S&P Is A Joke

Via Krugman, Treasury skewers S&P:

In a document provided to Treasury on Friday afternoon, Standard and Poors (S&P) presented a judgment about the credit rating of the U.S. that was based on a $2 trillion mistake. After Treasury pointed out this error a basic math error of significant consequence S&P still chose to proceed with their flawed judgment by simply changing their principal rationale for their credit rating decision from an economic one to a political one.

[. . .] S&Ps $2 trillion mistake led to a very misleading picture of debt sustainability the foundation for their initial judgment. This mistake undermined the economic justification for S&Ps credit rating decision. Yet after acknowledging their mistake, S&P simply removed a prominent discussion of the economic justification from their document. In their initial, incorrect estimates, S&P projected that the debt as a share of GDP would rise rapidly through the middle of the decade, and they cited this as a primary reason for a downgrade.

Clowns. As Treasury says, "[t]he magnitude of this mistake and the haste with which S&P changed its principal rationale for action when presented with this error raise fundamental questions about the credibility and integrity of S&Ps ratings action."

Speaking for me only

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    All the rating agencies are a joke ... (5.00 / 2) (#1)
    by Robot Porter on Sun Aug 07, 2011 at 10:37:30 AM EST
    more than that they're criminal.  And they should all have been shut down after the economic meltdown.  Structured as they are, they can never be trusted.

    But it's also a joke for the administration, that was waving threat of these bad ratings in a face prior to the debt deal, to now say it doesn't matter.

    H/T Americablog (5.00 / 1) (#5)
    by TeresaInSnow2 on Sun Aug 07, 2011 at 10:56:22 AM EST
    The president's reaction to the S&P fiasco:

    August 6, 2011

    Statement from the Press Secretary

    The President believes it is important that our elected leaders come together to strengthen our economy and put our nation on a stronger fiscal footing.

    The bipartisan compromise on deficit reduction was an important step in the right direction. Yet, the path to getting there took too long and was at times too divisive. We must do better to make clear our nation's will, capacity and commitment to work together to tackle our major fiscal and economic challenges.

    Over the past weeks and months the President repeatedly called for substantial deficit reduction through both long-term entitlement changes and revenues through tax reform, with additional measures to spark jobs and strengthen our recovery. That is why the President pushed for a grand bargain that would include all of these elements and require compromise and cooperation from all sides.

    Over the coming weeks the President will strongly encourage the bipartisan fiscal committee as well as all members of Congress to put our common commitment to a stronger recovery and a sounder long-term fiscal path above our political and ideological differences. -

    Aren-cha glad we have a "Democratic" president?

    God (5.00 / 2) (#26)
    by kmblue on Sun Aug 07, 2011 at 01:31:47 PM EST
    what a mealy mouthed wimp.

    Obama Folds His Hand (none / 0) (#33)
    by norris morris on Sun Aug 07, 2011 at 05:57:04 PM EST
    What a sellout from a supposed Democrat who pretended and sold himself as a messenger of change in DC and a progressive[?] administration.

    Obama speaks with forked tongue. He's obviously pursuing a right wing agenda and the "bi-partisanship" he speaks of constantly is smoke and mirrors. Obama thinks he's Ronnie Reagan come back to haunt us. He's stuck on Reagan.

    This inexperienced dude has bungled every opportunity he had to raise Debt Ceiling when in Nov. the Bush tax cuts extension would have been leverage.

    Personally I think Obama needs treatment.

     Nothing he has succumbed to helps the country, his constituents [who he holds in contempt as he's so sure they have nowhere else to go], or helps the creation of jobs. Au contraire the deal with the Devil he signed on to cannot create jobs as there's no $$$$$. He's after ALL entitlements and is a two faced liar who has betrayed his party and the American workers and middle class.

    We have to find a Ralph Nader, or get Nader to run against this collaborator and take to the streets. Obama has not been challenged by the Dem party and they are still kissing his ring.  Unbelievable. At no time has Obama controlled the Debate, or clarified what he really wants and what he specifically stands for.

