Markets React To A Flawed S&P
As expected, Asian markets took news of the S&P downgrade of American creditworthiness poorly, opening to a loss. But the losses were somewhat contained once the Group of Seven industrial nations announced intents to take all necessary measures to support financial stability.
President Obama has still not made a public statement on the downgrade, but his administration has blasted the measure, particularly as news surfaced that the decision was made in part based on bad math by S&P. According to Politico, S&P sent a draft press release to the Treasury Department prior to its announcement. That draft contained several numerical errors, setting off a heated exchange as administration officials tried to correct the firm’s work.
Among the errors were projections overestimating U.S. debt by $2 trillion.
A close read of the S&P report shows plenty of suggestions that the move was designed to break Republican intransigence over tax increases and to push policy makers to adopt steep spending cuts. But that raises the question of whether or not manipulating credit ratings like that are appropriate or if S&P just overplayed its hand as a political actor. It’s worth remembering that just prior to the collapse of Lehman Brothers, S&P reaffirmed that firm’s AAA rating.
While the S&P downgrade may make the case for expiration of the Bush tax cuts, it will be up to the Obama administration, and the media that covers them, to explain that to an American public that has been spoon-fed bad economic information and offered sound-bites instead of policy solutions.
hoto from artemeustra via flickr.