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THE CREDIT RATING agency Standard & Poor’s showed “terrible judgment” in lowering the US government’s credit rating, Treasury Secretary Timothy Geithner said yesterday.
“They’ve handled themselves very poorly. And they’ve shown a stunning lack of knowledge about the basic US fiscal budget math,” Geithner said in his first public comments about the credit rating decision.
Interviewed on CNBC, Geither said that US Treasury securities were just as safe now as they were before S&P announced its downgrade. He predicted that China and investors would remain strong purchasers of US government debt.
Republicans have blamed President Barack Obama for the first-ever downgrade of the government’s credit rating.
But Geithner said Congress owns the credit rating because the Constitution gives Congress the power to tax and spend.
Late Friday, S&P announced it was lowering its rating for US debt one notch from AAA to AA+.
The other two major credit rating agencies, Moody’s Investor service and Fitch Ratings, have not lowered their AAA ratings, although they have warned of a possible downgrade if more is not done to deal with soaring federal deficits.
The rating agencies were sharply criticised after the 2008 financial crisis for continuing to give top ratings securities backed by subprime mortgages. When the mortgages went bad, investors lost billions of dollars and the resulting financial crisis sent the country into a deeper recession.
Geithner alluded to those problems in his interview Sunday, saying about the credit agencies: “Look at the quality of judgments they’ve made in the past.”
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The administration has also accused S&P of a $2 trillion error in its estimate of the size of the deficits over the next decade because the agency made a fundamental error in interpreting budget projections of the Congressional Budget Office.
“Brinksmanship”
S&P officials say they changed the part of the draft press release where Treasury said it discovered the mistake but that this did not alter their basic assessment.
S&P said the political “brinksmanship” on display in the prolonged battle over the raising the nation’s borrowing limit underscored a deep divide between the political parties that raised concerns over the ability of Congress to come up with a credible plan to deal with the long-term deficit problem.
S&P had been warning for months of a possible downgrade and said that a credible plan would need to achieve $4 trillion in deficit reduction. The plan that Congress passed last week seeks to achieve between $2.1 trillion and $2.4 trillion in deficit cuts.
Geithner refused to forecast whether the credit downgrade would result in higher interest rates for the government, businesses and consumers.
But he said, “I think everyone can be confident around the world, that Treasuries are the … most liquid, the strongest place to put your money at a time like this.”
He said he had “absolutely no concern” that China, the largest foreign holder of US government debt, would stop buying that debt:
They’ve been very strong and I’m sure they’ll be strong investors in the US going forward as will investors around the world.
A critical editorial by China’s state-run news agency on Saturday said that the United States must “cure its addiction to debts.”
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The Tea Party element of Republican Party the main cause of the downgrade. 2 (republican induced)wars in Iraq & Afghanistan not helpful either – cheers Dubya.
How exactly are the Tea Party the main cause? Their not in the negotiations, nor have they caused the US to borrow more. Are you saying they’re pressuring the more ‘moderate’ Republicans who are essentially running them?
I mean I think they’re a bunch of ignorant, redneck, gun wielding, nut jobs as much as the next man, but I’m not exactly seeing the connection.
Excluding good-looking mothers of five, who would any of you say are the three members of the Tea Party who have been most responsible for wreaking devastation on the US in the couple of years since it came into existence?
S&P actually showed some pretty good judgment. Moody’s have been “threatening” to downgrade since June, but are too chicken to actually act on it since the SEC are investigating them.
S&P are also under investigation, but at least they have the guts to act with some small degree of consistency.
You don’t think they exercised good judgment on their part that they’re not treating the US preferentially like Moody’s and Fitch?
The other two are afraid to say ‘boo’ to the US.
I mean, what you said is true too. That’s wht they’re under investigation by the SEC, for their part in exacerbating the banking crisis by rating risky derivatives as safe. But that doesn’t mean they can’t make a good choice today.
Anyone who’s read The Big Short by Micheal Lewis will know that the ratings agencies (S&P, Moodys, Fitch) got it wrong for years … one of the biggest problems was the fact that the big banks and trading companies were hoovering up the top graduates and brightest brains in the industry – the talent went to these private sectors and devised more and more complicated methods of beating the system. Allied to this was the fact that these ratings agencies were paid by these companies to rate their bonds and funds so there was little incentive for the ratings agencies to provide an accurate assessment as to do so could lose them their contracts with the banks etc…
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