PR playing a key role in the S&P downgrade story

Even before Standard & Poor’s announced its decision on Friday, the message framing began and continued throughout the weekend. Unfortunately, it’s done little to calm the markets.

It was a busy weekend for America’s political parties and the credit-rating agency Standard & Poor’s as all sides jockeyed for position after the company’s historic decision to downgrade the U.S. credit rating from AAA to AA+.

The fight for public opinion started before Standard & Poor even went public with its decision.

When the credit-rating agency notified the White House of the downgrade on Friday, administration officials quickly noted an error in S&P’s numbers. The agency had miscalculated the projected effects of the debt-ceiling deal struck by Congress last week, an error acknowledged by S&P.

The Treasury Department asked S&P to delay its announcement until officials could review the numbers; however, as reported by Playbook (via PRNewser):

S&P said it was going ahead with the announcement because the news media were expecting it! In their view, they had promised something, and they seemed to be extremely interested in going out with it.

In light of the flawed numbers, the credit agency rewrote its press release on the downgrade to focus more on politics, according to Politico. In its final release, S&P said:

The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon.

Without a trace of irony, each side of the political spectrum then cast blame for the downgrade on each other. Speaker of the House John Boehner said he hopes the downgrade serves as a wake-up call for Democrats, while Senate Majority Leader Harry Reid stressed that the Democrats’ approach to the debt crisis is the right one.

Meanwhile, GOP presidential candidates attacked the president for the downgrade, as Obama ally David Axelrod went on TV on Sunday to call S&P’s historic decision the “Tea Party downgrade.”

During his weekly radio address, President Obama said the two political parties must put politics aside and work together to help improve the economy.

In an interview with CNBC, Treasury Secretary Tim Geithner refused to enter the political fray, saying: “I think if we’ve learned anything these last few months, it’s that it’s time to put the economy ahead of politics.”

However, he did rip S&P. He told CNBC:

S&P has shown really terrible judgment, and they’ve handled themselves very poorly. And they’ve shown a stunning lack of knowledge about basic U.S. fiscal budget math. And I think they drew exactly the wrong conclusion from this budget agreement.

Australia’s Sydney Morning Herald took its own shot at S&P, calling its decision little more than a PR ploy to divert attention from the company’s part in the global financial crisis.

However, criticizing the rating agencies is a fool’s errand, according to former GE chairman Jack Welch. This morning, Welch tweeted:

“Having dealt with Rating Agencies for years I’m certain that Administration trashing them for downgrade is a losing tactic.”

The war of words as done little to ease investor concern. The Dow Jones Industrial average fell 250 points immediately after the opening bell. It recovered some ground, before stumbling again. In mid-morning trading, the Dow has been down as much as 375 points. One analyst called it “panic selling.”

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