re going to invest, does that mean it`s going to default or not. So, there was zero chance of defaulting by the U.S. government. In fact, we show that, I believe. They don`t like the politics of it. I think to some extent, Standard & Poor`s is trying to recover a reputation that`s justifiably in threads. They are as responsible for the crisis as anybody else with their terrible record. And, again, I want to stress, they have two fundamentals in opposite directions, they have consistently overvalued private debt and consistently undervalued public debt. Cities and states all over this country are paying more to build schools and fire houses because they have refused to treat these communities fairly. And we got statistics that show, by the way, that palpable ratings for corporations and public governments -- they unfairly downgrade the public governments. MADDOW: In terms of the basic meaning of a credit rating like this, as you point out, it`s really about whether or not people who loan the United States money should expect to be paid back, whether or not there is any real risk of default. Do you think this is, in essence, an indictment of the U.S. political process for having gotten so close to potential default because of brinksmanship over the debt ceiling? FRANK: The fact that they can show you the other around, that you may not like the politics of it, but we have a powerful incentive not to default. I -- look, taking Standard & Poor`s seriously is not something rational people ought to do. And, by the way, I`m speaking now bipartisanly, because one of the things we put in the financial reform bill last year, it was one of the few things with my Republican colleagues and I and other Democrats agreed, there used to be laws on the books which said if you were a certain kind of an investment house, a pension fund, et cetera, you couldn`t buy a security unless it had a certain rating and we abolished that. In fact, we told the regulators, you may not require anybody to pay attention to the ratings, because the ratings are junk. And, no, Standard & Poor`s I think trying -- I mean , overrated a lot now is trying to show how tough they can be, and the question of default -- well, they talk about the American political process, that`s not a relevant criteria. And the criterion is: are you going to default? And, by the way, even if there was a very short-term failure to pay for a day or two, the question that everyone would have gotten their money? No, this is just a political judgment by group of incompetents. MADDOW: Massachusetts Congressman Barney Frank, ranking member of the House Financial Services Committee joining us on short notice tonight -- sir, thank you so much for your time. FRANK: Oh, Rachel, I might be (INAUDIBLE) -- please, pay no attention to these people whether they are rating mortgage bond or government or a city. Nobody that I am aware of has been wrong more often than them. MADDOW: And spoken, hearing that from you, I believe it, sir. Thank you, I appreciate it. I`m joined now by Louise Story, business reporter for "The New York Times." Louise, thanks very much for making time for us tonight. I really do appreciate it. LOUISE STORY, THE NEW YORK TIMES: Thank you. MADDOW: You heard Congressman Frank there rather angrily denouncing this decision by S&P and saying that not only is it not warranted, but people should not them seriously, him attacking what he describes as a record of incompetence and irresponsibility on the part of the S&P as a ratings agency. Can you contextualize that for us or react to that for us? STORY: Well, you know, this is something you`ll probably see all weekend long -- politicians have been furious with the ratings agency ever since the financial crisis because, you know, the ratings agencies did miss the boat there. They were wrong on the ratings of the mortgage-backed securities. They rated them AAA and as we all know now, they were full of crap. OK? So, they were wrong. And -- so, you`ll probably see a lot of statements from politicians like that. That said, be careful to let this turn into another round of theatrics, you know, boxing match between Washington and the rating agencies because the concerns that S&P laid out are real concerns and they are actually things that the market, the stock markets, have already reacted to. So, the sell off that you saw this week, a gigantic sell off, erasing all the gains this year, that was investors reacting to the very poor GDP figures we got a week ago that showed us that the economy is growing far slower than we thought it was, and the poor manufacturing figures at the beginning of this week, poor consumer spending. Today, you had, you know, unemployment figures that were better than expected, but they are still pretty weak. They are not going to turn the lights around for a lot of Americans. And so, it was those kinds of things, as well as, you know, the governance that S&P saw with the debate in Washington over the debt limit that led them, according to their release, to make this decision. And investors in the stock market have made a judgment this week as well. And so, it`s important to look at the fundamental issues