No one needs to take their hats off to S&P. It’s late with this only-one-notch downgrade. It didn’t show great “spine,” it played politics in trying to save its skin by spinning a story to cover-up its own incompetence. S&P is still incompetent. The U.S. political system has been dysfunctional and captured for years. Moreover, the debt ceiling has always been an issue that as a legal matter is problematic for any “AAA” country. There’s capacity to pay (Greece doesn’t have it), willingness to pay (Argentina doesn’t have it, although it has the capacity to pay), and there’s permission to pay (we have capacity and willingness, but have to ask Congress for permission).
S&P forgot to mention that the rest of the globe mistrusts the USA, because we haven’t reformed our financial system, we never addressed widespread fraud or punished criminals, and we bailed out and continue to bailout banks with no consequences to the banks. We have unfunded wars, and S&P didn’t mention that in its interviews.
Most important, S&P’s timing and spin leave out its role and the role of Moody’s and Fitch in the great bank robberies and the fact that they drove the get-away cars.
Just to drive home its incompetence, S&P had to pull away from incompetently rating a CMBS deal (claiming bugs in its model), since now it is worried about lawsuits. In its U.S. downgrade of only one notch, S&P got its math wrong, and it left out important elements of the argument that would have implicated itself.
This is the link to my report, “Tavakoli Structured Finance Revokes the Credit Rating Agencies’ NRSRO Designation: Issues and Solutions for Restoring Credibility to the Credit Rating Agencies and Rehabilitating the Alternative Banking System,” July 26, 2011.