Political Animal

Blog

August 06, 2011 8:00 AM A trillion here, a trillion there

By Steve Benen

Before we get into Standard & Poor’s decision to downgrade United States debt, it’s worth appreciating the events that immediately preceded the announcement.

Officials from Standard & Poor’s provided documents to the Treasury Department, explaining the downgrade. Obama administration officials noticed a problem: the S&P numbers didn’t add up.

On Friday, the company notified the Treasury that it planned to issue a downgrade after the markets closed, and sent the department a copy of the announcement, which is a standard procedure.

A Treasury staff member noticed the $2 trillion mistake within the hour, according to a department official. The Treasury called the company and explained the problem. About an hour later, the company conceded the problem but did not indicate how it planned to proceed, the official said. Hours later, S.& P. issued a revised release with new numbers but the same conclusion.

Got that? S&P prepared an analysis to justify a specific conclusion. The analysis was off by $2 trillion. Treasury explained to S&P that the analysis wasn’t even close to being accurate, which led the ratings agency to concede they’d made a mistake.

And a few hours later, S&P decided to reach the same conclusion anyway. The agency wanted to proceed with a downgrade; whether its numbers added up was irrelevant.

That certainly inspires confidence in the integrity of Standard & Poor’s decision making, doesn’t it?

I’m reminded of something Joe Klein said in April, after S&P first started making threats about this.

The news that Standard & Poor’s has decided to issue a warning that the US government’s AAA bond rating might be in some jeopardy if a deficit-reduction agreement isn’t reached should elicit several responses from sophisticated readers. My own threshold response is: Hey, weren’t you the same guys who gave AAA ratings to the repackaged subprime mortgage-backed securities that, in truth, were utter dreck? And didn’t that help cause the 2008 economic collapse? And didn’t subsequent accounts reveal that you were in bed with the banks whose products you were supposed to be rating? I mean, you guys are still in business? Amazing.

Steve Benen is a contributing writer to the Washington Monthly, joining the publication in August, 2008 as chief blogger for the Washington Monthly blog, Political Animal.

Comments

Post a comment
  • c u n d gulag on August 06, 2011 8:03 AM:

    Jeez, this is what we get for having a former lawyer, law professor, and community organizer for President!

    If we had an MBA President, who ran the country as a business, here’s what he (she) would have done:
    First, he would meet the top executives of Standard & Poors for lunch at the most expensive restraurant in town, told them to get whatever they wanted – including the most expensive wines.

    Then he’d make them an offer. “Look, you’re a ratings agency, and we all know what that means, and how this works. And you’ve taken a bit of a beating in the last few years. So what I’ve done is bundled us with Iceland, Ireland, Italy, Spain, and Haiti into a derivative. Now I want you to give it the best rating possible. And I’m ready to offer you an incentive to do that. How does $100 Billion in unmarked treasury bills sent to the bank of your choice sound to you? This way, we all get what we want. We still have a top rating so other countries will continue to allow us to borrow – and you’re no longer “Standard & Poors,” you’re back to being ‘Standardless & Rich.’ Capiche? So, do we have a deal? I knew that we would.”

    After what they’ve done over the last 10 years, this whole rating agency thing should be a joke.
    Well, it is one.
    It’s just not funny.
    It’s pathetic.

  • lou on August 06, 2011 8:09 AM:

    Lil' Big S & P -- too ridiculous for the world to live with

    Pitchforks 3 ... 2 ... 1

  • Live Free or Die on August 06, 2011 8:14 AM:

    Not only that. They gave Lehman AAA rating one month before it defaulted. My cousin told me that S&P recently rated a Goldman deal AAA, but that it went unsubscribed and had to be pulled. Nobody believed them.

  • c u n d gulag on August 06, 2011 8:25 AM:

    This is among the most dispicable things done to Obama yet.

    Does anyone want to bet that if we had a white Republican President, we'd still have an AAA rating - no questions asked?

    You can't let a n*gger keep a good credit rating.

    It only goes to their heads.

    And then they'll spend all of the money on t-bones, Colt 45, Cadillacs, blow and Ho's.

  • j on August 06, 2011 8:29 AM:

    Will mainstream America realize that we were making slow but steady progress
    before the mid-terms, when the repubs took over the congress it has gone downhill from there.

  • ElegantFowl on August 06, 2011 8:30 AM:

    The crises will continue until you surrender the Social Security trust fund. Or politicians stand up to Wall St bullies and their Republican allies.

    It's time for Obama to appoint&confirm some serious deflation hawks to the Federal Reserve.

  • Live Free or Die on August 06, 2011 8:33 AM:

    c u n d gulag can you cool it with the N-word please? I know you are putting it in the mouths of S&P and fundamentally I agree with you about this not happening to a President McCain.