    He may or may not know, but the issue at hand of importance is that we have no idea what he believes in.

    His arrogance and indifference, & vagueness have been a problem from day one.   Obamacare? It's a piece of trash designed to increase the coffers of BigInsurance and BigPharma cartels.

    We have absolutely NO leadership and cannot tolerate what he is doing. Vote him out as he's a double agent anyway.


    Deficit reduction will not improve (none / 0) (#43)
    by Militarytracy on Sun Aug 07, 2011 at 06:59:52 PM EST
    our balance sheet though, it will cause economic contraction which will make our balance sheet worse because we will not be able to raise revenue.  According to the International Business Times, item #1 that has led to our downgrade is the Bush Tax Cuts.  #2 was out of control healthcare costs from 2001-2008, and #3 is wars on credit cards.

    One way to reduce the deficit (none / 0) (#46)
    by Militarytracy on Sun Aug 07, 2011 at 07:10:16 PM EST
    with the littlest contraction possible is to lift the Bush tax cuts now!

    Absolutely ridiculous, (5.00 / 1) (#25)
    by masslib on Sun Aug 07, 2011 at 01:19:40 PM EST
    Zero reason to downgrade US credit rating.  Transparently political.  Sheer,blatant corruption.  

    Credit Downgrade (none / 0) (#36)
    by norris morris on Sun Aug 07, 2011 at 06:11:12 PM EST
    I do not in any way doubt what you say. But please explain why this is political. Who  benefits from this downgrade?  

    I don't question that S&P has made an error. But why have they done this and for whose benefit?

    After watching the lunatics running the asylum, it doesn't surprise that the world gagged. Also witnessing a hesitant and deceptive sellout by a weak leader and  a lunatic do nothing Congress, it doesn't surprise that no one trusts our ability to function effectively as a Nation.

    I am not prepared to get stubborn on this point, but surely how much confidence could we instill in these tough times after this irresponsible Congress was prepared to bring us to the brink?

    A handful of Congressmen who were sent to disrupt  with no concern regarding their re-election controlled the Debate. Pathetic.


    One of the ironies (5.00 / 1) (#29)
    by Mr Natural on Sun Aug 07, 2011 at 03:12:01 PM EST
    is that the same people now advocating unburdening ourselves of our entitlement obligations, into which funds most recipient seniors had paid their entire working lives, a social if not legal contract, were the same people who devoted endless hours to carping and moaning about the breaking of auto company bondholders (contracts) during the heart of the financial crisis.

    Fundamental questions like... (none / 0) (#2)
    by Dadler on Sun Aug 07, 2011 at 10:41:21 AM EST
    ...who had that one billion dollar bet on the U.S. credit rating going down?

    And on a bet like that, if anyone knows, do you win that bet if any of the ratings agencies downgrade, or do they all have to?  Or do you pick the agency you think will downgrade?

    I'll take the BCS computer over THIS ratings system any day.  

    Good question... (none / 0) (#32)
    by kdog on Sun Aug 07, 2011 at 04:53:53 PM EST
    if it's anything like a Win/Place/Show bet???

    Sorry bro, I know only honest gambles in games with, ya know, enforced rules...but I think the fact no one in government is asking is quite telling...maybe a Capitol Hill betting syndicate?

    F*ck you pay me, as the saying goes...


    RICO (none / 0) (#3)
    by The Addams Family on Sun Aug 07, 2011 at 10:46:01 AM EST

    i don't believe there's any (none / 0) (#4)
    by cpinva on Sun Aug 07, 2011 at 10:47:17 AM EST
    question at all, S&P is fundamentally non-credible. the same bunch that gave us the sub-prime mortgage disaster has the gall to opine on the credit worthiness of USA, Inc.? i think not.

    of course, they chose to totally ignore the fact that investor money is flooding into (wait for it...........) US treasury bonds. in a rational world, S&P would have gone bankrupt after their complete ineptitude was put on public display in 2008. you know, adam smith's "invisible hand". that they are still in business proves (as if it needing proving) that capitalism is a rigged game, if you're "one of the boys".

