From TPM Reader JG …
I think S&P bashing is not well-founded and misses the crucial point: that Speaker Boehner owns this downgrade because of the hold-up power he gave to the Tea Party faction. On S&P: their rating failures on mortgage backed securities and their mixed record on sovereign debt is beside the point. Fact is, an AAA credit does not threaten to default on its obligations.
A private issuer could not threaten to welsh on a major supply contract because of a cash flow problem and not face a credit downgrade, even if it promised to honor its bonds 100%. Among other reasons, carrying through on such a threat would trigger “cross-default” clauses in its bonds. As debtors, sovereigns are unique in the absence of such “cross-default” clauses in their bonds. Nevertheless, for rating purposes, it’s not unreasonable for a rater to draw the connection.
But here’s the important point: this really is a Tea Party downgrade. That’s what S&P was implicitly saying as it batted away the relevance of a $2TR error. Those who care about the country need to call out irresponsibility in governance. From that perspective, Speaker Boehner owns the downgrade. Putting personal power before country, he gave the Tea Party faction their hold up power. He had 218 votes for a simple debt ceiling bill; instead, he held out for 218 Republican votes (until the final legislation), empowering the Tea Party. That was his decision. It’s important for the decision-making going forward for this point to be highlighted.
