Dispute Over ‘Basic Math’ Began With S&P E-Mail

Standard and Poor’s (S&P) presented a judgment about the credit rating of the U.S. that was based on a $2 trillion mistake, according to the U.S. Treasury Department.

After Treasury pointed out this error – a basic math error of significant consequence – S&P still chose to proceed with their flawed judgment by simply changing their principal rationale for their credit rating decision from an economic one to a political one, according to the Business Insider.

The e-mail message that unleashed hours of debate between U.S. Treasury Department officials and Standard & Poor’s arrived at 1:45 p.m. on Aug. 5, just as U.S. and European stock markets inched toward the end of their worst week since 2008, Bloomberg reported.

John Bellows, the Treasury’s acting assistant secretary for economic policy, found what he later called a $2 trillion “basic math error” in the e-mail, a preliminary press release announcing S&P’s first-ever downgrade of U.S. creditworthiness, Bloomberg reported.

Over the next 5 1/2 hours, the two sides argued over issues ranging from so-called baseline calculations to deficits, according to a person familiar with the matter. In the end, the ratings firm stuck with its decision, citing the level of government debt and the contentious political climate in Washington.

The U.S. Treasury Department later issued a statement saying S&P had acknowledged an “error” in its calculations, making a $2 trillion mistake.

That judgment raised “fundamental questions about the credibility and integrity of S&P’s ratings action,” Bellows wrote in a Treasury blog post yesterday. “Independent of this error, there is no justifiable rationale for downgrading the debt of the United States.”

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But the S&P disputes Bellow's account. “That’s a complete misrepresentation of what happened,” the S&P's David Beers said, dismissing suggestions that the downgrade wasn’t justified.

The debate in Congress over raising the debt limit “highlighted a degree of uncertainty around the political policymaking process which we think is incompatible with a AAA rating,” Beers, S&P’s managing director of sovereign ratings, said later on a conference call with reporters.

The S&P has said their decision to downgrade the U.S. was based in part on the fact that the Budget Control Act, which will reduce projected deficits by more than $2 trillion over the next 10 years, fell short of their $4 trillion expectation for deficit reduction.