Downgrading the credit agencies

Robert Reich

Kai Ryssdal: Given that this is all still in the land of hypotheticals, the sequence of events next Tuesday could go a little something like this: We miss payments on our debt, S&P and the other ratings agencies downgrade us, and the world ends. I exaggerate, but not by much. That's the conventional wisdom out there. Even the White House is saying it's more worried about a downgrade than anything else.

But commentator Robert Reich says ratings agencies -- heal thyselves.


Robert Reich: It's perfectly appropriate for a credit rating agency to warn that America's credit rating will be downgraded if it defaults on its debts next week.

But Standard & Poor's has gone a step further: It says even if the debt ceiling is raised next week, it might still lower the nation's credit rating -- unless the deal also contains a credible, bipartisan plan to reduce the long-term budget deficit by $4 trillion. This is something neither Senate Majority Leader Harry Reid's nor House Speaker John Boehner's plans would accomplish.

Now I don't mean to be impertinent, but as long as America pays its debts on time, who is Standard & Poor's to tell America how much debt it has to shed and by when?

Until the eve of Wall Street's collapse in late 2007, S&P gave triple-A ratings to what turned out to be some of the Street's riskiest packages of mortgage-backed securities.

Had S&P done its job, we wouldn't have had the debt and housing bubbles to begin with. That means taxpayers wouldn't have had to bail out Wall Street. We probably wouldn't have had a Great Recession. Millions of Americans wouldn't be jobless and collecting unemployment benefits. There'd be no need for the stimulus that saved 3 million other jobs. And far more tax revenue would have been pouring into the Treasury.

In other words, had S&P done its job, the federal budget deficit would likely be far smaller than it is today -- and S&P wouldn't be threatening the United States with a downgrade if we didn't come up with a plan for shrinking it.

And why has S&P decided to get into public policy now anyway? Where was it when President George W. Bush turned a $5 trillion budget surplus bequeathed to him by Bill Clinton into a gaping deficit?

Here's some free advice to Standard & Poor's: Stick to what you know.


Ryssdal: Robert Reich was secretary of labor for President Clinton. His most recent book is called Aftershock: The Next Economy and America's Future. Our future? Well, you never really know. Right? But David Frum will be here next week. 'Til then, send us your comments -- click on this contact link.

About the author

Robert Reich is chancellor's professor of public policy at the University of California, Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton.

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