The first thing that must be considered in Standard and Poors' downgrade of the U.S. debt is the credibility of credit ratings in themselves. The credit ratings agencies were part-and-parcel of the subprime black hole into which so much of our economy has been sucked to produce the recession we are struggling with now. They, including Standard and Poors, gave glowing accounts of the subprime fiasco that many people think warrants criminal charges against its major perpetrators. Here is how The New York Times summarizes that disaster:
The credit rating agencies have been trying to restore their credibility after missteps leading to the financial crisis. A Congressional panel called them “essential cogs in the wheel of financial destruction” after their wildly optimistic models led them to give top-flight reviews to complex mortgage securities that later collapsed.Their relevance and effectiveness has been called into question and any ratings made by them at this time must be viewed in terms of their role in the subprime collapse. Standard and Poors does not have a history of discernment and reliability in regard to our current economic situation.
To its credit, Standard and Poors has not used its rating to promote a particular solution to the national debt, but has focused on the political situation that obstructs any such solution.
The corporate world has legal remedies for the kind of gridlock so amply demonstrated throughout the debt-ceiling debate. It is that kind of gridlock which precludes solutions that is the stated reason for the downgrade. The legal remedies are listed, for example, in the South Dakota business corporation code. When a board of directors of corporation cannot come to a decision on a matter, the shareholders may hold a vote to overrule or remove the deadlocked directors. If the shareholder votes produce no action, then three options are available:
- The directors may call for dissolution of the corporation.
- Shareholders may call for a vote to dissolve the corporation.
- A shareholder may ask the courts to dissolve the corporation
The dysfunction extends to the public. Rather than end the factional intransigence that is the basis for the deadlock, the public is already yammering about how its political opponents are to blame. The Republican presidential candidates find the downgrade a gratuitous political tool with which to cut away at Obama.
Supporters of Obama are also disappointed. Many of us think there was a point at which he should have stopped letting the Republican opposition play its sandbox politics and should have invoked the 14th Amendment option and, as Bill Clinton suggested, let the courts inform him later if that option was not fully valid.
The press and the blogs are full of evidence of how that dysfunction stems from the lowest reaches of the American public. Most wanted the matter settled through a process of reasoned compromise, not a process of fearful extortion. Their voices were ignored. And so, the entire country is downgraded.
The stockholders can still vote, and will be doing so in Wisconsin next week as a trial run on how America is to be run.