In the Arena

Poor Standards

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The news that Standard & Poor’s has decided to issue a warning that the US government’s AAA bond rating might be in some jeopardy if a deficit-reduction agreement isn’t reached should elicit several responses from sophisticated readers. My own threshold response is: Hey, weren’t you the same guys who gave AAA ratings to the repackaged subprime mortgage-backed securities that, in truth, were utter dreck? And didn’t that help cause the 2008 economic collapse? And didn’t subsequent accounts reveal that you were in bed with the banks whose products you were supposed to be rating? I mean, you guys are still in business? Amazing. (One wonders why some intelligent capitalists haven’t launched a new, untainted ratings agency.)

My second response is: What do they know about Washington? It seems to me that we’re in the throes of something that looks like a very serious long-term deficit reduction conversation. Both parties have put forward $4 Trillion deficit reduction plans. A bipartisan group of 6 Senators are said to be very close to presenting a precisely detailed version of a plan similar to the one proposed by the President’s deficit commission. That voluminous silence you hear is a social security deal being worked out by both parties. So Standard and Poor’s is pessimistic? Where were they when Bush was passing all those tax cuts and Medicare prescription drug plans?

My third response flows from the first two: 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.

And so: I would take this warning about as seriously as I would S&P’s predictions for the Knicks-Celtics series. I still can’t believe, given the vast public rip-off that they and Moody’s enabled, these guys are still in business.