The major credit rating agencies, Moody's, Standard and Poors, and Fitch are best known for rating hundreds of billions of dollars of subprime mortgage-backed securities as investment grade. (They got paid tens of millions of dollars for these ratings.) They are also famous for missing the shipwrecks at Bear Stearns, Lehman, Enron and many other major corporate bankruptcies.
This is important because NPR told listeners this morning that President Obama had to fear not just a default, but also a downgrading from the credit rating agencies. It then had a quote from Jim Kessler, the vice-president of Third Way, a Wall Street-backed think tank. Kessler told listeners that a country with a second-rate credit rating is a second rate country and that a downgrading would be a serious liability for President Obama in his re-election campaign.
This one is pretty far removed from reality even for a major news organization. No poll has ever showed a credit rating to be a major factor in determining voters' decisions. It is difficult to imagine that people who would have otherwise voted for President Obama would instead vote for his Republican opponent because one or more credit rating agencies has downgraded the country's debt.
As a practical matter, the financial markets completely ignored the downgrading of Japan's debt in 2002. It can still pay less than 1.5 percent interest on its 10-year bonds. It is likely that the financial markets respect for the credit rating agencies' judgment has not increased since the collapse of the housing bubble. It is also worth noting that the credit rating agencies are seeking politicians' support in minimizing the impact of the regulations in the Dodd-Frank bill.
This piece also bizarrely asserted that a debt reduction package that included "changes" to Social Security, Medicare, and Medicaid would help President Obama in his re-election campaign. First, the proposals on the table involve cuts to these programs. Politicians use the term "changes" to try to conceal the fact that they want to cut these extremely popular programs. Serious news organizations try to inform their audiences, they are not supposed to use politicians' euphemisms to help conceal what is at issue.
This raises the second point. NPR presented no evidence whatsoever that President Obama would gain electorally if he were to cut programs that draw overwhelming support not only from Democrats, but also Independents and Republicans. If it has some basis for this assertion, it would be interesting to know what it is.
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