Don’t Shoot the Downgrade Messenger
Attacking S&P for the U.S. credit downgrade is like criticizing your doctor for diagnosing your cancer.
August 9, 2011 - 11:57 am
Suppose you saw your doctor for a persistent headache. After performing a full battery of tests, he told you that your MRI scan showed a malignant brain tumor. Would you (1) work with him on a plan to treat your cancer, or (2) threaten the MRI manufacturer with a government investigation? Although most normal people would choose option 1, our government is responding to the news of the S&P credit downgrade with option 2.
The Senate Banking Committee has responded to S&P’s downgrading of the U.S. government’s credit rating by “gathering information“ in preparation for possible formal hearings on S&P’s action. Committee Chairman Tim Johnson (D-S.D.) called S&P’s move “irresponsible“ because it would make it more difficult for cash-strapped state and local governments to borrow more money. In other words, the problem wasn’t the fact that the federal, state, and local governments were borrowing money that might not ever get paid back. Rather, the problem was that S&P was pointing out that fact to the rest of the world.
Unfortunately, our government’s tactic of blaming the messenger has been all too common these past few years.
When the McKinsey & Company consulting firm recently published survey results showing that 30% of employers would likely stop offering their workers health insurance because of the ObamaCare legislation, the White House launched a massive public relations offensive to discredit the survey as biased or flawed. Likewise, Senate Finance Chairman Max Baucus (D-MT) “demanded answers“ from McKinsey on how they reached conclusions he didn’t like — with an implied threat of government action if they didn’t cooperate. (McKinsey did release its survey methodology and the Wall Street Journal noted that “the survey was rigorous.”)
When health insurance companies started raising their rates last year to cover the costs of the various services they were now required to offer for “free,” some insurers told their customers this was a result of the new ObamaCare law. Secretary Sebelius warned that there would be “zero tolerance“ for such “misinformation” and threatened to exclude those companies from the government-run health insurance exchanges scheduled to begin operation in 2014. Sebelius also warned that wrong-thinking Americans opposed to ObamaCare might need “re-education.”
When companies like AT&T and Caterpillar reported that the ObamaCare law would cost them hundreds of millions of dollars, Commerce Secretary Gary Locke called them “irresponsible.” Congressman Henry Waxman (D-CA) threatened to haul the CEOs into hearings to defend their statements. (Waxman later cancelled those hearings when it was pointed to him that the companies were required by law to report to the SEC their best estimates of ObamaCare’s effect on their financial bottom lines.)
It could be worse for S&P. Some liberals want to do more than merely launch a congressional investigation. Leftist filmmaker Michael Moore recently urged President Obama to “show some guts & arrest the CEO of Standard & Poors.”
It is true that S&P (as well as the other two major credit rating agencies Moody’s and Fitch) can be rightly criticized for failing to downgrade various risky mortgage-backed securities a few years ago — thus contributing to the disastrous housing bubble. But note that critics of S&P are now trying to have it both ways. They’re criticizing S&P for downgrading the federal government too quickly, rather than too slowly.
The threat of government action might stop Fitch and Moody’s from following suit with their own downgrades — at least for now. Moody’s has already reaffirmed its current AAA rating, whereas Fitch stated they are still performing their review and “haven’t formally reaffirmed“ their AAA rating.
Our government can attempt to “shoot the messenger” all it wants. But its current policy of spending more money than it has will eventually catch up with us all. The only question is when. The Chinese government — which can’t be intimidated by threats from Congress or Michael Moore — has called the downgrade an “overdue bill.”
Ayn Rand once said that we could evade reality, but we couldn’t evade the consequences of evading reality. Unless we change our ways, America will soon learn what those consequences will be.