White House rounds on S&P for rating cutback
Standard & Poor's (S&P) the credit rating agency, is fighting to shore up its reputation after an unprecedented assault from the White House in the wake of its historic downgrade of US government debt.
The decision to strip the world's economic superpower of its top-notch AAA credit rating after 70 years had financial market players holding their breath as if the spiralling crisis in the eurozone and plunging global stock markets had not jangled nerves enough.
S&P appeared to have been caught off guard by the virulence of the Obama administration's response to the downgrade. Officials attacked the credibility of the agency, claiming it had admitted a $2 trillion mathematical "error" in an early version of its decision, but then downgraded the country anyway.
"The magnitude of their error combined with their willingness to simply change on the spot their lead rationale once the error was pointed out was breathtaking," said Gene Sperling, the head of the administration's National Economic Council. "It smacked of an institution starting with a conclusion and shaping any arguments to fit it."
The White House strategy appeared to be to try to make S&P a public laughing stock, a tactic taken up by supportive commentators who pointed out the rating agency's disastrous role in the credit crisis and the erroneous AAA ratings it put on billions of dollars of toxic mortgage derivatives. Partly the aim is political, to insulate President Barack Obama from any public anger over the loss of the country's pristine credit rating, but it is also aimed at pointing out the subjective nature of credit ratings to any investors who might be considering selling US Treasuries on the basis of S&P's move.
For S&P and its parent company, McGraw-Hill, the risk is that the political furore will accelerate moves to undermine the potency of the credit rating agencies.