In response to the recent US credit downgrade, it seems that the official Obama Administration line is that Standard & Poors is wrong, they miscalculated the rating, etc. In other words, they’re trying to shoot the messenger. This is leading me to wonder if the government is going to try to punish S&P in some way: maybe have the Justice Department hit them with a huge fine, ostensably in response to the credit rating scandal a few years ago, or just crawl up their asses with microscopes to make things reaaaaaly unpleasant for S&P for a while.
Now, this would be an extremely foolish and short-sighted thing to do, but then our government is not exactly known for its long-term thinking ability. Does anybody else think that some sort of punishment is about to descend on S&P?
Well, their track record doen’t inspire confidence.
As a layman, I have to say I just don’t get it. I mean, we lose our AAA rating, meaning the government is not that good a risk. The stock market goes apeshit with fear and pulls money and put it into…wait for it…treasuries*.
But no, I do not think there will be any revenge taking.
[sub]* This was on TDS last night. Like Jon Stewart, I would also like to know WTF is going on…[/sub]
S&P was right to issue the downgrade. Much of what they used as criteria had been acknowledged and factored into the markets already, which is why it actually had little effect Monday. A lot of the volatility was due to Europe, not the credit rating. While the administration may disagree with it, I don’t see them acting in a manner that could be interpreted as vindictive.
It’s a stinging blow to the nation’s ego but may in the long run actually do some good in that it provides added impetus for a legislated fix. The administration knows this and would be far better served to use it to their advantage than continuing to cry foul.
There really isn’t a lot that the government can do to S&P. The downgrade is an opinion. The fiasco of several years ago when the S&P gave high ratings to the worthless credit default swaps was also an opinion.
As has already been pointed out, the markets are fleeing stocks and investing heavily in treasury bills. The market itself is rejecting the advice of S&P.
None of this is to suggest that the US can go on into the future without raising revenues without making things worse. The downgrade might be justified, and probably is. Some criticism is necessary. But S&P is and was crap in their ratings.
The rating agencies have a semi-official status; only securities that they have rated highly (such as CDOs based on subprime mortgages) can be bought by certain kinds of investments. They richly deserved to lose that status in 2007. Why anyone pays any attention to them at all is beyond my comprehension. No, I don’t think the administration will do anything about it, but if I were running things, I sure would. Obama is rapidly turning into the most clueless president since–I hate to say it–Jimmy Carter. Even Bush seems to have done just he wanted to do: cut taxes for his rich buddies, deregulate like hell (Clinton did some too), and start two wars that are now, I guess, the longest wars the US has ever fought. (It is a little hard to say when the US started fighting in Viet Nam.)
Well, this thread headed off in a predictable direction.
I don’t know if the government can do anything to S&P directly, but apparently some people made some big money betting on the downgrade. I suspect the SEC should be doing some digging to find out who knew what and when they knew it.
While Standard and poor’s is the only US rating service to downgrade the US of A, China’s Dagong credit rating agency already has. I think they have done it twice. Maybe they have their own political agenda and maybe S & P is premature. But at some point if you are spending 40% more than you earn, then eventually your line of credit will get smaller and more expensive. Chinese rating agency strips Western nations of AAA status
As far as legendary investors go, Warren Buffet says it was a mistake while Jim Rogers says it is right and he doesn’t expect the USA to have the top credit rating ever again in his lifetime.
Or, you know, dispute S & P’s opinion. But by all means, let’s word this to present the administration in the most sinister light possible.
Well, please be sure to inform us when either of these things happens.
Given that you have provided no factual information to suggest such a course of action is imminent, I would say no. In any event, the downgrade has already taken place. I fail to see where any attempts by the administration to arm-twist S & P into rescinding the rating reduction would not be recognized as such and treated negatively by the market.
I think they correctly judge that there will be more partisan shenanigans in congress next time the debt ceiling needs to be raised. And maybe it won’t get raised next time.
This is exactly what I was thinking. I’m cynical enough to believe that the downgrade amounts to little more than a get-rich(er)-quick scheme for individuals within and connected to S&P.
Then Rogers is sadly misinformed, since two of the three US credit rating outfits still rate Treasuries at AAA.
At any rate, it doesn’t matter what the ratings companies do. The judgment of the market is that S&P doesn’t know jack shit, and that Treasuries are still the safest investment around, by quite a hefty margin. The inflation-indexed 5- and 10-year Treasuries are selling at negative yields right now: relative to inflation, the U.S. Treasury can borrow money for 10 years, for free.
And, um…you didn’t know that until the S&P downgrade? There are tribes in the rainforest who already knew that a week before the S&P said anything. It’s like going out on a cloudy day and proclaiming that it might rain.
Or in the case of subprime CDOs, going out on a cloudy day and proclaiming that it’s sunny.
At any rate, the market makes its own decisions, and it has decided that the S&P needn’t be taken too seriously. It’s not just us either, look at Japan’s bond rates after they were downgraded.
Well, it happened. The Justice Department is investigating S&P. Supposedly, it’s over morgage-backed securities, and began before the downgrade. But the timing is questionable, and where are Fitch and Moody’s (which did the same thing as S&P with securities) in all of this?
Honestly, they deserve to be investigated over mortgage backed securities that they rated AAA. Regardless of the downgrading of the US debt, this shows they have no interest in investigating the accuracy of their ratings criteria.