S&P on a downgrading tear that seems more about politics than economics
By Dian Vujovich
I had to scratch my head and wonder what was really behind S&P’s downgrading of America’s debt on August 5th when we—and all the world—have been fully aware of our debt problems for years. The answer I came up with was that they’re choosing politics over economics. And what a shame that is and was.
But S&P didn’t stop with Friday’s downgrade. Today they announced a number of other ratings downgrades.
So, here directly from the horses mouth (?) are snippets from the S&P Press releases I’ve received today:
•Monday, August 8, 2011, S&P lowered the issuer credit ratings and related issue ratings on 10 of 12 Federal Home Loan Banks (FHLBs) from AAA to AA+; lowered senior debt by the Federal Farm Credit Banks from AAA to AA+; lowered the senior ratings on Fannie Mae and Freddie Mac from AAA to AA+; lowered the ratings on 126 Federal Deposit Insurance Corp—guaranteed debt issues from 30 financial institutions under the Temporary Liquidity Guarantee Program and four National Credit Union Association-guarantee debt issues from two corporate credit unions from AAA to AA+;
Moving away from agencies, S&P has also “lowered fund credit quality ratings on 73 of the 206 funds managed in the U.S, Europe and Bermuda because of their significant exposures (generally greater than 50%) to direct or indirect investments in U.S.Treasury and U.S. government agency securities. The rates were lowered by up to two notches
(That means, on some funds you can forget about them displaying any triple-A ratings on their government bond fund offerings.)
On the lowered rating list, in alphabetical order, are names like BlackRock Fund Advisors; iShares Barclays; Federated Investors; First Trust GNMA’s; Palm Beach County; Palm Beach County Investment Portfolio; SPDRs; State Street Global Investors; and more.
As I’ve written, there are many more names and agencies on their downgrading lists but how much bad news can investors handle in one day?
A falling market is one thing that brings with it a myriad of implications but S&P’s downgrades bring with it exposure that can, has and no doubt will scare the bejesus out of people and bring with it far reaching complications that do more harm that good.
Yes, the United States has huge debt issues but this isn’t the first time we’ve had them to face—think WW11 for instance—nor will it likely be the last. But in each and every instance, we have met those challenges and forged ahead. Consequently, I find S&P’s moves out of line and their actions smell more like a political ploy than anything else. Shame on them.
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