Facing flak from all quarters, credit rating agency Standard and Poor's spent the past weekend defending its downgrade of the US economy.
That downgrade is based on flawed numbers, said Austan Goolsbee, outgoing chairman of Barack Obama’s council of economic advisers, on a Sunday talk show. Treasury secretary Tim Geithner has been equally dismissive.
S&P’s John Chambers defended the downgrade in a conference call with reporters on Saturday. And officials hit the morning shows on Sunday for more. They argue that the administration’s response is a standard one to downgrades.
At the heart of the problem for S&P is a $2-trillion miscalculation behind the downgrade. In estimating future deficits, the agency jumped far ahead of projected spendings. It conceded the mistake, but decided to stick with the downgrade.
The error was spotted by treasury officials in an advance copy of the press release sent by S&P. The agency went back to its rating committee for a reassessment and returned with the same finding.
Except now, S&P cited the lack of political will in Washington as the main reason for the downgrade, and not the economy, which was central to the flawed construct now in the trash bin. That was a turn executed in full public view.
Critics are now pointing to flawed ratings put out by the agency for some bonds and other instruments in the pre-recession days. “They gave a triple-A to anyone who came knocking on their doors,” said an expert.