Jonathan Weil hits another one out of the ballpark.
Geithner Downgrades His Credibility to Junk
Fox Business reporter Peter Barnes began his televised interview with Treasury Secretary Tim Geithner two days ago with this question: “Is there a risk that the United States could lose its AAA credit rating? Yes or no?”
Geithner’s response: “No risk of that.”
“No risk?” Barnes asked.
“No risk,” Geithner said.
It’s enough to make you wonder: How could Geithner know this to be true? The short answer is he couldn’t.
All you have to do is read the research report Standard & Poor’s published on April 18 about its sovereign-credit rating for the U.S., and you will see it estimated the risk of a downgrade quite succinctly. “We believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years,” said S&P, which reduced its outlook on the government’s debt to “negative” from “stable.”
There you have it: Geithner says the chance of a downgrade is zero. S&P says the odds it will cut its rating might be greater than one out of three. So who are you going to believe? Geithner? Or the people at S&P who actually will be deciding what S&P will do about S&P’s own rating of U.S. sovereign debt?
It would be one thing to express the view that a downgrade would be unwarranted, or that the chance of it happening is remote. Either of these positions would be defensible. Geithner went beyond that and staked out an absolutist stance that reeks of raw arrogance: There is no risk a rating cut will occur. He left no room for a trace of a possibility, ever.
The mystery is why Geithner would say such a thing. What’s he going to do if S&P or some other rating company winds up disagreeing with him? Send Barney Frank to beat them up? The problem for leaders who make indefensible claims like this one is that, after a while, nobody knows whether to believe anything they say. Just remember all those government officials in Greece, Ireland and Portugal who kept saying their countries didn’t need bailouts, long after it became clear they did.
This was the same answer Geithner gave during an ABC News interview in February 2010, when asked if the U.S. might lose its AAA rating. “Absolutely not,” he said. “That will never happen to this country.” So, an asteroid could destroy the entire Eastern seaboard 100 years from now. And, in the world according to Geithner, we’re supposed to believe America’s top rating would be safe.
Perhaps Geithner would be well-positioned to make such assessments if he were the only person on the planet with the authority to grade sovereign debt -- and if there were zero risk that he would ever die. Not only is Geithner mortal, he doesn’t even work for a nationally recognized statistical rating organization.
In one of the great errors of financial history, the U.S. long ago bestowed that vaunted designation on the likes of S&P and Moody’s Investors Service. The raters showed they could be corrupted when they put their AAA marks on countless subprime mortgage bonds that quickly turned sour. Unlike the companies that bought those labels, though, the U.S. government didn’t solicit S&P’s ranking of its debt. Trying to predict with certainty what the raters may do next is a fool’s game.
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