underlying our economy, underlying global stability and assess where we are and not just get into kind of a pointing fingers match. MADDOW: In terms of the way this news broke tonight, it is extraordinary to have had such a very strong push back. I guess you can`t call it push back -- push ahead of the fact -- even before this decision was announced, attacking S&P`s methodology for coming up with this. S&P reportedly admitting to the U.S. Treasury Department that their calculations were initially off by trillions. They presumably redid the math, revisited the downgrade, but still tonight issued the downgrade. Does that tell us that this is about something other than the raw numbers that this is about processes as much as about figures? STORY: The stakes here are really high and that`s why the Obama administration pushed back so much. You know, politicians can say that these ratings don`t matter and people should ignore them, but clearly, the reason they were pushing back is the stakes are high here and the reason they are high is that the ratings of the country have the potential to affect all kinds of other ratings here. So, some ratings agencies have said if there was a downgrade, they may also lower the ratings of several states, and that could affect states borrowing cost. They may also lower ratings of Fannie and Freddie, for instance. And so, the housing giants which are funding our entire housing market right now, they could find it more expensive to borrow in the market. And so, the ratings traditionally really mean something and do affect pricing. This is unprecedented and we`ll have to se on Monday, you know, what happens in the market. It`s possible investors will shrug and will say, we`re not going to demand a bigger premium from the United States. We already knew those things about the United States that S&P pointed out. It wasn`t a surprise. So, maybe investors will shrug it off. But there could be collateral effects here. MADDOW: Louise Story, business reporter for "The New York Times" -- thank you for helping us put this in context tonight. I really appreciate it. STORY: Thank you. MADDOW: Joining us now is Ezra Klein, columnist for "The Washington Post" and for "Bloomberg," also an MSNBC policy analyst. Ezra, thanks for your time tonight. Appreciate you being here. KLEIN: Good evening. MADDOW: In terms of what Louise was talking about here about the importance of that downgrade, obviously, the importance of the downgrade and the legitimacy of the downgrade is a subject for debate and some very angry comments already from government officials, both in Congress and in the executive branch. But now that the downgrade has happened, what do you think happens next? What do you think is the practical effect? KLEIN: I think it`s hard to say. But I do think we need to remember this is coming two days after the market dive by 500 points and almost every investor world ran into treasuries. We are now paying a lower yield on treasury debt that we basically have since the 1950s. So, treasuries have been reaffirmed as the single safest investment in the world. And so, given there`s no other options on the table, the Europe is the mess. Asia is slowing down, I`m not expecting a huge movement there although we could always be surprised. But, Rachel, could I make one point on the legitimacy on the downgrade here? MADDOW: Please. KLEIN: If you actually read it, it`s really not about the numbers. It isn`t about our ability to pay. They haven`t changed their view on that. What they say and I`m just going to quote from, "More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policy making and political institutions have weakened at a time of ongoing fiscal and economic challenges." I understand people`s anger at S&P. It`s an agency that`s made enormous mistakes. And, frankly, the math on this one is pretty bad too. I have no particular love for them. But it is very hard for me, having watched Congress in the last couple of years, in particular during the debt ceiling and say that statement is untrue. MADDOW: In terms of S&P making that assessment there, I totally agree with you. It`s exactly the way that I have been thinking about it. But my broader question here, as somebody -- especially somebody`s who`s generally outside of the contours of business news on a day-to-day basis, is what business is it of Standard & Poor`s to link that assessment about their view of Congress and the effectiveness of its processes to the question, the raw question of whether or not America`s good for paying back its debt? Shouldn`t the bond rating specifically be about whether or not bondholders can get paid back? KLEIN: I`m not sure I really agree with that. I do that their job is to say whether or not we`re a safe bet, you know, an endless number of different gradations of how safe we are, AAA, AA-plus, AA. So, I do think it`s legitimate for them when it is so important whether or not Congress decides to pay people back. We`re one of the only countries in the world with this insane debt ceiling situation and which Congress can simply sort of gridlock and nobody gets paid, or we collapse into prioritization of payments, as many