There has been a little bit of talk in the elite financial circles on Wall Street that Standard & Poor’s was angry that the Justice Department attempted to place a good deal of blame on them for the global economic crisis in the real estate market. The Justice Department of the United States has launched a large investigation and lots of publicity about it, which spanned some of the top investment banks, hedge funds, insurance companies, mortgage companies, rating agencies, and government sponsored organizations.
While, it is true that the credit rating agencies such as S&P, and the others did have a significant role in stamping mortgage bundles, and CDO’s Triple-A which allowed traders to trade them to their hearts content under the auspice of them being safe – it is also true that it was the federal government that allowed Freddie and Fannie to grow at of control, and there were others involved in the game who deserve some blame as well.
Some say that Standard & Poor’s waited until the US Justice Department was done investigating them, before they lowered the debt rating on US treasuries. We obviously know that S&P did warn the federal government including the Congress and the Obama administration of their possible downgrade if a debt ceiling limit deal was not done in short order, or with legitimate terms. Indeed I can remember interviews with S&P in the major financial newspapers that they expected the federal government to live within its means, and not attempt to kick the can down the road.
We know that didn’t happen, and all we watched were closed-door meetings, and supposedly negotiations, and the Obama Administration insisting that nothing really changed until after Obama’s re-election. That isn’t prudent and responsible fiscal management of our nation’s treasury, especially at a time when our government is borrowing 40% of every dollar it spends. Now then, since S&P has lowered the credit rating of the United States, one has to ask if the other credit rating agencies will follow them, which could actually be a bigger story in the future, and affect the stock market more.
Still, one also might ask; if we lower the credit rating agency of the United States, do we need to lower the credit rating for every industrialized nation simultaneously to be fair. Many don’t believe that the United States deserves the top credit rating, and its current credit rating now lowered by S&P seems to be already priced into the market (baked into the cake) because those who invest in bonds, already realize that no money is 100% safe. Nevertheless, the United States is currently considered one of the best risks, and when there is turbulence in global economics, the flight to safety proves that the market trusts US treasuries.
Apparently, S&P doesn’t, and they have plenty of reason not to, even if the rest of the world is willing to buy more US debt, on every subsequent round of auctions or anytime there is a crisis anywhere on this little pale blue dot. Indeed I hope you will please consider all this and think on.