Standard & Poor’s Downgrades Outlook On US Debt

-Submitted by David Drumm (Nal), Guest Blogger

You remember Standard & Poor’s, they’re the credit-rating agency that blessed the fraud-based mortgage securities issued by Wall Street banks with AAA ratings, deceiving gullible investors around the world. Senator Carl Levin (chair of the Senate Permanent Subcommittee on Investigations) recently named this company a “key cause” of the economic crisis.

The ratings agencies are paid by the banks to do their ratings. If a ratings agency doesn’t come up with a AAA rating on an investment, the bank will take its business elsewhere. The ratings agency will not make as much money and the executives will take home smaller bonuses. According to the Permanent Subcommittee on Investigations:

Competitive pressures, including the drive for market share and need to accommodate investment bankers bringing in business, affected the credit ratings issued by Moody’s and Standard & Poor’s.

On April 18, S&P downgraded its outlook on a debt partially incurred by the bailout of the same financial institutions that S&P vouched for. Oh, the irony.

Interestingly, the dollar gained on April 18 while the euro, the dollar’s chief competitor, lost. Maybe the financial markets showed their confidence in an S&P rating. Anyone gullible enough to accept an S&P rating deserves what they get.

H/T: AP, Richard D. Wolff.

13 thoughts on “Standard & Poor’s Downgrades Outlook On US Debt”

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  2. What credit rating would you give a person or organization that borrows 10 thousand dollars every second and then starts talking about 10 year plans?!

    Watch that fucker fly and tell me with a straight face you think we’ve got a way to even slow it down without massive, MASSIVE cuts in government spending. Youll be 100 grand in the hole before you even finish typing your sentence.


    A conservative estimate of total US debt and unfunded liabilities hangs somewhere around 65 Trillion dollars. The global gdp, meaning the entire economic productive capacity of the every country in the world is pegged somewhere around 58-59 Trillion. Disregarding the moral implications of your “turning them upside down” plan, when the national debt outstrips the economic production of the entire planet who is left to turn upside down? Are you just really bad at math?

  3. Excellent posting Puzzling, thanks for the link.

    No rating agency has my respect so when I heard the news about the lowered rating my thoughts immediately went to the politics of such a move; who’s paying them off this time? The rating could be brought to bear for either side in the budget/debt ceiling battle to argue to raise tax’s or gut social programs and entitlements. I’d bet they were playing to and for their natural allies so I’m thinking Dredd’s point is a good one.

    Frank, they (the govt.) not only owns printing presses but they can tax, no government with as much wealth locked up in a handful of individuals as we have, should even use the word default. All they’ve got to do is hold some folks upside down and confiscate what falls out of their pockets, which is a maneuver long overdue IMO.

  4. “Anyone gullible enough to accept an S&P rating deserves what they get.” (Nal)

    If we learned nothing else, we should have learned that.

  5. A stamp of approval is just like a road sign, put it in the wrong place and all hell can break loose.

    Sounds like S&P went the way of The Chamber of Commerce.

  6. Replace ratings agencies with organizations that insure bond issues. If an agency really thinks a bond issue is sound it should be wiling to insure it against default for an attractively low price. alow price would replace the AAA of ratings.

  7. I would add a few things to this.

    First, the chief competitor of the dollar is gold, not the Euro.

    Second, the cartel of credit ratings agencies with the power to over-rate securities and make trash officially recognized “treasure” was created by government regulation. Blogger Mish Shedlock has written extensively on this issue:

    The rating agencies were originally research firms. They were paid by those looking to buy bonds or make loans to a company. If a rating company did poorly it lost business. If it did poorly too often it went out of business.

    Lo and behold the SEC came along in 1975 and ruined a perfectly viable business construct by mandating that debt be rated by a Nationally Recognized Statistical Rating Organization (NRSRO). It originally named seven such rating companies but the number fluctuated between 5 and 7 over the years.

    Establishment of the NRSRO did three things (all bad):

    1) It made it extremely difficult to become “nationally recognized” as a rating agency when all debt had to be rated by someone who was already nationally recognized.
    2) In effect it created a nice monopoly for those in the designated group.
    3) It turned upside down the model of who had to pay. Previously debt buyers would go to the ratings companies to know what they were buying. The new model was issuers of debt had to pay to get it rated or they couldn’t sell it. Of course this led to shopping around to see who would give the debt the highest rating…

    It’s time to break up the cartel by eliminating the rules that created it. Moody’s, Fitch, and the S&P should have to sink or swim by the accuracy of their ratings just like everyone else. Ratings would be a lot better if corporations had to live or die by them.

  8. This is political bullshit. The government owns printing presses, it can’t default on its debt. Now that might cause inflation but there is no default.

    Plus if you read what they said they didn’t actually look at the financials at all – perhaps this is exactly what the did with the CDS that the gave their stamp of approval to, leading to the crash of 08. But that is sort of like a doctor saying you have cancer because they think you should have it given the way you live but never from actually testing you.

    The SEC should check short sales form S&P insiders. The rest of us should just point and laugh.

  9. This incompetent group was one of the causes of the financial crisis. It is far more telling that PIMCO’s Bill Gross is short US treasuries.

  10. But as I understand it…its still AAA or is that aaa…. This my friends is called the reason oil spiked the last time…yeah…right….

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