There’s a small bit of solace in the face that the president of Standard and Poor’s had to go out and defend his company from the charge that their downgrade of US debt was politically motivated.

Standard & Poor’s president defended his company’s downgrade of the U.S. triple-A credit rating, saying S&P had no political agenda and was not overcompensating for missing the subprime mortgage mess that precipitated the current economic situation.

“Our role is to call the risks objectively, with transparency, and that’s what we try to do to fulfill our role and that’s what our job is for the benefit of investors,” Deven Sharma told CNBC Monday [...]

He said S&P regretted its part in the subprime mortgage mess. “Clearly the housing declines were much more severe than we forecasted or anticipated,” he said, and the rating agency has “made many changes in putting new checks and balances in our organization. We are committed to the reform process.”

S&P’s role in the subprime meltdown is worthy of mention here, but it’s not just their faulty ratings on mortgage-backed securities that’s relevant but their political advocacy on behalf of the securitization machine. That’s the real problem here, that S&P has stepped in on one side of political arguments. And with its advocacy for specific austerity measures, particularly with respect to safety net health programs, we’re seeing that feature today.

Paul Ryan may very well be lying when he says that “We passed a budget which, according to somebody from S&P yesterday, would have prevented this downgrade from happening in the first place.” The facts indicate that he is. But S&P’s claim that “as general policy, S&P does not endorse any particular mix of revenue and spending changes needed to reduce the deficit” is really a bit much. They said in their downgrade report that the debt limit deal “envisions only minor policy changes on Medicare and little change in the other entitlements, the containment to which we and most other independent observers regard as key to long-term fiscal sustainability.” Regardless of their comments on taxes, this really gives the game away.

And more than that, there is thinly sourced evidence that S&P selectively leaked the downgrade announcement, in violation of SEC rules.

A reader told us certain hedge funds were informed Tuesday and traded successfully on the information. A separate source had told me certain banks were briefed on Thursday and were told of the US downgrade but assured their ratings would be unaffected. On Friday morning, Twitter was alight with the news.

Disclosing news of a ratings decision is required under SEC rules to be made publicly. All the discussion with favored parties is clear regulatory violation.

The language in Dodd Frank is more strict and specifies that a nationally recognized statistical ratings organization can have its registration revoked for misconduct (see page 1353).

The big move in the markets after the debt limit deal was reached was last Thursday. S&P finally made its downgrade announcement public on Friday. I don’t have the first clue whether there was any leaking, but since Preet Bharara and the SEC seem to like to dig into insider trading cases, this one seems worth pursuing.

I think that just the mere choosing of a deficit target by S&P – demanding $4 trillion in deficit reduction in 90 days under threat of a downgrade – is enough to merit an investigation into influence peddling.

(Jim) Nadler of Kroll Bond Rating Agency, which doesn’t rate government bonds, was more critical of S&P’s action, claiming that the rating agency crossed a dangerous “don’t go there” line when it signaled in April that anything less than a debt reduction of $4 trillion over 10 years would be insufficient to avoid a downgrade.

“I think the concern is that when you become part of the process, you lose your objectivity, and I think SP for the last month or so … probably longer, has inserted itself into the politics and I think at that point it’s very difficult to be an objective observer,” Nadler said.

Al Franken had the right idea when he passed a a rating agency reform amendment to Dodd-Frank. Unfortunately, it got mired in a study. I don’t see how you could look at the news of the week and not hope that it will be revived.