In Part 1, I looked at how the $2T ‘error’ in S&P’s downgrade of the US government was little more than a difference in opinion about the underlying assumptions of the forecast. In Part 2, we’re now going to look at how the myth reached critical mass.
In this case, what more or less happened is the Treasury said S&P had a $2T ‘error’ in their forecast and the media ran with it, no questions asked, which is par for the course. The media is afraid to a certain degree to question the government because the media often fears losing its ‘access’ to government officials on and off the record. The Treasury hasn’t really provided actual evidence that S&P made a mistake beyond the Treasury saying so through statements to the press (both ‘official’ releases and ‘unofficial’ leaks). That’s little more than heresay if you really think about it, and there’s a reason heresay isn’t admissible in court.
The reality is the government deliberately injected the word ‘error’ into the discussion via the press to help frame the discussion in more favorable terms for the government’s position. Let’s use this Wall Street Journal blog post as an example, found here. The WSJ is a Rupert Murdoch company and is generally known for a conservative, pro-finance bias, so it’s not as though we’re looking at a source that really likes Barack Obama.
“August 5, 2011, 7:41 PM ET
U.S. Debt Rating in Limbo as Treasury Finds Math Mistake by S&P in Downgrade Warning
By Damian Paletta
A mathematical error discovered late Friday by Treasury Department officials has thrown into limbo — at least temporarily — plans by ratings firm Standard & Poor’s to downgrade the top-notch AAA credit rating the U.S. has held for 70 years, people familiar with the matter said.
The wild back and forth between the Treasury Department and S&P Friday afternoon illustrated the dramatic stakes at play as the rating firm moved to downgrade U.S. debt for the first time in 70 years.
As of early Friday evening, S&P officials still had not decided how to proceed and could move forward with a downgrade despite the issues raised by the White House, people familiar with the matter said.
S&P officials notified the Treasury Department early Friday afternoon it was planning to downgrade the U.S. government’s debt from the AAA rating it has held for decades, a government official said, and it presented its report to the White House. S&P has previously warned such a downgrade might come if Washington didn’t move to comprehensively tackle its long-term fiscal woes.
After two hours of analysis, Treasury officials discovered that S&P officials had miscalculated future deficit projections by close to $2 trillion. It immediately notified the company of the mistakes.
S&P officials later called administration officials to say they agreed with the administration’s critique, though they did not say whether it would affect their rating. White House officials remained waiting Friday evening to see what the company would do.
An S&P spokesman didn’t return repeated calls for comment.“
We see several typical government tactics at work here. First, note the quoting of people familiar with the matter. These people are often described as not being authorized to speak publicly. That’s usually technically true because organizations often have a very small number of people who are actually formally approved to speak officially in public via press conferences. But, we have to be mindful of a key point. Sometimes, the people who are speaking ‘unofficially’ to the press are actually speaking ‘officially’ in that their superiors have told them to leak this or that to the press. In other words, some leaks are deliberate. The government will often do this using a trial balloon, which is when they leak an idea to the press to gauge the public reaction. If they like the reaction, they’ll maybe run with the idea, and if they don’t like the reaction, they can maybe not run with the idea and just later say, “It was merely an idea we were toying with.”
In this case, the government used the strategic leak not to gauge public opinion, but to do another tactic, which is to frame the discussion into more favorable terms for themselves. By calling it an ‘error’ instead of a ‘difference in opinion in underlying assumptions’, the government creates a more favorable connotation for itself because using the word ‘error’ makes S&P sound incompetent. They’ve done it in the past (‘torture’ versus ‘enhanced interrogation techniques’), they’re doing it today (‘increase revenues’ versus ‘raise taxes’ or the ‘rich’ versus ‘job creators’), and they’ll keep doing it.
Third, note that the article says that S&P called the administration and agreed with their critique. This does not necessarily mean S&P agreed that they made an ‘error’, but it strongly suggests as such. It’s the implication, the seed that it plants in the mind of the reader, which we must notice here. The overwhelming majority of readers probably won’t ask the questions, and that’s what the government’s counting on.
Last, note that because S&P supposedly made an ‘error’, the government and its cronies moved quickly to bash S&P for not seeing the mortgage-backed security bubble forming, basically questioning S&P’s integrity and competence. They’re even saying S&P should stick to economics instead of wading into politics, but the reality is those two are very much intertwined here. S&P truly did screw up during the MBS debacle and they had major ethical issues (S&P basically was paid by the people who were selling the securities for the ratings versus being paid by the investors buying the securities, thereby aligning S&P’s interests with the seller of the security and screwing the buyers) so it’s entirely reasonable to be skeptical of them on those grounds alone. It’s also reasonable to question why S&P hasn’t (yet) downgraded any other nations if the USA gets downgraded, so that goes to questioning their competence. These are all legitimate points, but don’t lose sight of the bigger picture here.
The government is trying to distract the masses by attacking the messenger’s credibility instead of the message itself. Also, the government wants to distract us from the fact that they had their opportunity to reform the ratings agencies back in 2008 and they failed to do so. It’s a lame attempt to distract us from the underlying problem and from our own government’s collective incompetence and fiscal mismanagement. Don’t fall for it. This is a great example of the intellectual perils of taking at face value the statements of a big organization like the government or a corporation (with or without the mainstream media). It’s also a great example of many of the tricks said large organization will use to obscure the truth.
Links:
http://blogs.wsj.com/marketbeat/2011/08/05/u-s-debt-rating-in-limbo-as-treasury-finds-math-mistake-by-sp-in-downgrade-warning/?KEYWORDS=sp+error
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