mrsamct
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Joined: 06 Aug 2011
Posts: 207
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 Posted: Thu Aug 11, 2011 1:43 am Post subject: What, Really, Does the Downgrading of U.S. Credit Mean? |
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By now, it is common knowledge that the U.S. credit rating has been downgraded by Standard & Poor’s from AAA to AA-plus. What does this mean? If one is to take the cynical view – and in the modern political and financial landscape, that’s the only accurate view to take – it means just about nothing. Zero. Zilch. Nada. Why is this? Well, there was a time when we could all trust Moody’s and Standard & Poor’s and other credit ratings agencies. A time when, though they were probably regularly incorrect in their assessment of various investments, there was nothing to indicate to us just how wrong they were.
All one must do in the present to determine just how awful is the "service" from the credit rating agencies is to take a look back in history. But we don’t need to flashback too far. Just, say, 2007. That was the year when the credit rating agencies, including Standard & Poor’s, rated collateralized debt obligations (CDOs) as "AAA" investment instruments. For those who are unaware, those CDOs were one of two primary investments that led to the "easy money" mortgage era, the real estate bubble, the eventual real estate crash and, of course, the current economic catastrophe that the Obama administration has been trying (unsuccessfully) to spend its way out of for over two years.
In short, the CDOs were garbage. Some smart people realized this years earlier, and some even made millions of dollars betting against the CDOs. But there are, presumably, very few smart people at Standard & Poor’s. At least, no one smart enough to realize that the CDOs were big piles of steaming crap consisting of the future promised mortgage payments from people who were granted loans that they could never, even in a dream world, afford to pay back. How didn’t Standard & Poor’s realize this? Again, either there are no smart people at the company or there are smart people who knew and didn’t say anything.
Which is worse? Hard to say. But what is certain is that ratings from Standard & Poor’s are worth just about the same thing as a CDO. In short, that rating is a big, steaming pile of crap. The amazing thing is that the media is gobbling up this story about the "big credit rating agency" downgrading the U.S. credit, without even a nod to the smoke and mirrors and outright subterfuge that is the U.S. financial system and its petulant child, the U.S. government.
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