S&P Kabuki (Update, Update II)

Because Standard & Poor's downgrade of the US bond rating is part of the kabuki. This note from Steven Benen is instructive:

There are widespread reports this afternoon that Standard & Poor’s, the bond rating agency, will downgrade the United States, despite this week’s debt-reduction agreement. S&P will reportedly cite Republican intransigence on revenue as part of the rationale, drawing a direct connection between GOP policies and a step that will further weaken the economy.

Translation: Wall Street is not happy and the Republican leadership just got its orders: muzzle the teabaggers.

Benen also has a nice post underlining that this is a political action, not an economic decision.

A Treasury staff member noticed the $2 trillion mistake within the hour, according to a department official. The Treasury called the company and explained the problem. About an hour later, the company conceded the problem but did not indicate how it planned to proceed, the official said. Hours later, S.& P. issued a revised release with new numbers but the same conclusion.

Got that? S&P prepared an analysis to justify a specific conclusion. The analysis was off by $2 trillion. Treasury explained to S&P that the analysis wasn’t even close to being accurate, which led the ratings agency to concede they’d made a mistake.

And a few hours later, S&P decided to reach the same conclusion anyway. The agency wanted to proceed with a downgrade; whether its numbers added up was irrelevant.

As far as S&P's credibility, note that Moody's and Fitch have not downgraded US debt, and -- well, there's that little matter of the mortgage-backed securities a while back:

The credit rating agencies have been trying to restore their credibility after missteps leading to the financial crisis. A Congressional panel called them “essential cogs in the wheel of financial destruction” after their wildly optimistic models led them to give top-flight reviews to complex mortgage securities that later collapsed.

The point being, they knew those securities were junk. Joe Klein had a note back in April, when S&P first started making downgrade noises, that Benen uses to good effect, but there's another part of it that caught my attention:

S&P is not only a de facto subsidiary of the big banks, it also reflects their politics. Big bankers don’t want to be taxed or regulated. President Obama said last week that they will be taxed, at the moral equivalent of the Clinton rates, in any given budget deal; he has also proposed stiffer financial regulations, and the banks are having spend a lot in campaign contributions to wriggle free of that, which is a tax of a different sort. By issuing this warning, S&P seems to be trying to curry favor with its key constituents while overplaying a real, but long-term problem–the need to make structural changes to the way we take in and spend public revenues.

I'm not sure how much oomph to give this one, particularly since S&P specifically cited Republicans' intransigence on revenue increases as a reason for its conclusions. Maybe the plutocracy is realizing that banana republics aren't free. And maybe they're realizing that if they trash everyone's economy, they won't have anything left to play with.

Paul Krugman has a brief little post on this aspect that I'm not going to quote -- go read it. I will say, though, that what we're seeing now is the aftermath of our "businessman" president.

Update: Paul Krugman has a good column on what the real problem is, and what the real reactions should be. Don't expect anyone in Washington to pay attention -- I mean, Krugman's only been consistently right about all this.

Update II:

Here's a piece from Dean Baker with some good perspective on the whole S&P sideshow.