When an aircraft circled Manhattan’s financial district this week trailing a banner that read: “Thanks for the downgrade, you should all be fired”, it was initially assumed that whoever hired it was sending a message to Standard & Poor’s, the agency that had just cut the US’s debt rating. It certainly expressed the sentiments of the White House and many in Congress who mercilessly hit out at the agency for its temerity.
But it then emerged that the woman who had paid for the advertisement, Lucy Nobbe, a single mother from Missouri, had first intended for the aircraft to fly above the White House and the Capitol in Washington DC. Informed that it was a no-fly zone, she opted for Manhattan.
A stunt that could have been public-relations gold for the Obama administration turned out to be anything but as the suddenly famous Ms Nobbe outlined her disgust with the politicians who had created the conditions for the downgrade, rather than the messenger of bad news.
Many Americans feel likewise, giving Congress its lowest-ever approval rating and, according to Reuters/Ipsos, pushing Barack Obama even lower than George W. Bush at his nadir. All the more reason for Washington to shift the blame to S&P.
Mr Obama angrily declared that the United States of America will always be a triple A country – a statement that, as of this week, can only be said to be true about the three As in its name.
Treasury Secretary Timothy Geithner said “S&P has shown really terrible judgment and they’ve handled themselves very poorly, and they’ve shown a stunning lack of knowledge about basic US fiscal math.” In the hours after the downgrade, Treasury officials said S&P’s draft report had a $2,000bn error.
Accusing a company that makes its living from its supposed financial acumen of innumeracy went beyond shooting the messenger. Some of the administration’s allies took it one step further by blaming the messenger.
Economist and columnist Paul Krugman pilloried S&P for its “chutzpah”. He reasoned that America’s budget woes were largely the result of the financial crisis, which in turn was caused by S&P’s over-optimistic ratings of Lehman Brothers and mortgage-backed securities.
Finally, in a step that prompted some sympathy for S&P (and a few guffaws), influential but gaffe-prone congresswoman Maxine Waters called for an official probe of the agency.
The US is not the first country to gripe about a downgrade. Prosecuting the messenger is a step too far though. S&P, along with Moody’s and other raters, hardly covered itself in glory during the crisis, but conflating iffy work for paying customers with culpability for sovereign ratings is quite a stretch.
On that subject, though, it is interesting to speculate what rating the US would merit if it were a company. Former internet analyst Mary Meeker did just that earlier this year in a report on America’s fiscal health, USA Inc. While critics were quick to state the obvious – that a country is different from a company – it is a thought-provoking piece of work.
USA Inc had its ninth consecutive year of negative “cash flow” last year, some $1,300bn. In addition to the $14,300bn official debt (the ceiling against which it so loudly bumped), there are $31,000bn in “off-balance sheet liabilities”. That certainly puts S&P’s alleged “$2 trillion error” in context. Perhaps the chief executive of a real-life USA Inc could have finagled a triple C by pointing out the discrepancy.
Those in power should read Ms Meeker’s report and honestly ask themselves whether S&P was in fact lenient. Or, if they prefer a lighter read, David Copperfieldmight be illuminating – particularly the penurious Wilkins Micawber’s warning:
“Annual income twenty pounds, annual expenditure nineteen pounds, nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
Is it any less true about $1,300bn?
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