Washington The S&P downgrade was more of a statement on the toxic political landscape in Washington than a comment on the nation’s ability to pay its bills. But S&P has its own checkered history. Just a few years ago, the company gave its top triple-A rating to some of the mortgage-backed securities that helped cause the Great Recession.
Could it be wrong again?
New York-based Standard and Poor’s was upfront about its focus on the political angle, citing the long standoff between President Barack Obama and Congress as a key factor in its unprecedented downgrade of the government’s credit rating.
“We think the debacle over raising the debt ceiling is one illustration of that,” John Chambers, head of S&P’s debt rating committee, said on Monday. He said that the political gridlock and S&P’s analysis of a rising U.S. debt burden in coming years prompted the downgrade.
Yet the credit-rating industry itself has been harshly criticized since the financial crisis of 2008-2009, and S&P’s downgrade seems certain to increase congressional scrutiny.
The company was hardly revealing anything that wasn’t already well known by financial markets, politicians, analysts and probably most everyday Americans: The divisive political atmosphere in Washington has been leading to near-paralysis.
But is the rating agency qualified to make political as well as economic judgments?
“We didn’t need a rating agency to tell us that we need a balanced long-term approach to deficit reduction. That was true last week. That was true last year. That was true the day I took office,” Obama said Monday in his first remarks on the subject since the downgrade. “And we didn’t need a rating agency to tell us that the gridlock in Washington over the last several months has not been constructive, to say the least.”