in the Congress wanted us to do. But so long as we are going to play it like that, I think S&P sort of has to make those judgments. The question is to whether we should have these ratings agencies with this immense power. I think during the financial crisis, it showed that we were too dependent on them and the fact that the government itself legitimizes them by sort of they are credentialed. I`ve long thought that should be abolished. I think they should be competing in a more normal market where the more of them go against one another and we can see who is accurate over a longer period of time and with more different players in the game. But as long as we do have them, it is -- just reading this, it is hard for me having said all I`ve said about the political system and its incredible weaknesses and its incredibly poor performances recently driven by Republicans who are willing to almost default on the debt in order to not have a tax increase. It is hard for me to argue with what they are actually saying here. MADDOW: Ezra Klein, columnist for "The Washington Post" and "Bloomberg," also an MSNBC policy analyst -- you are thinking big thoughts about this stuff and I appreciate you being here to do it. Ezra, thanks a lot. KLEIN: Thank you. MADDOW; Again, breaking news this hour: amid howls of protests from Washington over allegedly flawed assumptions and even flubbed math, the Standard & Poor`s rating agency has tonight downgraded the United States` AAA credit rating for the first time ever. We were AAA, now Standard & Poor`s says we are AA-plus. And while AA- plus sounds great, it`s worse than AAA. More ahead with Jared Bernstein, who is the former chief economic advisor to Vice President Biden. We will be right back. (COMMERCIAL BREAK) MADDOW: America, for my whole life and your whole life, no matter how old you are has had what is called a AAA credit rating. That is the top of the line, trustworthy, full faith and credit. Being so trustworthy helps the government borrow money cheaply and in turn ordinary, Americans can borrow cheaply for homes, and cars, student loans, anything else, and American businesses can borrow cheaply too in ways that are obvious always and that we dong usually need to think about. In a way, our whole life depends on America having a really good credit rating. It is just tonight been downgraded for the first time by Standard & Poor`s -- changing our rating from AAA to AA-plus. I`m joined now by Jared Bernstein, former member of President Obama`s economic team, former economic adviser to Vice President Biden. Mr. Bernstein is now a senior fellow at the Center on Budget and Policy Priorities and MSNBC contributor. Jared, thanks for your time. I really appreciate. JARED BERNSTEIN, MSNBC CONTRIBUTOR: My pleasure. Great to be here. MADDOW: Standard & Poor`s has downgraded the United States. Moody`s and the other agencies have not. BERNSTEIN: Fitch. Right. MADDOW: What`s the importance there? BERNSTEIN: The importance of that is many fold. First of all, they are one of three and it`s easy to think oh, my goodness, U.S. debt has been downgraded, end of story. No. As long as the other two have us at AAA, which they do, and which they have asserted they`ll keep at least there for a while, there are lots of things that probably don`t happen. If all three downgraded at the same time, a lot of pension funds, for example, would automatically have to divest, they have to get rid of their treasury holdings. MADDOW: Because they have rules that say you can only invest in AAA. BERNSTEIN: Bingo. MADDOW: All right. BERNSTEIN: Those rules don`t necessarily apply. In most cases, they don`t when it`s just one of the three takes us down that one notch. MADDOW: In terms of why S&P did this -- as I mentioned, howls of protests in Washington today that they got everything including the math wrong. That they were off by trillions of dollars in calculations. BERNSTEIN: Right. MADDOW: The White House denouncing this as amateur hour at Standard & Poor`s, how important is that criticism? And will it undercut the sense of importance here? BERNSTEIN: I think it`s actually quite important, especially in tandem with what some of the other guests have said tonight about how badly the ratings agency missed the boat in the mortgage crisis. But, look, $2 trillion, what I think happened there is they were using the wrong baseline. It`s kind of compared to what question. And they had the debt to GDP ratio going a lot faster than it actually does. Now, if your debt to GDP is going up too quickly, you can get worried about the sustainability of that debt. But if you do it the right way, and I think eventually they did, it`s actually pretty stable. It does kind of wiggle up at the end of the period. So, it`s really kind of a judgment call even on that basis, when you get the math right. And then when you consider, as other guests have said tonight, that in the history of our nation, we have never defaulted on our debt and once we get that crazy debt ceiling nonsense behind us, there`s absolutely no reason why we are not the best place to borrow from. Ask yourself -- and you have this discussion with Ezra that I found interesting. I