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Video: Debt downgrade really a political statement?

  1. Transcript of: Debt downgrade really a political statement?

    MADDOW: Again, the breaking news this evening that the Standard & Poor 's rating agency has for the first time in U.S. history downgraded the American credit rating from AAA to AA -plus. This has never happened before in the United States . Joining us now to understand some of the political reaction to this is CNBC 's chief Washington correspondent John Harwood . He's also a political writer for " The New York Times ." John , I know you've been reporting furiously on this all night. Thanks for being here.


    MADDOW: What are you hearing from the White House , from Treasury ?

    HARWOOD: The White House isn't saying anything. A Treasury spokesman put out the statement that a judgment based on a $2 trillion computation error speaks for itself. I talked to another official who said it's amateur hour in S&P I just got off a conference call from sources familiar with the interaction between Treasury and S&P , detailed what the error was, it had to do with calculations of levels of domestic discretionary spending over the next several years, have to do with which baseline they were using There's a lot of numbers back and forth. But, essentially, this is being portrayed from Washington 's end as a political decision by S&P . They noted in their downgrade that there were political risks associated with the debacle that we just had in Washington over the debt ceiling. And so, they founded it largely based on that political exposure.

    MADDOW: Just to recap, in terms of S&P 's statement on this -- I mean, "The downgrade reflects our views that the effectiveness, stability, and predictability of the policymaking and political institutions have weakened at a time of economic challenges. We are pessimistic about the capacity of Congress and the administration to be able to leverage their agreement this week into a broader fiscal consolidation plan." It's a very, very political document. What is the White House and Treasury are -- what is Treasure I guess saying is the political aim of the ratings agency in doing this, if this is a politically motivated decision?

    HARWOOD: Well, not politically motivated, but based on political criteria.

    MADDOW: Yes, plainly.

    HARWOOD: What's that?

    MADDOW: Plainly.

    HARWOOD: Absolutely. And look, to be honest, the president's own rhetoric has opened the door to a judgment of that kind. He said during the stalemate, we've got AAA credit. We don't have a AAA political system . And S&P is essentially pointing to that, and immediately, you see the political fighting start. I've gotten tweets in the last few minutes, Reince Priebus , the chairman of the RNC , saying, "First credit downgrade in U.S. history under Barack Obama. " Harry Reid , the Senate leader, put out a statement saying, this shows the need for balanced deficit reduction, which Republicans resisted in the debt talks. So, this certainly isn't going to solve any of our political issues. It might, provide, though, some impetus if we need anymore and it can be effective in trying to get to the two sides together as we get to the special committee.

    MADDOW: It is striking to see -- as you say, such political -- such political language from the rating agency , almost giving us a political credit rating rather than a default credit rating . There's very little in here in the press release about whether or not people who lend the United States money are likely to be paid back, which is purportedly what a bond rating is.

    HARWOOD: And that is precisely the counter argument you hear from administration officials. It is that, first of all, U.S. treasury securities are the most transparent, best known financial instruments in the world. Investors every day make judgments on their view of those instruments and they don't need to hear it from the credit ratings agencies . Secondly, there are three agencies, right? There's Standard & Poor 's, but there's also Fitch and Moody's . Fitch and Moody's have stuck with the AAA . So, the administration is pointing to that, two of the three are with them. And, obviously, we've seen in the financial crisis in 2007 , 2008 , 2009 , the ratings agencies didn't exactly cover themselves in glory. I think the administration is hoping that the memories of that poor performance helps them fend off whatever fragile market reaction might be that this done.

    MADDOW: The market reaction is going to be incredible to see on Monday. Obviously, all eyes are going to be on that, and the political reaction . And we've had two huge shocks this week: a 500-point drop and this. If any sort of economic news can change political realities, these are the sorts of things that can do it.

    HARWOOD: Well, and, Rachel , the administration believes that on narrow economic terms, there aren't too many investors who will be required by the terms of their investment guidelines to divest because of this rating. However, when the market is -- the psyche of the market is as volatile as it is right now, you never know what's going to tip things and cause a huge reaction.

    MADDOW: John Harwood , CNBC chief Washington correspondent and political writer for " The New York Times " and my old buddy who I don't see very much anymore, it's nice to see you, John .

    HARWOOD: Good to see you, Rachel .

    MADDOW: Even under extreme circumstances. Thanks.

    HARWOOD: Exactly.

    MADDOW: All right. A bit of good news today out of Washington , I swear. Good news for Iraq and Afghanistan veterans . Having good news to share about that particular group makes me very happy to share it with you. That's coming up next.

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