Over at Crooked Timber, Dsquared put up a post laughing at the pathetic attempt of S&P to grab some publicity by downgrading America’s credit rating. Deep down in the ensuing comment thread he explains again why this is such a dumb move:
It needs to be emphasised, by the way, that the USA credit rating is an unsolicited rating. Since the USA doesn’t borrow material amounts on the international markets (other people come to the USA for the privilege of buying its debt), and since nobody in their right mind has any question of the creditworthiness of the USA, they’ve never really seen the value in paying S&P a fee to have their credit rated. S&P’s decision to issue a rating nevertheless is intended as a publicity stunt, to bolster their credibility by demonstrating their analytical prowess to the world.
Of course it only works if people care more about S&P’s opinion than their lying eyes (ie, if S&P moves the market, or if people regard S&P as having better information or analysis than the market in general). For that reason, the massive MBS/CDO failure, and the massive Ireland and Iceland failures, and the scandal of the muni/corporate rating inconsistency, do actually make a difference in assessing the credibility of the USA outlook change. This would have been a very questionable move even if it had some effect and the T-Bond yield had risen – given what actually happened it’s a painful embarrassment.