think you were kind of saying they have this paragraph in there where they talk about the predictability of our politics, and it`s actually sounded a little bit like my blog the other day on this topic. And it`s a good paragraph, but it`s not what we look for the ratings agencies to do. They need to tell us -- am I as a lender making a safe bet when I lend to this institution? And the answer to that is yes. MADDOW: OK, what you just described in terms of the debt ceiling kerfuffle that we just went through, you described it as crazy debt ceiling nonsense. And the crazy debt ceiling nonsense was crazy and was nonsense. But we really did it. It really got decided on the very last day. So, isn`t it legitimate for them to say, wow, that close to default makes us worry about default? BERNSTEIN: So, here is the -- if we were to have this discussion two weeks ago. By the way, when S&P and some of the others said, threatened -- put us on a negative watch, threaten to maybe downgrade. If we had had this discussion then, I would have said a couple of weeks ago, you know, this is a silly discussion. There`s a pin prick of reason in this that you just kind of circled around. We have prominent Republicans, Mitch McConnell, Rob Portman, Representative Paul Ryan, some of the most prominent Republicans are saying for now on, what happened with the debt ceiling should be a template for every other debt ceiling increase we have, and that we should have a dollar for dollar rule, every dollar of debt ceiling increase means a dollar of spending cuts. Basically, they want to enshrine dysfunctionality in our system. And I can see where S&P would raise an eyebrow. Now, we are still a completely reliable borrower, the United States government, and so, the downgrade was wrong, math was ridiculous, all that. But that one point maintains. MADDOW: That is politically devastating assessment -- devastating coming from the ratings agency, devastating if the political world wakes up to that being the message here. A lot of whether or not the -- a lot of whether or not this is a wake-up call depends on the practical impact of this. Is this going to raise interest rates? Is this going to cause a contraction in credit? Is this going to hurt the economy? BERNSTEIN: Historically, when we`ve had downgrades -- not in our country. When we`ve seen downgrades in other advanced economies that were somewhat analogous to this, Japan had one, nothing really happened. And by nothing really happened --I mean, maybe some interest rates could go up a little bit, investors insist on something called a risk premium. That is they want a higher interest rate if they are going to lend you their money. But look at it this way -- let`s say that some interest rates go up by 10 basis points. That is 1/10 of 1 percent. OK? That`s $10 million more on U.S. government debt. That is a $10 billion increase on our deficit. So, this is playing with fire. Let`s be clear about this. MADDOW: And just to bottom line this, to be clear, you think that there`s a reasonable chance that the reason this happened is because of the brinksmanship over the debt ceiling. BERNSTEIN: That is what the agency is saying, I take them at their word -- in fact, I would say, I really would have no question in my mind that is very much, I believe, why this. MADDOW: So, when we were approaching August 2nd and I was ranting on television saying we don`t have to wait until August 2nd, the damage could already be done -- the damage, it turns out, was already done. BERNSTEIN: I mean, basically, they looked at the -- they looked at the deal. They didn`t like it. But the dysfunctionality and the potential of ongoing dysfunctionality is the one thing in here where the agency is a tiny bit of sense. MADDOW: Oh, boy. Jared Bernstein, senior fellow at the Center on Budget and Policy and Priorities, MSNBC contributor -- thank you for being here. It gives me great comfort to know I would get to talk to you about this tonight when I realized this was breaking. Thanks a lot. BERNSTEIN: Thank you, Rachel. MADDOW: There is a recurring thing throughout the S&P`s press release on why they decided to downgrade the credit rating of the United States for the first time in their history. Theme is, quote, "political brinksmanship" -- policy making uncertainty. The gulf they describe about the political parties. The politics of the downgrade and what happens because of that downgrade, next. (COMMERCIAL BREAK) MADDOW: Again, the breaking news this evening that the Standard & Poor`s rating agency has for the first time in U.S. history downgraded the American credit rating from AAA to AA-plus. This has never happened before in the United States. Joining us now to understand some of the political reaction to this is CNBC`s chief Washington correspondent John Harwood. He`s also a political writer for "The New York Times." John, I know you`ve been reporting furiously on this all night. Thanks for being here. JOHN HARWOOD, CNBC: Sure. MADDOW: What are you hearing from the White House, from Treasury? HARWOOD: The White House isn`t saying anything. A Treasury spokesman put out the statement that a judgment based on a $2 trillion