  • Danp on August 06, 2011 8:35 AM:

    Assuming Bloomberg reported the reason for the downgrade fairly, the most absurd thing is that all of their reasons were more on point a year ago, or two years ago for that matter. Now, they merely seem to be paid-for talking points.

    Bigger point: We've seen the conflict of interest with Big 5 accounting firms, broadcast and cable news, paper media, and ratings agencies. Would someone please explain to me why opinion polls are trusted?

  • DAY on August 06, 2011 8:39 AM:

    In reality, our credit rating matters not a whit.

    We are still the Big Dog, and where ELSE ya gonna put your money? Gold? Oil? Don't make me larf- there ain't enough of either on the entire planet to suck up the trillions looking for a parking spot!

  • Jerry Elsea on August 06, 2011 8:40 AM:

    This ratings agency's faulty methodology is Standard, its judgment Poor. Aptly named.

  • Danny Gail McElrath on August 06, 2011 8:47 AM:

    Not a big fan of Joe Klein, but that was well-said. But we notice how no one in the msm is mentioning that none of these ratings companies have any credibility and why. No, they just report it like it is something real.

  • RepublicanPointOfView on August 06, 2011 8:50 AM:

    I cannot believe that Steve Benen would have the unmitigated gall to attack those among the self-appointed leaders of The United Corporations of Amerika.

    The corporate leaders of our new and improved country have been consistently correct in all of their forecasts of remedies for the economic ails of the country. We know that this is correct because our corporately owned media and our Villagers consistently echo their opinions.

    It is very fortunate that we did not listen to those contrarian voices (like Krugman) who were always wrong.

  • c u n d gulag on August 06, 2011 8:50 AM:

    Live Free or Die,
    I hate the N-word myself.
    But I was a vounteer for his campaign in NC, and that was a word that was bandied quite often when talking to Conservatives about Obama's campaign in Fayetteville, near Fort Bragg.

    Let me tell you, vicious racists are still out there. But I'm sure you know that.
    In anti-war rallies, and especially Obama events, we had to get the police out in force to protect us from, and I'm not kidding, screaming, spitting, lunatics, carrying the 'stars and bars,' and shrieking N-lovers - but, of course, saying the word in full. They would have beaten us to death, or shot us if they had a chance. We had police snipers on rooftops to protect us, as well as those on the ground.

    So, I apologize to anyone who's offended.

    But that's what's on people minds, if not their actual tongues.

    I only used the N-word for effect - and even then, I don't spell it out in full.
    But I'll make sure not to overuse it unless I feel it's absolutely necessary to make a point.

  • NHCt on August 06, 2011 8:51 AM:

    One interesting bit of the analysis is how S&P states that it believes the Bush tax cuts will end up being extended. That money provides the essential difference between AAA and downgrade. If Obama has any spine left, he'll use this as a cudgel against the GOP in refusing all their attempts to pass bills next year extending them. Let them expire, and S&P essentially has no reason for the downgrade.

  • j on August 06, 2011 8:52 AM:

    I read an excerpt from S & P,s reasons, it is on Think Progress. This is laid squarely on the backs of republicans -of course when asked to comment one of the repub profiles in courage Eric Cantor declined to comment.

  • Kathryn on August 06, 2011 8:58 AM:

    The Washington Post is trying to finish Obama off this morning, obviously the Standard and Poors article, where you have to read to the end of article on page 9 to get to the line, that states "The majority of Republicans in Congress continue to resist any measure that would raise revenue". Previous sentence in article say that S%P expects that the Bush-era tax cuts to the wealthy will continue, despite vows by Obama.

    Also on page one is an article titled "Obama's Friends Unsettled by Debt Talks". The title speaks for itself.

    How much play do you think the S&P's conclusion about revenues will get? Damn little, I'm guessing. Quite a trick by the GOP, trash the economy with your actions, put the country to the brink of default and reap the benefits. Standard and Poor's while acknowledging that brinkmenship (by whom, unmentioned), congressional disfunction (by whom, unmentioned)and a final buried mention of Republican unwillingnes to consider revenues has quite possibly doomed this country to a Pres. Romney. Gulag is right, I think the fix is in 100% to destroy country from within.

  • FRP on August 06, 2011 9:00 AM:

    Of shoes and ships and sealing wax
    Of cabbages and kings And why the sea is boiling ...

    Invective , perfected
    Shouted once
    Stings twicet
    First in the ear
    Second here
    Here , where the choir chirps
    Tweet
    Outs the foe men like candy drops
    In vanity there is NO insanity
    Becuz preening like no one else
    I spill the beenz chattily
    Camouflaged wit self righteous indignation
    Soft bricks compose the golden road
    Of intended correction
    Phoenix redux again
    Epiphany of the Alice
    If you need to Break a few
    Queens for breakfast
    Toasting ostracized rainbows
    On the Invisible Man Queue
    When nuttin else will doo

  • DAY on August 06, 2011 9:05 AM:

    An asterisk to my earlier comment that our credit rating matters not a whit.

