Rating The Funny Business Of S&P's Rating

CounterPunch.org economic reporter Dave Lindorff wonders openly if yesterday's negative outlook by Standard & Poors on US debt was the perfectly-timed the next step in the GOP war on the social safety net.

So what’s going on here?

There would seem to be only two possibilities:

Either S&P has been pressured by powerful Republicans and/or Wall Street Bankers to issue this warning, in order to add to national hysteria about the national debt and win more drastic cuts in social programs, or S&P is simply blowing it again.

“Political shenanigans cannot be ruled out,” says Galbraith. “That’s what lawyers would call the ‘rebuttable presumption.’ After all, who benefits? The Republicans and perhaps the banks. But of course the other possibility is that S&P doesn’t know what it’s talking about, and after their disastrous missing of the mortgage bubble, that’s quite possibly what it is.”

The Obama administration, for its part, has reacted with surprising restraint to the S&P bombshell, saying only that the administration expects to reach an agreement with Congress over how to reduce the nation’s debt. Mary Miller, assistant treasury secretary for financial markets, for her part said that S&P "underestimates the ability of America's leaders to come together to address the difficult fiscal challenges facing the nation."

How pathetic is that? How about a call for the SEC, or the Federal Reserve or the Attorney General to investigate whether S&P was improperly pressured to issue its absurd “negative warning”? How about a call in the Senate for hearings to look into any such possible improper political pressure?

I’m not suggesting that there are no consequences for the failure of the US political system to pay for the nation’s trillions of dollars in wars, or for its craven preference over the last 30 years to hand tax cuts to corporations and the rich while continuing to encourage corporations to shift their investments abroad, taking the nation’s jobs with them. There will surely come a reckoning. But it won’t be in the form of default.

So we're back to the main argument in the financial crisis playbook:  are they destroying the economy because they are evil, or are they destroying it because they are just incredibly stupid?   Why not both, they say.  My theory yesterday is that the ratings agencies fired the first shot in revenge against the Obama administration for trying to regulate them more tightly, which would dovetail quite nicely with Lindorff's theory that the GOP controls S&P.

But it's not like the regulation is anything serious or even effective.  The financial reform bill was and still is a complete joke.  Banks are continuing exactly as they have done previously, and it's doubtful that the Consumer Financial Protection Agency created by the law will ever even open its doors.  What's S&P's long game here?  Helping the GOP destroy Medicare and Medicaid (and eventually Social Security) does seem pretty obvious here.

Enough to make you wonder, at least.