computation error speaks for itself. I talked to another official who said it`s amateur hour in S&P I just got off a conference call from sources familiar with the interaction between Treasury and S&P, detailed what the error was, it had to do with calculations of levels of domestic discretionary spending over the next several years, have to do with which baseline they were using . There`s a lot of numbers back and forth. But, essentially, this is being portrayed from Washington`s end as a political decision by S&P. They noted in their downgrade that there were political risks associated with the debacle that we just had in Washington over the debt ceiling. And so, they founded it largely based on that political exposure. MADDOW: Just to recap, in terms of S&P`s statement on this -- I mean, "The downgrade reflects our views that the effectiveness, stability, and predictability of the policymaking and political institutions have weakened at a time of economic challenges. We are pessimistic about the capacity of Congress and the administration to be able to leverage their agreement this week into a broader fiscal consolidation plan." It`s a very, very political document. What is the White House and Treasury are -- what is Treasure I guess saying is the political aim of the ratings agency in doing this, if this is a politically motivated decision? HARWOOD: Well, not politically motivated, but based on political criteria. MADDOW: Yes, plainly. HARWOOD: What`s that? MADDOW: Plainly. HARWOOD: Absolutely. And look, to be honest, the president`s own rhetoric has opened the door to a judgment of that kind. He said during the stalemate, we`ve got AAA credit. We don`t have a AAA political system. And S&P is essentially pointing to that, and immediately, you see the political fighting start. I`ve gotten tweets in the last few minutes, Reince Priebus, the chairman of the RNC, saying, "First credit downgrade in U.S. history under Barack Obama." Harry Reid, the Senate leader, put out a statement saying, this shows the need for balanced deficit reduction, which Republicans resisted in the debt talks. So, this certainly isn`t going to solve any of our political issues. It might, provide, though, some impetus if we need anymore and it can be effective in trying to get to the two sides together as we get to the special committee. MADDOW: It is striking to see -- as you say, such political -- such political language from the rating agency, almost giving us a political credit rating rather than a default credit rating. There`s very little in here in the press release about whether or not people who lend the United States money are likely to be paid back, which is purportedly what a bond rating is. HARWOOD: And that is precisely the counter argument you hear from administration officials. It is that, first of all, U.S. treasury securities are the most transparent, best known financial instruments in the world. Investors every day make judgments on their view of those instruments and they don`t need to hear it from the credit ratings agencies. Secondly, there are three agencies, right? There`s Standard & Poor`s, but there`s also Fitch and Moody`s. Fitch and Moody`s have stuck with the AAA. So, the administration is pointing to that, two of the three are with them. And, obviously, we`ve seen in the financial crisis in 2007, 2008, 2009, the ratings agencies didn`t exactly cover themselves in glory. I think the administration is hoping that the memories of that poor performance helps them fend off whatever fragile market reaction might be that this done. MADDOW: The market reaction is going to be incredible to see on Monday. Obviously, all eyes are going to be on that, and the political reaction. And we`ve had two huge shocks this week: a 500-point drop and this. If any sort of economic news can change political realities, these are the sorts of things that can do it. HARWOOD: Well, and, Rachel, the administration believes that on narrow economic terms, there aren`t too many investors who will be required by the terms of their investment guidelines to divest because of this rating. However, when the market is -- the psyche of the market is as volatile as it is right now, you never know what`s going to tip things and cause a huge reaction. MADDOW: John Harwood, CNBC chief Washington correspondent and political writer for "The New York Times" and my old buddy who I don`t see very much anymore, it`s nice to see you, John. HARWOOD: Good to see you, Rachel. MADDOW: Even under extreme circumstances. Thanks. HARWOOD: Exactly. MADDOW: All right. A bit of good news today out of Washington, I swear. Good news for Iraq and Afghanistan veterans. Having good news to share about that particular group makes me very happy to share it with you. That`s coming up next. (COMMERCIAL BREAK) MADDOW: Again, the breaking news this evening is that the Standard & Poor`s rating agency has downgraded the American credit rating for the first time in U.S. history. Our AAA rating is now a AA-plus rating, according to Standard & Poor`s. The move is prompting howls of protest from the White House, from Washington. Barney Frank on this show earlier this hour saying that