The government is still paying, and adding to the deficit, to fix their mess!!! And who gave them a license to rate anyway???
There is no question that the U.S. deficit requires immediate and forceful action. But ask yourself this... How can a ratings agency, staffed by broker wannabes who blissfully ignored the quality of the securities that led to the mortgage disaster a few years ago, be so arrogant as to reduce the credit rating of the world's largest economy, a sovereign nation that historically has always paid its bills?
S&P claims to be the "breakaway leader" in global risk assessment. Well, if its primary mission is to assess credit-worthiness of tradeable securities, its own rating is FAIL.
Thanks to the bean heads (not counters) at S&P and Moody's, the country experienced a financial meltdown, largely resulting from mortgage backed securities rated AAA by S&P, which should have been rated B-, or maybe C, since they were packed with subprime mortgages almost certain to default. They didn't consider the possibility that overblown housing prices might decline. (Of course, a number of smart investors bought insurance on the bonds they KNEW would fail. Hence the bankruptcy of companies like AIG.)
Who's paying for this mess, besides the investors who lost their investments? The U.S. government (aka, US), that's who. in addition to the $700 billion used to prop up banks and car companies, the government has made financial recovery commitments of about $12.2 trillion, and of that has spent $2.5 trillion. On what? On this: $1.6 trillion on purchases of high-grade corporate debt and mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae; $330 billion insurance on debt issued by financial institutions and poorly performing assets owned by banks, Fannie Mae, and Freddie Mac;and $528 billion in lending to banks. (Source: NY Times)
The S&P decision is really nothing more than an opinion, one based upon an analysis already found to have contained a $2 trillion error. The federal government has a far better debt-to-income ratio than many AAA-rated companies: IBM, Boeing, Chase... Why does S&P think it's more likely to default than they are?? Some of the COUNTRIES that retain Triple-A ratings: Liechtenstein, Luxembourg, the U.K., France... LOL.
For conspiracy buffs the answer to this question of "why a downgrade now" is easy... S&P has some agenda of its own that will capitalize on international perceptions of the ability of the U.S. to pay off and control its debt. But WHO ELSE shares the agenda? And WHAT is it? Somebody is gonna make lotsa money.
- Some institutions are required by covenant to hold only AAA-rated debt. They may be forced to dump treasuries. The traders, primarily at hedge funds, will pick them up cheap. When the price of treasuries recovers, these traders will walk away with a nice profit.
- The traders could also take advantage of a spike in interest rates. They will buy the higher-yielding debt and then sell it when rates come back down.
- Currency speculators will profit.
- Precious metals will rise.
- The weakening of the dollar will improve the cost base for transport, lighting, heating, and manufacturing in countries exporting to the U.S.
- If the dollar weakens, U.S. multinationals operating abroad and repatriating euro profits back to the U.S. will show greater gain.
- Interest rates will be higher increasing the borrowing costs of US companies, thus aiding their competitors. Product costs will increase.
- Profitability will decrease and shares will lose value.
- Jobs will be lost.
- Purchasing will decrease, and the economy will stagnate.
- Also, banks want more interest. The debt is a big red herring. Keep your eye on the ball.
So war is expensive. So is fixing the result of S&P's prognostications. And war is waged on many fronts in this "global" economy. Somebody is gonna make lotsa money. For our own safety, the ratings industry must br subjected to scrutiny and oversight! If you only buy AAA-rated assets, you can say you're being responnsible, but you're not... You're only relying upon some supposedly disinterested party's research. Do your own research when you can. Ratings agency judgements should not be part of the rules for how anyone or any institution must act.
This slideshow link says it all: https://docs.google.com/present/view?skipauth=true&pli=1&id=ddp4zq7n_0cdjsr4fn
