It's fair to say that Standard & Poor's is not faring well in the court of pundit opinion. Even those who think that the decision to shift the rating on long-term Treasuries from AAA to AA+ was right nevertheless think S&P was wrong--owing to an opaque methodology that's being roundly criticized.

A Washington Post columnist put it succinctly, "That said, S&P's report is a joke." No it is not talking about the AAA rating on a CDO. The criticism goes beyond the $2 trillion error that the firm had to acknowledge just before it released its news. "It's possible for the agency to have made that mistake without harming its underlying point about the weakness and unpredictability of American political institutions. But S&P hasn't confined its argument to our political institutions. The original draft of its report included a section in the executive summary laying out the deficit math for the next decade. When that math proved wrong, S&P simply deleted the section. But that's inconsistent with the calculations S&P left in the final report."

The columnist continues: "The original report says that $900 billion in fresh revenues would mean net public debt drops from an estimated 93 percent of gross domestic product in 2021 to 87 percent of GDP. The second version of the report--the one written after they discovered a $2 trillion mistake--revises its estimate for America's baseline debt path down to "74 percent of GDP by the end of 2011 to 79 percent in 2015 and 85 percent by 2021. In other words, S&P's technical correction improved our deficit outlook by more than letting the high-end tax cuts expire, which S&P had said would raise enough money to stabilize our rating. If the numbers mattered, then by S&P's own logic, that should have changed the agency's opinion of our finances."

S&P's response was that the point they were trying to make was that the debt deal would decrease the debt burden much. The company would be wise to heed the calls for transparency around its decision. The more information they can provide, the better off people will feel, as they can see for themselves what fed its opinion that the country now deserves a lower rating. People will also be able to more intelligently evaluate the move against Moody's view that an AAA rating is still warranted.

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