On Monday, Congress’s nonpartisan number cruncher released an 11-page report describing how the newly minted debt-ceiling deal would cut the deficit by at least $2.1 trillion. While congressional offices were busy studying the report, an official from the rating firm Standard & Poor’s quietly called to ask for details of the underlying projections.
The information S&P gathered that day led it to overestimate future deficits by $2 trillion, a fact the Obama administration has called a reckless mistake. That phone call wasn’t the reason S&P cut America’s debt rating. But it was part of a chain of events, including also a stock-market plunge and an emergency Oval Office meeting, which could have serious and lasting consequences for America’s standing in the world, the Obama presidency and the reputation of S&P.
‘The magnitude of their error and combined with their willingness to simply change on the spot their lead rationale in their press release once the error was pointed out was breathtaking,’ said White House National Economic Council Director Gene Sperling. ‘It smacked of an institution starting with a conclusion and shaping any arguments to fit it.’
S&P President Deven Sharma defended the firm’s position Saturday in an interview, including the speed with which it put out the statement. ‘We believe that once we have a rating decision we must move forward and get it to the marketplace quickly,’ Mr. Sharma said. ‘It’s important to the marketplace to let them have our point of view.’
On July 31, the White House and congressional Republicans reached a deal to raise the $14.29 trillion debt ceiling and cut between $2.1 trillion and $2.4 trillion from the deficit over 10 years. The agreement fell short of the $4 trillion package some White House officials and congressional leaders had strived to achieve. But Republican resistance to tax increases and Democratic opposition to major health-care cuts ultimately torpedoed hopes for a larger deal.
Key takeaways: decisions first, justify later even with new evidences; parties in Congress are just like the ordinary people: previous stances do not want to be dropped; Institutional stickiness at S&P on $4 trillion mark