    Some "investment funds"- pensions, for example,- have written into their by-laws that they can ONLY invest in AAA rated instruments.

    Of course such rules can be either re-written, or ignored.

    As to certain taboo words, their impact gains strength through their infrequency of deployment.

  • bdop4 on August 06, 2011 9:12 AM:

    These guys should be wearing orange jumpsuits with chain jewelry, and they're downgrading the U.S. economy?

    How do they think it got their in the first place?

    And yet, they supposedly rule our world. First, you pray to God, then God looks to S&P for approval.

    Yet one more step toward the critical mass point.

  • Kathryn on August 06, 2011 9:19 AM:

    Good grief, thanks for comments Gulag, I had no idea how bad it was in south before election, it's been ten times worse since, make that a thousand. Of course, none of this surfaced in MSM at the time, the worst we saw was a guy carrying a stuffed monkey and of course Sarah Palin rallies which were presented as an anomaly, think that's the word. I am flat out furious at what gets a pass in this country, you can cut the racism with a knife. Limbaugh was outrageous (again) yesterday, just a hair away from posting the bars and stars and a noose, FOX with their crap about no jobs coming out of presidential birthday "gangsta bash". Rick Perry is bringing to the stage today at least four flat out Christian racist, homophobic, islamophobic extremists to his event. Chris Matthews on Thursday, I think, did an unusually honest segment pointing out racism, we need more of that. Also, going to a protest at Frank Wolfe's (R,VA) office in suburban Virginia Tuesday, everybody on this blog who has an opportunity to protest at GOP offices better go, time for a progessive Tea Party, past time.

  • stormskies on August 06, 2011 9:21 AM:

    Here is the actual reason this happened: On July 25th, someone placed a ONE BILLION dollar bet that our credit rating would drop.

    Now I wonder if the corporate media will be investigating this ? This should be looked into and that hedge fund manager identified.

  • SW on August 06, 2011 9:22 AM:

    Can't anybody play this game? The S&P handed the administration a huge weapon on a silver platter and they ignored it or worse yet threw it back in their face. They essentially said that the reason that they were downgrading the credit rating was because of Republican intransigence on taxes. Why Why Why didn't the administration pick this up, highlight it and run with it? Make it the take away story from this thing which was always going to be headline news? Instead they push back and look like they are trying to defend the debt ceiling deal which everyone hates. Stupid stupid politics. It is almost like they are trying to lose.

  • berttheclock on August 06, 2011 9:30 AM:

    @cundgulag, excellent response and well noted about your interfacing outside of Ft Bragg. Using an old artillery command, you may "fire for effect", anytime.

  • Marko on August 06, 2011 9:42 AM:

    The AP article that Steve linked to last night said they were also concerned about the effort to lower the deficit:

    Official reasons given, one official says, will be the political confusion surrounding the process of raising the debt ceiling, and lack of confidence that the political system will be able to agree to more deficit reduction.

  • dalloway on August 06, 2011 9:47 AM:

    When the dust settles (which may not be a for a while) what will emerge is some sort of Repubican f*#ckery relating to this downgrade -- someone at S&P bribed or coerced or in bed with the Tea Party. And SW is right: Obama should immediately hammer that Republicans are the problem, not the solution.

  • c u n d gulag on August 06, 2011 9:55 AM:

    berttheclock,
    Thanks.
    That means a lot.

  • david1234 on August 06, 2011 9:55 AM:

    In terms of ability to pay, the U.S. is clearly better than anyone else. (Trillion dollar coins solve that problem.) But in terms of willingness to pay there is a genuine question to be considered. There was a real possibility that obligations would not be paid on time last week. In the past, that was unthinkable. There is now a remote but very real chance the that people could come to power who would choose to default for matters of political ideology rather than financial necessity.

  • Texas Aggie on August 06, 2011 9:56 AM:

    Not too long ago I read an article about the guy, whose name I forget, who's the head of S&P. It seems that he periodically makes these threats to downgrade US bonds, but that each threat comes after there is some movement to investigate the rating agencies for their behavior prior to the crisis. Maybe there should be more attention given to this. I wouldn't mind seeing some real investigations into the malfeasance that brought the economy down.

  • ohioan on August 06, 2011 9:56 AM:

    I think its time to downgrade s&p to a "D-" ratings agency...

  • Athena on August 06, 2011 11:55 AM:

    The new Standard in America is to be Poor...

    captcha: discro absence. i.e., discretion is absent

  •  
  •  
  •