Standard & Poor’s Corp. announced yesterday that the United States government was on its watch list to lose its AAA rating for government bonds. AAA is S&P’s highest rating for safety. The United Kingdom also is on the watch list, and Japan has lost its AAA rating. This is a big deal because the lower the credit rating, the higher the interest rate a borrower must pay to get credit.
It is amazing to me that S&P ratings are still taken seriously. S&P, along with Moody’s and Fitch’s, the other two big credit rating agencies, gave AAA ratings to mortgage-backed securities, leading millions of gullible investors to think they were safe investments. Mortgage defaults led to the crash on these securities, bringing on the financial crisis and the recession we now are in. Yet little or nothing has been done to improve the rating system, establish regulatory oversight or hold the rating agencies accountable for their results.
The recession made the government lose revenue and increase spending, which is one of the main reasons why the United States is in a debt crisis – if it is. So S&P, which helped create the problem, is dictating to the United States government what to do to solve the problem.
I wrote “if it is” because the U.S. ratio of debt to Gross Domestic Product is slightly less than the world average, and countries such as Germany and France, which have a higher debt to GDP ratio, also have a better credit rating.
The U.S. government, unlike the Wall Street banks, does not pay S&P for its credit rating, so maybe its rating of Treasury bonds is unbiased. On the other hand, maybe S&P is merely pushing the Wall Street political agenda, to ignore unemployment and cut the deficit. Instead of the government regulating Wall Street, Wall Street is dictating to the government.
Phil Ebersole's Blog 