Not Creditable: S&P Is Wrong Again

In the financial crisis, the signature of the credit-rating companies has been that they are a day late and a dollar short. In this case, $2 trillion. S&P made a $2 trillion error in the computations that were the basis of its rationale for downgrading Treasury securities.

But that was petty cash compared to what credit-rating companies cost the world economy when they corruptly took money from issuers of subprime bonds to help them come up with a formula to justify a triple-A rating.

The entire financial collapse is on the conscience of the credit-raters. If they had the most elementary competence, they would have known that a bond backed by junk had to be junk itself.

So where do these guys get off downgrading the debt of the United States? And why do it after a deal was struck to avoid default rather than before?

All during the period when Republicans were playing chicken with default, markets were unfazed. Serious people knew that, one way or another, the United States would honor its debt. The entire world economy is based on the reliability of U.S. Treasury securities.

If S&P were going to make a downgrade—and I don’t say that was justified even during the totally contrived default crisis—the time to do it was while the Republicans were playing cute, not after the deal was done and the always-minuscule risk of default receded.

If you want to see what credence markets place in the genius of S&P, what do you think happened after the downgrade was declared? Interest rates on Treasury bonds fell, indicating more market confidence, not less.

Investors are snapping up ten-year Treasury bonds at just 2.47 percent. Do you think people would be tying up money for ten years for a paltry return if they thought there was any chance that the government would default?

But the low yield on government bonds and the swooning stock market tell you something else that the geniuses at Standard and Poors and the other promoters of austerity are missing: the problem is not the deficit and debt—it’s the faltering real economy.

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