    S&P has been warning the U.S. (none / 0) (#6)
    by Militarytracy on Sun Aug 07, 2011 at 10:57:03 AM EST
    of a possible downgrade since April I think.  Anyhow S&P and treasury have been arguing back and forth about the particulars for months.  And based on that much reported fact, this supposed "fact" when spin on all this is at a terminal velocity point, causes me to doubt this simplified story coming out of treasury.

    Well, sure, but (none / 0) (#30)
    by gyrfalcon on Sun Aug 07, 2011 at 04:35:29 PM EST
    have you heard any real pushback from S&P?  I sure haven't, beyond the idea that the $2 trillion mistake they admit to making is irrelevant.

    Pushback. (none / 0) (#31)
    by Addison on Sun Aug 07, 2011 at 04:39:38 PM EST
    The pushback from S&P has been the threat that they might downgrade the United States again if the cool kids in DC and on Wall Street don't take them seriously and buy their staff drinks in fancy Manhattan bars. So mostly just on-their-heels defensiveness from S&P.

    Yes, they have pushed back (none / 0) (#44)
    by Militarytracy on Sun Aug 07, 2011 at 07:03:02 PM EST
    And I expect a detailed report on Monday.

    Meanwhile (none / 0) (#7)
    by Warren Terrer on Sun Aug 07, 2011 at 11:29:20 AM EST
    France still retains its AAA rating from S&P even though it's not sovereign in its own currency and hasn't been treated as AAA by the markets for months now. There's talk of downgrade, but there is absolutely no reason from an economic perspective for downgrading the US before a downgrade of France. Of course S&P's decision is purely political.

    If I'm reading Yves Smith correctly, she seems to be saying that S&P did this due to pressure from Republicans who have promised to block attempts to regulate or punish the ratings agencies for their past misconduct in return for downgrading US debt.

    Come on man (none / 0) (#8)
    by Militarytracy on Sun Aug 07, 2011 at 11:37:39 AM EST
    We once looked better to everyone wanting to place a bet because we looked like the forever bailout, no matter how crazy the numbers were there would be a bailout.  There is evidence that the markets were pricing QE3 in because some people just couldn't believe there wouldn't be a QE3 five seconds after QE2 ceased.  It isn't France's fault that because they are not sovereign in their own currency that they had to make sane decisions and act like adults :)  Some of the stuff I'm reading today is just too damn funny to me.

    And I think it is crazy to think the Republicans did this "on purpose" because immediately after the bad news some folks out there put into print that the Bush tax cuts did this :)  Which they did :)


    Sane decisions? (5.00 / 2) (#10)
    by Warren Terrer on Sun Aug 07, 2011 at 11:46:51 AM EST
    France decided to go on the euro. That hardly gives them a history of sane decisions. And the markets don't think French debt is AAA.

    If the Bush tax cuts did this, then why did the downgrade just happen on Friday? I'm not buying that one.

    I don't know precisely what motivated the downgrade. I'm not privy to any of the internal deliberations of S&P. But I know that the downgrade has no economic principles backing it whatsoever.


    Ask Stiglitz to explain all this to you (none / 0) (#17)
    by Militarytracy on Sun Aug 07, 2011 at 12:20:40 PM EST
    You have a link (none / 0) (#21)
    by Big Tent Democrat on Sun Aug 07, 2011 at 12:34:43 PM EST
    that you can provide where Stiglitz supports your arguments in these threads?

    Did he come out screaming (none / 0) (#49)
    by Militarytracy on Sun Aug 07, 2011 at 08:26:34 PM EST
    No  He hasn't said anything definitive about it yet.  I suspect he will though.

    Silly comment MT (none / 0) (#9)
    by Big Tent Democrat on Sun Aug 07, 2011 at 11:43:40 AM EST
    Where does your analysis come from? It is bizarre.

    Did you see what happened to US Treasuries LAST WEEK?


    That everyone ran to treasuries? (none / 0) (#11)
    by Militarytracy on Sun Aug 07, 2011 at 12:00:37 PM EST
    They run all over the place, they run to gold, they run to oil, they will run to the next safest place at the drop of a different hat.  They ran to tulips once.

    Incorrect (5.00 / 2) (#13)
    by Big Tent Democrat on Sun Aug 07, 2011 at 12:09:09 PM EST
    Gold and oil went DOWN.

    They ran exclusively to US Treasuries.


    Because the gold and oil (none / 0) (#15)
    by Militarytracy on Sun Aug 07, 2011 at 12:19:42 PM EST
    markets had peaked :)  You're talking about investing and markets in insane times and the rich trying to maintain their riches when terrified.  Just because the whole sham of the $hitpile is about to be exposed and they all run to treasuries....sorry, not overly impressed by that considering how over leveraged and inflated the $hitpile is and EVERYONE WHO IS SMART MONEY KNOWS IT :)  When terror sets in, we all go knee jerk.

    Nope (5.00 / 1) (#22)
    by Big Tent Democrat on Sun Aug 07, 2011 at 12:35:51 PM EST
    in the "flight to safety," the run was ALL to US Treasuries.

    That's a fact. Sorry if you don't like it.


    Gold and oil (none / 0) (#16)
    by Warren Terrer on Sun Aug 07, 2011 at 12:20:24 PM EST
    and commodities in general are often viewed as good hedges against inflation. Treasuries are seen as good hedges against deflation. That tells you what the markets think is coming.

    Deflation? (5.00 / 1) (#37)
    by norris morris on Sun Aug 07, 2011 at 06:22:09 PM EST
    Yes Deflation is the big worry and has fuelled the run to Treasuries.

    Call it a Depression or Deflation- it boils down to a terrible economy that will hurt most Americans.


    There never was going to be (none / 0) (#50)
    by Militarytracy on Sun Aug 07, 2011 at 08:27:53 PM EST
    any other future for us though if they didn't fix the banking and finance sector.....and they didn't fix the banking and finance sector and I have lots of Stiglitz links for all that.  Too many to count.

    With as inflated as things are (none / 0) (#18)
    by Militarytracy on Sun Aug 07, 2011 at 12:21:48 PM EST
    Your talk about "Hedges" is going to be very very dated in about 180 days.

    Take a break (none / 0) (#19)
    by Warren Terrer on Sun Aug 07, 2011 at 12:24:21 PM EST
    You are spewing little more than nonsense today.

    Just because the U.S. is currently (none / 0) (#20)
    by Militarytracy on Sun Aug 07, 2011 at 12:30:55 PM EST
    the default currency as the whole house is on the edge, doesn't make the U.S. any sort of GODlike being.  Everyone ran here because we are the default currency.  But the whole system is about to come down as far as shadow banking goes.  And that will likely take everything as we currently understand it with it.

    Yes, S&P is a joke...but who is (none / 0) (#12)
    by Anne on Sun Aug 07, 2011 at 12:05:32 PM EST
    the joke on?  Them?  Us?  I don't know, where I come from, jokes are supposed to be funny...this, not so much.

    Is anyone laughing, really?  Well, other than those - and you know they are out there - who are laughing all the way to the...bank.

    Of course, on a larger level, this is not an American story, it's just the latest iteration of the liquidation of society by international investors. As just one more example, Naomi Klein wrote about S&P and Moody's being used by Canadian bankers in the early 1990s to threaten a downgrade of that country unless unemployment insurance and health care were slashed. Incidentally, there was an aggressive high end tax cut campaign going on at the time.

    The current austerity wave in the US is the same play.  The goal of S&P is to ensure that there is a bipartisan set of spending cuts to social programs that benefit ordinary people. That their "downgrade" is being taken seriously by Nancy Pelosi, Barack Obama, John Boehner, Bob Reich, Dick Durbin, and most American political leaders shows that they share this goal. S&P is just doing the lobbying work.

    Matt Stoller (yeah, I know) guest-posting at naked capitalism.

    The joke (5.00 / 1) (#14)
    by Warren Terrer on Sun Aug 07, 2011 at 12:16:39 PM EST
    is on anyone who takes S&P seriously. We won't know until Monday which market players take it seriously. I suspect not that many.

    The real problem is going to be voters who take this seriously and fall for the Republican talking point that this downgrade is a reason to vote for them next year. I can't give anyone a reason to vote for Obama, but this downgrade is no reason to vote Republican.


    Outvote Both Parties (none / 0) (#39)
    by norris morris on Sun Aug 07, 2011 at 06:40:29 PM EST
    Why not make a big move for another run for Nader?

    It makes no difference as both parties are corrupt and our leader cannot lead. Besides his Republican ethos are on everything he touches.

    Voting Democrat offers nothing to voters as they have become Republican -Lite.  Pelosi is odious on almost everything and has allowed women's rights to get kicked under the bus. First by Dem Stupak in the House, and then Ben Nelson the BlueDog Dem from Nebraska who conjured up phony reasons to obstruct choice and equal rights under the constitution.

    Prohibiting Federal funds for abortion became settled law in the Hyde amendment of 1993. So the phoney debate about disallowing Federal money for abortions was engineered to make abortion far more difficult and added limits that were imposed with the conjured excuse that no Federal$$$$ be used.

    So now only  wealthy or connected women can obtain abortions easily as the locations and restrictions now imposed hurt the poor, the single, and working women.

    So what are the Democrats doing on all fronts? Nothing. they just continue to kiss Obama's ring.

    We should take to the Town Square and let ourselves be heard. And we should vote or unvote these bastards out of office.


    The Joke Is The Joker (none / 0) (#41)
    by norris morris on Sun Aug 07, 2011 at 06:53:14 PM EST
    And Obama is the Joker.

    We are the Joke (none / 0) (#23)
    by koshembos on Sun Aug 07, 2011 at 12:41:48 PM EST
    S&P wouldn't have downgraded the US if we has a functional president. It's Obama's weakness, lack of values, lack of goals and spinelessness that entices the Republicans and S&P to wild.

    This will damage the country not through the downgrade but through lawlessness. The Republicans need Obama to be reelected; he is the best president they can get. We need to run someone else: Dean, Sanders, Wesley Clark or even Hillary.

    Much as I like Dean and Sanders (none / 0) (#24)
    by Politalkix on Sun Aug 07, 2011 at 01:14:38 PM EST
    it seems that they would not be able to defeat the President in a primary even in their home state, Vermont.

    What would be the point of trading the President for someone like HRC or Clark at this stage? They had their opportunities earlier and opted to get rolled by Republicans when it mattered most.


    I (none / 0) (#27)
    by lentinel on Sun Aug 07, 2011 at 02:13:57 PM EST
    would not be thrilled by a HRC presidency or a Clark presidency.
    I would not be thrilled by any of the other people on the horizon either.

    But at this point, I will admit I would just like a different person in the white house.

    Obama has, to me, just been an exhausting extension of the atrocious Bush years. And I see absolutely no reason, zero reason, to think that he would be any different in another term.

    Talk about having had an opportunity and squandering it!
    Talk about getting rolled by Republicans when it mattered most!


    My feeling about the Republicans (5.00 / 1) (#28)
    by TeresaInSnow2 on Sun Aug 07, 2011 at 03:09:17 PM EST
    ...is that I'd rather have a Republican take the White House next time and maybe get a Democrat in 2016 to stop the bleeding.  If we keep Obama, we'll have Obama for 4 more years (whose presidency is a disaster), most certainly a Republican after that and then who knows what awfulness.

    If a Republican wins the WH in 2012 (none / 0) (#34)
    by Politalkix on Sun Aug 07, 2011 at 06:07:25 PM EST
    there would not be any blood left in the patient by 2016 to "stop the bleeding".
    Two of the 3 leading Republican candidates (Perry and Bachman) are Bush on steroids because they believe that stuff. The third one, Romney, will also most likely do the Bush on steroids stuff to become the Prez. The economic policy of even their most sane and decent candidate is to the right of Obama.
    A better way to heal is not dwell on the Presidency at this time (if you are so unhappy about it). Just try to get as many progressives elected to the House and Senate as you can!.

    As I said, (none / 0) (#38)
    by lentinel on Sun Aug 07, 2011 at 06:37:03 PM EST
    Obama had a golden opportunity.
    He squandered it.
    He, as you said, rolled over for the republicans. Actually, I don't even think he even had to roll.

    Obama has continued just about every single one of Bush's most atrocious policies. His presidency has meant 10 years of Bush instead of 8.

    There is no right of Obama. Only the illusion of one generated by democratic party partisans and strategists.

    At the moment I fear the incumbent more than I fear the dreadful cast of characters standing in the wings. And that's saying something.


    Republicans rolling Clinton and Clark?? (none / 0) (#45)
    by norris morris on Sun Aug 07, 2011 at 07:03:27 PM EST
    When where and how did the Republicans roll Hillary and Wesley Clark?

    The Obama Primary machine and Clinton's poor strategic planning hurt Hillary. As for Clark?   What?   Who?


    2004 is not a distant memory (none / 0) (#48)
    by Politalkix on Sun Aug 07, 2011 at 08:11:05 PM EST
    A plain speaking Governor from Vermont wanted to speak on behalf of the Democratic wing of the Democratic party. He was pilloried by all establishment Democrats (including Clark and Clinton camps) for not towing the Bush-Cheney-Rumsfield line and "moderating" his stances before being pushed out of the race by the media.

    Yes We Are The Joke (none / 0) (#40)
    by norris morris on Sun Aug 07, 2011 at 06:50:16 PM EST

    I totally agree with your take on the Downgrade. Weakness is always punished.  It's so easy.

    The WH is spinning this defeat full tilt.

    Yes, anyone you mention including Nader would offer opposition. But the Dem Party will not primary against Obama.  This has to be an independent effort.

    The GOP is delighted with Obama. Why not? He gives it away before negotiations even start.

    We need to get to the Town Squares and be heard and seen if we expect anything positive to happen.


    I Would Kiss The Feet Of (none / 0) (#42)
    by norris morris on Sun Aug 07, 2011 at 06:58:38 PM EST
    any of those you mention if they'd agree to run.

    The difficulty is that we are asking someone to be a Martyr.  This is not going to be easy but with enough energy from the voters there may be a chance that someone would run against Obama.

    But we must take to the Square and be heard if we are to be taken seriously.


    Much (none / 0) (#47)
    by NYShooter on Sun Aug 07, 2011 at 07:55:27 PM EST
     as I would love to see it, a Hillary Clinton Primary attempt is out of the question, in my opinion. First, the loyal Democrat stuff. Second, the AA blowback would be overwhelming. And third, too many vested interests among Democratic "leaders." (the corruption is total)

    Wes Clark is interesting, but I wonder about the "loyalty thing." You know, the commander in chief business. Also, he's not exactly a barn burner on the stump. But, other than that I think he's basically  a good man, and a very smart one to boot.


    This is (none / 0) (#35)
    by Ga6thDem on Sun Aug 07, 2011 at 06:10:32 PM EST
    what I was telling you guys the other day. These rating agencies just aren't all that. So many balance sheets are so messed up they don't even know that they're ratings are bad.