Shortly after S&P downgraded the nations debt rating from Triple-A to Double-A Plus, John Bellows, Acting Assistant Secretary for Economic Policy at the U.S. Department of the Treasury, responded with a scathing critique.
In a document provided to Treasury on Friday afternoon, Standard and Poor’s (S&P) presented a judgment about the credit rating of the U.S. that was based on a $2 trillion mistake. After Treasury pointed out this error – a basic math error of significant consequence – S&P still chose to proceed with their flawed judgment by simply changing their principal rationale for their credit rating decision from an economic one to a political one.
Independent of this error, there is no justifiable rationale for downgrading the debt of the United States. There are millions of investors around the globe that trade Treasury securities. They assess our creditworthiness every minute of every day, and their collective judgment is that the U.S. has the means and political will to make good on its obligations. The magnitude of this mistake – and the haste with which S&P changed its principal rationale for action when presented with this error – raise fundamental questions about the credibility and integrity of S&P’s ratings action.
Today S&P retaliated.
Included in S&P's latest downgrade were the senior issue ratings on debt issued by Fannie and Freddie, the giant mortgage-finance firms. Ten of the 12 Federal Home Loan Banks, which also provide funding for home loans, also received downgrades. Two of the Federal Home Loan Banks--of Chicago and Seattle--already had the lower AA-plus credit rating.
The downgrades of Fannie and Freddie reflect the mortgage firms' "direct reliance" on the U.S. government, S&P said.
Fannie and Freddie depend on the U.S. government's support to stay afloat, and therefore would be on a shaky footing if the U.S. ever defaulted on its debt.
Is there anybody, anywhere that thinks the U.S. is going default on it's debt?