Jane Hamsher has a timeline of S&P's downgrading of US credit rating to AA+ from AAA, suggesting that it is:
- A political agenda, citing S&P singling out Social Security and Medicare contributions to the deficit, ignoring wars and the Bush tax cuts.
- Retaliation for Obama signing the Dodd-Frank Financial Reform Act, which repealed credit rating agencies' exemption from liability for ratings errors, holding them to a standard similar to that applied to auditors.
- Part of a campaign to deflect blame for contributing to the financial crisis by caving in to pressure from client firms in assigning AAA credit ratings in 2006 and 2007 to mortgage securities later downgraded to junk status.
Read the full article at FireDogLake.
Meanwhile, Paul Krugman observes:
...[I]t’s hard to think of anyone less qualified to pass judgment on America than the rating agencies. The people who rated subprime-backed securities are now declaring that they are the judges of fiscal policy? Really?
Just to make it perfect, it turns out that S&P got the math wrong by $2 trillion, and after much discussion conceded the point — then went ahead with the downgrade.
... [E]verything I’ve heard about S&P’s demands suggests that it’s talking nonsense about the US fiscal situation. The agency has suggested that the downgrade depended on the size of agreed deficit reduction over the next decade, with $4 trillion apparently the magic number. Yet US solvency depends hardly at all on what happens in the near or even medium term: an extra trillion in debt adds only a fraction of a percent of GDP to future interest costs, so a couple of trillion more or less barely signifies in the long term. What matters is the longer-term prospect, which in turn mainly depends on health care costs.
So what was S&P even talking about? Presumably they had some theory that restraint now is an indicator of the future — but there’s no good reason to believe that theory, and for sure S&P has no authority to make that kind of vague political judgment.
In short, S&P is just making stuff up ....
Read the whole post.
See also Steve Benen's timeline comparing Republican anti-deficit rhetoric to their obstruction of efforts to actually combat the deficit.
And Greg Sargent's parsing of the S&P statement, citing Republican use of the threat of default as leverage in policy debate as a key reason for the downgrade.