the rating agencies in general, Standard & Poor`s in particularly, should not be seen on issues like this because of their performance during the financial crisis. The White House accusing Standard & Poor`s of having made multi- trillion dollar computational errors in coming up with their downgrade decision. In the midst of that, this week the White House started to float a number of proposals, they said, to try to get the economy going. Whether or not your main concern is jobs or your main concern is the deficit, the only way out is jobs and economic growth. The White House this week floating things like an infrastructure bank to fund major construction projects, doing repairs and upgrades to U.S. schools, fast-tracking trade agreements with other countries, the building of new highways and repair of existing ones. All ideas that involve hiring workers and putting money back into the economy in the short-run to get things moving. The president has also proposed extending unemployment benefits for people who can`t find new jobs, given the news that America still has 14 million out of work, given the news that the average job search is getting longer -- it`s now over 40 weeks. Even if we can`t get a political consensus for, say, building schools or roads, surely, even in the short- term, we can agree to extend unemployment benefits in this extraordinary jobs crisis of ours. Workers paid into the unemployment system for themselves when they were working, now they need those benefits. Every dollar we spend on unemployment insurance is worth $1.61 to the rest of the economy. Surely, we`re not going to undo this one thing that everyone agrees works rather well, right? Sure, we`re not going to shoot ourselves in the foot by cutting off unemployment benefits in a few months. Actually, we are going to shoot ourselves in that foot apparently. At least that was the message today from House Republican leader Eric Cantor. (BEGIN VIDEO CLIP) REP. ERIC CANTOR (R-VA), MAJORITY LEADER: Jim, the most important thing we can do for somebody who`s unemployed is to see if we can get them a job. I mean, that`s what needs to be the focus. For too long in Washington now, we`ve been worried about pumping up stimulus moneys, pumping unemployment benefits. And to a certain extent, you got states in which you can get unemployment for almost two years. And I think those people on unemployment benefits would rather have a job. And so, that`s where our focus needs to be. (END VIDEO CLIP) MADDOW: Our focus needs to be on shooting ourselves in the foot. Also those lazy unemployed people -- maybe we should shoot them on the foot, too, get them hopping. Got to get up in the morning, go work at something. The White House cannot wave a magic wand to make the economy go, and the things the government can do to get the economy going are not things the president can wave a magic wand to do without Congress. Now, Eric Cantor at least in Congress is signaling that Republicans will try to block even the baseline minimum economic stuff needed to not make things worse than they already are. So, in that context, getting really granular today, the president today proposed a very specific jobs program. A very specific jobs program that frankly in political terms, even these congressional Republicans cannot conceivably opposed. (BEGIN VIDEO CLIP) OBAMA: I`m proposing a new returning heroes tax credit for companies that hire unemployed veterans. I`m proposing an increase in the existing tax credit for companies who hire unemployed veterans with a disability. We`re challenging the private sector to hire or train 100,000 unemployed post 9/11 veterans or their spouses by the end of 2013. (END VIDEO CLIP) MADDOW: The unemployment rate nationally is an atrocious 9.1 percent. The unemployment rate for post-9/11 veterans is worse. It is 12.1 percent as of this month. One of our veterans who returned home from war to a state of unexpected unemployment was Specialist Nick Colgin, an Army medic. (BEGIN VIDEO CLIP) OBAMA: When Nick was in Afghanistan, he served as a combat medic with the 82nd Airborne. Over the course of his deployment, Nick saved the life of a French soldier who was shot in the head and helped 42 people escape from a flooding river. He earned a Bronze Star for his actions. But when Nick got back home to Wyoming, he couldn`t get a job as a first responder. So, he ended up taking classes through the post-9/11 G.I. bill, classes he easily could have thought just so he could qualify for the same duties at home that he was doing every single day in Afghanistan. If you can save a life in Afghanistan, you can save a life in an ambulance in Wyoming. Bt the challenges don`t end in Kandahar or Baghdad, they continue right here at home. Today, we`re saying to our veterans, you fought for us. And now, we`re fighting for you. (END VIDEO CLIP) MADDOW: Joining us now here in studio, Specialist Nick Colgin, who received quite an introduction from the commander-in-chief. Also by Todd Bowers, who`s a senior policy advisor to Iraq and Afghanistan Veterans of America. Todd`s a U.S. Marine who served four tours in Iraq and Afghanistan, he was awarded the Purple Heart and