It’s a little rich to watch the credit-rating agencies issuing threats these days. To be sure, they’re entirely justified in saying that a failure to lift the debt ceiling would trigger a downgrade. But in recent days Standard & Poor’s has gone further, saying that a downgrade may come even if the debt ceiling is raised — if, at the same time, a major long-term deficit reduction plan is not enacted.
Now, I’m all for the right kind of grand bargain. But its preposterous to say that failing to strike that deal at the same time the debt ceiling is lifted would threaten America’s ability to honor its debts. We’re a wealthy nation that’s more than fully able to honor its debts; we also happen to have a serious long-term unfunded liability problem in our health and pension programs for seniors, and historically low levels of taxes as a share of gross domestic product. If the credit agencies had a record of issuing prudent warnings well in advance of any conceivable crisis, their current cries might seem admirable. But these are the very agencies that failed utterly to do their job in the run-up to the housing and financial bust. Instead, as many have documented, the agencies turned a blind, lazy, greedy eye to glaring problems in order to line their own pockets. And they’ve paid no price at all for their sins: Their executives kept all the bonuses they earned from keeping the subprime machine going; and these agencies continue to enjoy a governmentally privileged role in the nation’s financial system.
Bottom line: I agree (who doesn’t?) with their message about the need for a long-term fiscal fix. But hearing it from this messenger, as if S&P and Moody’s were trustworthy guardians of fiscal prudence, rather than firms that deserve scorn for their shameful and still-unreformed behavior in recent years, is too much to take. That this recent history isn’t pointed out every time their current warnings are noted shows how pervasive amnesia has become in our political and media culture.