Today, the rating agencies are taking the government’s failure to right its own financial ship seriously.  Moody’s and S&P are considering reevaluating the U.S.’s AAA rating–the same rating Krugman objected them giving to asset backed securities.  Krugman and others are, of course, livid and are once again crying conflict of interest and impugning the rating agencies’ integrity.

Now, let’s not be naive.  Part of the downgrade threat is Moody’s and S&P exacting a little revenge on the administration and the party that dragged it through Congressional hearings last year and sullied their names.  But that doesn’t make the risk any less real.  Anyone who puts the risk of U.S. default at zero is delusional. Obama wanted the rating agencies to be hard on debt issues, well, this is what happens to debt issuers who spend like drunken politicians.  The government should not be excused from the risk of default simply because it can, literally, print money.

Whether or not you believe the rating agencies unethically inflated the ratings of ABS’s in the past, making the same mistake for the government today would not be any better.  Unless MIT has made some advances in ethical accounting, two wrongs still don’t make a right.