the Navy Commendation Medal for Valor. Thanks to you both for being here. I really appreciate it. TODD BOWERS, IAVA: Thanks for having us. NICK COLGIN, AFGHANISTAN WAR VETERAN: Thank you. MADDOW: You`re here to talk about downgrading the U.S. credit rating, they told you, right? (LAUGHTER) MADDOW: Nick, let me start with you, when you got home from serving in Afghanistan a couple of years ago, what were you expecting in terms of job opportunities and how did the reality of the situation compare? COLGIN: Basically when you`re in the military, you have these high hopes. I`m going to be a medic, save lives, earning Bronze Star. And I receive a Bronze Star, and get home and receive an unemployment check and quite a dose of reality, that`s not the case. It`s -- your hopes get all high and you get heart broken and your soul gets crushed, it seems like. MADDOW: This initiative that President Obama announced today and told your story and gay this announcement in the Navy Yard, how do you think this would have affected you and helped you in your particular situation? COLGIN: I got out totally unprepared, had no idea -- I got out in 2008, 2011 I just got my resume made up and that`s thanks to some non- profits like IAVA. Without their help, I wouldn`t have been prepared. It would have been nice just to kind of get a way of getting out -- because I feel more at home in Afghanistan than I did coming home and getting out of the military. MADDOW: Todd, in terms of both this tax credit for employers, hiring veterans and specifically an additional tax credit for hiring wounded veterans, also this reverse boot camp, this idea of training for the job market for people coming home from war, how much difference do you think they`ll make? BOWERS: I think they`re going to make a massive difference because we`ve had programs very similar to this in existence of years. But they`ve been convoluted, they`ve been complex, they`ve been hard to understand. When service members are getting ready to leave the military, they take part of the transition assistance program. They are streamlining that now, making it more effective. It`s going to get it some measures and allow people to use those tools for longer periods of time before they leave. We spend months and millions of dollars training these folks before they join the military. Let`s spend some time to train them so they can get back in the civilian market. MADDOW: I know that you know the policy realities of this. I know that you`re also kind of a realistic guy. Given what can and can`t get through Congress these days, how much does it make a difference there was a presidential announcement -- and for or against its chances and how likely is this -- that this could really pass? BOWERS: I think it`s highly likely that it can pass, because when it comes to veterans, folks on either sides of the aisle seem to stay focus. And the other point that I keep bringing up to folks and we`ve been hearing kind of through the halls of Congress is that this isn`t just spending money, this is an investment to save money in the long run. If we can get these folks jobs, we avoid complex issues in regards to mental health, homelessness and, you know, overall medical expenses a whole. It`s an investment, you know, and guys like Nick are a perfect example of a good investment. I mean, S&P gave him four As. I mean, they can say he`s a good investment. MADDOW: Nick, in terms of your employment situation and your hopes and what your plans are right now, what`s ahead for you? COLGIN: I don`t know. I got out, tried to be a first responder as stated before, ended up using my G.I. bill to take classes the government already invested in training me. I had to go back to school. I`m about to graduate with an English degree here in the fall because I had to go back to school. I wanted to go out and get a job right away, but I don`t know what`s going to happen. Seeing the speech today by the president instilled a lot of hope in me, but at the same time, I don`t know if right now I can tell my wife everything`s going to be OK, that I`m going to have a future, I`m going to have a career. That`s scary because you just don`t know. So, I`d like to see some action on this. The president gave the order today and we want to see the mission executed in the coming months. MADDOW: I will say just watching this happen as a Washington process, we`ve had complete faith in Washington and the fights over thee things that they`ve made up justified about and still stuff has been moving on veterans` issues, stuff has been moving on some military issues, particularly in veterans issues. Do you both feel like veterans are being treated with respect by even our dysfunctional political system? It seems like that to me. Because I`m looking at all the issues and I feel like that the veterans is the only thing that are getting done. But does it feel like that to you guys? BOWER: I`ll be honest and say, you know, sometimes we get used as window dressing. We all know. You know, we get propped up and we get put behind, you know, big statements that come out there. The proof is in the pudding or in this case the MRE applesauce. Like we want to