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S&P Report Outlines Likely Credit Implications of Government's Economic Recovery Package

Source: Standard & Poors

Posted on 10 Feb 2009

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A new report from Standard & Poor's Rating Services concludes that although final details of the Federal Government's 2009 economic stimulus package remain to be sorted out by Congress and the new Administration in Washington, the plan that is emerging offers much cause for hope. In a series of articles just published on RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, S&P’s chief economist and senior ratings analysts evaluate the impact of the proposed stimulus plan--and the changed priorities the new Administration brings to Washington -- on the credit health of 11 key U.S. sectors and industries that one or the other may most affect.

Among the findings discussed in the report, "How The Stimulus Plan And The Obama Administration Could Affect Credit," are:

• Overall, the plan will aid economic recovery. The proposed legislation stands a good chance of hitting the President Obama's target of creating 3 million jobs by 2010 – though that may not offset all of America's job losses by then.

• From a ratings perspective, Standard & Poor's believes loan modifications benefit the banking industry indirectly, but implementation of a broader government program likely won’t be easy.

• For housing, the plan includes a proposal to extend net-operating loss carry backs to five years from two years, which means that home builders could use current losses to apply for refunds for the taxes they paid in prior years, when the housing boom was still gaining steam. An immediate cash infusion could prove crucial to the survival of the more vulnerable, capital-constrained builders.

• The level of infrastructure investment under consideration is substantial, and state and local governments – which already have long-standing capital plans that list projects and their prioritization, funding sources, and construction timetables -- will likely be participants in the resource allocation process.

• The Obama Administration's efforts to make higher education more affordable may bear some fruit over the short run, but the economic downturn could potentially offset any credit benefits to colleges and universities over the longer term.

"A major stimulus initiative is the wisest course at this juncture," says David Wyss, Standard & Poor's chief economist. "What’s impossible to know is how successful the plan that finally gets approved will be at creating jobs and reviving lending. It will take a year, if not longer, for the potential benefits of Obama’s strategy to fully reveal themselves. And those benefits will depend in part on whether the President and Congress can rebuild public confidence in Washington's ability to make wise moves."

About Standard & Poor's

Standard & Poor's, a subsidiary of The McGraw-Hill Companies, is the world's foremost provider of financial market intelligence, including independent credit ratings, indices, risk evaluation, investment research and data. With approximately 8,500 employees, including wholly owned affiliates, located in 23 countries and markets, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit