Who in the World would trust Standard and Poor's?

Standard and Poor's finally did it.  They downgraded the credit rating of the United States from AAA to AA+.  There are serious questions about the reliability of S&P.  The White House pointed out that there is a $2 trillion error in the calculations used for the downgrade.  Ths is of interest since the two other agencies failed to change the AAA status of the US. (See S&P downgrades U.S.)

Jack Tapper of ABC News reported late this afternoon:

"A third official says that S&P made a "serious mistake" in its analysis, "based on flawed math and assumptions," so the Obama administration is pushing back. But even though "S&P has acknowledged its numbers are wrong, it's unclear what they're going to do.," the official said.

"S&P's numbers were off by "roughly $2 trillion," the official said.

Fitch and Moody's reaffirmed the AAA US rating earlier in the week.

In addition to the question raised about a mathematical error, there are substantial reasons to doubt S&P for any credit rating, let alone the sovereign debt of the United States  This material is from an article on April 25, 2011.  It is highly relevant to the situation at hand.

They Helped Trigger the Financial Collapse

Along with Moody's, S&P abruptly burst the real estate bubble and triggered the 2008 recession. Their downgrading of mortgage backed securities followed years of the highest ratings for these risky financial products. According to a US Senate committee report:

"Although ratings downgrades for investment grade securities are supposed to be relatively infrequent, in 2007, they took place on a massive scale that was unprecedented in U.S. financial markets. Beginning in July 2007, Moody’s and S&P downgraded hundreds and then thousands of RMBS and CDO ratings, causing the rated securities to lose value and become much more difficult to sell, and leading to the subsequent collapse of the RMBS and CDO secondary markets. The massive downgrades made it clear that the original ratings were not only deeply flawed, but the U.S. mortgage market was much riskier than previously portrayed." (Author's emphasis) US Senate Permanent Subcommittee on Investigations, April 13 (p. 263)

Did S&P and Moody's have a sudden epiphany about their ratings of risky investments?

The report goes on:

"The evidence shows that analysts within Moody’s and S&P were aware of the increasing risks in the mortgage market in the years leading up to the financial crisis, including higher risk mortgage products, increasingly lax lending standards, poor quality loans, unsustainable housing prices, and increasing mortgage fraud. Yet for years, neither credit rating agency heeded warnings – even their own – about the need to adjust their processes to accurately reflect the increasing credit risk." US Senate Permanent Subcommittee on Investigations, April 13 (p. 268)

The Senate investigation found that S&P succumbed to pressure for AAA ratings from Wall Street and big banks for their very risky mortgage backed securities (MBS) and other financial instruments that fueled the real estate bubble. That pressure resulted in high credit ratings while, according to the report, S&P knew from 2003 on that there were "increasing risks" in the MBS market. It seems S&P succumbed to pressure from their customers on Wall Street and the big banks

"S&P Intentionally Underrates Public Bonds"

The heading above is a section title from the 2008 State of State of Connecticut complaint filed against S&P for "unfair and deceptive acts and practices in the courts of trade or commerce within the State of Connecticut."

The Connecticut Attorney General issued the following statement after filing the complaint against S&P:

"We are holding the credit rating agencies accountable for a secret Wall Street tax on Main Street"

"All three credit rating agencies systematically and intentionally gave lower credit ratings to bonds issued by states, municipalities and other public entities as compared to corporate and other forms of debt with similar or even worse rates of default, Blumenthal alleges" Richard Blumenthal, Connecticut Attorney General, July 30, 2008 (Blumenthal is now governor of Connecticut)

Section V of the complaint, referenced in the heading above, teaches us something about how S&P treats government entities.

"Since at least 2001, S&P has known that it underrates public bonds as compared to corporate bonds and that this policy costs public bond issues money in the form of higher interest costs or unnecessary bone insurance costs. Despite knowing these facts, S&P continued to represent that its credit ratings are on the same scale, that public issuers have the same credit risks as similarly rated corporations, and that public bond issuers with lower credit ratings have a greater likelihood of not paying their bonds than a bond issuer or corporate bond issuer with a higher credit rating. These knowingly false representations harm public bond issuers when the buy bond insurance based on their own ratings and bond buyers who consider S&P's credit ratings when deciding to purchase public bonds." (Author's emphasis) State of Connecticut v. the McGraw Hill Companies (p. 12)

Here's a credit firm that takes money from local governments and citizens by issuing ratings it knows are flawed. This is the same credit rating firm wielding major influence on the US budget process. There is no doubt that S&P's influence will work against the interest of citizens.

The math error should be thoroughly examined.  If the White House is right, S&P can withdraw their rating.  If it's not, the critique and attack on S&P credibility needs to be met at a very high level  Paul Krugman has already begun.  Others should follow.  These people have no right to impact US economics and politics in any way, let alone one that has a major influence.


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Hell, that's just a rounding error as far as our debt, courtesy of Bush and the Duopoly, is concerned.

'When you see a rattlesnake poised to strike, you do not wait until he has struck to crush him.'

Yep, the 2 trillion error

Is nothing compared to a key role in creating and ending the housing bubble and getting indicted for fraud. They're a shady bunch, S&P. It's New England, maybe their neighbors will shun them.

If you actually read the

If you actually read the report, most of the blame goes to the Republicans for not raising revenue. So why doesn't the media mention that?

S&P blames GOP

That was clear they are blaming the GOP. We quoted sections of the S&P press release and I think amplified that, in this post.

But the GOP seems to be better at headline grabbing and being the first to attack in the never ending, empty rhetoric media spin.

Which is another reason S&P downgraded the U.S.

That's corect vis a vis the blame in the report

Here's the paragraph from the summary release that you may be referring to:

"Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act. Key macroeconomic assumptions in the base case scenario include trend real GDP growth of 3% and consumer price inflation near 2% annually over the decade."  S&P United States of America

That's accurate, in part.  At the same time the Republicans resist, the White House and Democrats in Congress, particularly the Sente, resist initiating any strong national debate on this issue  When Obama traded extended unemployment benefits for retaining the Bush tax cuts, the battle was lost.  He didn't even try.  Thus, when this deficit reduction-debt ceiling issue arose, there was no time to fully educate the public. 

The other factor left out by the credit rating summary and report is this - what are all the potential areas of cost cutting available?  A rational debate would present this to the pubic and allow the people to express their opinion.  At the very least, there was a strong argument to raise the debt ceiling and then proceed to an immedite period of debate on cost cutting priorities.  Again, the opposition to Republicn budget delusions failed to rise to the occasion. 

Regardless of what S&P says, their record disqualifies them from speaking in authoritative terms.

>Why doesn't the media

>Why doesn't the media mention that?

Maybe because they are the Liberal media as we've been told for years.

Oh no, wait! That doesn't make sense.

Secrets of the lives of celebrities ...

... that's more important. It's a matter of priorities.

Secret Lives of Celebrities, Perez Hilton, TMZ, Realty Shows

I cannot think of any metric which shows America is becoming more and more uneducated, have less social values, than the media stream.

You got it. A gossip blog gets millions more hits than the Wall Street Journal as an example.

One of the reasons HuffPo gets hits....they carry celebrity gossip.

The biggest watched shows are often the most stupidity, while highly crafted and acted dramas go to the low viewers trash can.

Part of this is advertisers fault. With the invention of the DVR, the ability to skip commercials they now sell airtime where the majority of the slices are ads. Anyone with a brain is driven away from Media which does this. It's mind numbing.

Still, online to online, Perez Hilton, TMZ and sites like that pull in 10x the traffic than serious news sites do.

Sad state of affairs, people do not know what secretary of state means but sure know all about the crotch shot of Paris Hilton et. al.

Trash with The Flash

I am forced to watch Perez Hilton from time to time. I can take her in small doses only. There is the sense of watching the French of 1781 to 1789 when I listen to her, like the characters played by Glen Close, John Malkevitch in Desperate Liaisons.

. Andre Carnegie once said "Riches to Rags in 3 Generations". Perez Hilton comes immediately to mind.

Burton Leed

Yes, granddaughters, grandnieces, etc.

A few years back that was the deal. If 'grandpa' had a chance to visit with the pre-teen kids (the girls), that meant carefully following daily trivia in the lives of ... I guess ... the role models of a generation?

Way back when there was real content

We tried to come up with methods for determining what impact our radio propaganda was having on "denied areas" (like USSR), we floated the idea of broadcasting soccer matches late into the night to see if absenteeism at factories might result. We didn't stop to consider the impact of West German late night porn. Now that we are being innundated with trash TV in the US, it could have a positive result -- I read more. Maybe book publishing will have a renaissance.

Frank T.