see what`s going to come out of these programs. We`ve watched over seven commissions come through in the past decade talking about how we helped this new generation of veterans. We need to be the watchdogs, whether you`re with an organization or just a veteran that served in Iraq and Afghanistan, and make sure that these things actually happen, make sure they get implemented. And if they don`t, make a big statement. We`re not left, we`re not right, we`re not a donkey, we`re not an elephant. But we`re an old bull dog and you really don`t want to get bit by us. MADDOW: Yes, I believe that, big time. Nick Colgin, Todd Bowers, both veterans, thank you both for your service. Thank you for your service here in Washington fighting for this stuff. I really appreciate it. Thanks, guys. BOWERS: Thank you for having us. MADDOW: All right. We`ll be right balk. (COMMERCIAL BREAK) MADDOW: Programming note, if you are a fan of NBC`s Sunday morning show "Meet the Press," I will be a guest on that show this weekend. Alan Greenspan, Austan Goolsbee, Alex Castellanos and myself will be mud wrestling over whether or not Washington is up to the task of coping with and reversing the backward slide of the economy. And what it means that Standard & Poor`s has downgraded America`s credit rating tonight from AAA to AA-plus? Sunday morning, NBC, "Meet the Press," I`ll be the one in the navy blue jacket, as usual. (COMMERCIAL BREAK) MADDOW: I`m in a face-off, a huge fight, I`m in a massive brawl with Rush Limbaugh right now. And you know what? Rush Limbaugh wins. (BEGIN VIDEO CLIPS) MADDOW: I thought when President Obama released the second form of the birth certificate, that that would not put this thing to rest, that it was, in fact, based in giving more facts would help? But it did put it to rest. I was wrong. It put it to rest. On the president`s 50th birthday, it is now just the dead-enders and the profiteers at still point still plugging this thing. There is nobody who has any pull in conservative politics or Republican politics at all who is -- seriously? Are you sure? Are you sure this is -- this is from this week, this is from yesterday? OK. Play it. RUSH LIMBAUGH, RADIO HOST: Tomorrow is Obama`s birthday. We haven`t seen proof of that. He tells us August 4th. Sorry. MADDOW: Sorry. Apparently it`s not over. (END VIDEO CLIPS) MADDOW: That was from last night`s show. I was wrong. I lose. Yes, that was Rush Limbaugh on his radio show about not being sure if the president was born. That was not from Rush Limbaugh`s show this past Wednesday, it was, in fact, from his show a year ago, way before the administration produced that second form of President Obama`s birth certificate this past April. The reason I thought this sound bite was from this week because of a report from the pro-birther publication World Net Daily, the link does not work anymore. But here`s a cache version of that report. It was posted just past midnight Wednesday, August 4th, 2011, at 12:15 a.m. And it misattributed the day that Rush Limbaugh`s said those words as today, which would have been Wednesday, August 3rd, the day before the article was posted. The article linked to audio uploaded on August 3rd, 2011 of Rush Limbaugh`s comments -- all of which made me believed it was from August 3rd, 2011, audio that I used and wrongly attributed to having been said on August 3rd, 2011. That clip was mislabeled. The article was wrong. And it was wrong of us to not check early World Net Daily`s reporting. I`m very sorry. And if you are worried about overall thesis that Rush Limbaugh is not giving up on trying to use the president`s race against him, this day and age, don`t worry about that thesis. Our error in misdating that tape does not undermine our thesis, as well proven by Mr. Limbaugh on his radio show just this week alone. (BEGIN VIDEO CLIP) LIMBAUGH: I`m not going to apologize to the magic Negro. Grab the magic Negro. We`re going to click and play it again today. The guy is never going to look older than 12. He`s never going to act older than 12. He`s always going to look like a man-child. (INAUDIBLE) saying out there saying he`s earning every gray hair. Earning every gray hair, I can believe it living with her, but not because of the job of being president. Next thing to look out for is for Obama to take the farms. Well, that`s what Zimbabwe, that`s what Mugabe did, he took the white people`s farms. That`s the only place that had any money. So, tar baby now has racial (INAUDIBLE). So, we`ve got to stop everything. This is Colorado congressman calls Obama a tar baby. We will take a break and be but don`t tar baby me. Do not tar baby me. (END VIDEO CLIP) MADDOW: OK. So, that`s all from, in fact, this week. I stand by my theory that the dead-enders and the profiteers and the people who used the president`s race against him for political purposes are sticking with the birther thing. But I am still sorry I got that other sound bite wrong. That`s why we call it "Department of Corrections." I`m sorry. So, that does it for us tonight from Washington, we will see you back in New York on Monday night. Good night. THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED. END