Is S&P Downgrade Based On Math Error ?
As Joe G has alread reported Standards & Poors has officially downgraded the US Treasury bond rating from AAA to AA+.
However reports are coming out of Washington that this action may be based upon math errors.
Being interviewed on MSNBC Congressman Barney Frank has pointed out that S&P was among the worst agencies in miscalculating the value of junk bonds during the time leading up to the financial crisis. They also have a long history of underrating the value of public bonds.
He also makes the very fair point that this downgrade is only relevant if you think the US Government is going out of business and will default, which of course they won’t.
I don’t often agree with Barney but in this case I think he has a point.
This of course does not mean this is totally meaningless. The problems S&P discussed in terms of public debt both short and long term are valid, as are the concerns on the fundamentals of the US economy.
But just as yesterdays drop in the market was not the end of the world, neither is this.
4 Responses to “Is S&P Downgrade Based On Math Error ?”
Frank has a point — how were the credit ratings agencies during the derivatives fun and games and loose lending? — but that’s no negation of the problem we’ve developed over ages. S&P wanted $4T in cuts (as did others) and wanted even more later to put the annual debt (deficit) under control. (IMF guideline, 7.5% of GNP)
I wonder if anyone will look again at the UK and its austerity program.
They down graded because of the Tea party take over of the Republican party. It’s a speculation that the Tea party is simply going to continue their terrorist legislation insurgency with every piece of legislation. All this math mathematic formulation is just an excuses not to give out the real reason. They have no confidence.
Anderson, Cooper, 15 [tm] (Dem model for the U.S. Presidency [chuckle]) actually had a good thing on his show, for once in ages. It was none other than John Chambers, the head man of S&P that has been in the news this week, explaining why the downgrading decision was made, and also addresses the “error.”
http://ac360.blogs.cnn.com/2011/08/05/video-man-behind-downgrade-decision/
Those who are curious about what Chambers has to say: voila’.