As I post this piece, the opening bell is eight hours away. That is, the bell marking the open of trading on the New York Stock Exchange on Monday, August 8, 2011. This open is more ominous than most because it’s the first day of trading following Friday’s downgrade of the credit of the United States of America.
I never thought I’d see those words in print, much less write them myself. They downgraded whose credit?
That’s right—the entire nation took a whack in the wallet when Standard and Poors decided the “full faith and credit” of the U.S. aint what it used to be. S&P unleashed the announcement after the close of trading on Friday, August 5.
At this writing, I know not what direction the U.S. market will take. I do know the Hang Seng in Hong Kong, which opens a half-day ahead of our markets, is down more than 4 percent. Japan is down 2 percent and Australia is down 3 percent.
Standard and Poors is famous for the S&P 500, which is not an auto race but an “index” of the share prices of the 500 largest publicly
traded American companies. It is also been known for its ratings of securities going back a century or so.
Remember the financial crisis of 2008? When venerable financial institution older than S&P itself were were swirling down the drain like dishwater into a kitchen sink? That event was brought to you largely by Standard and Poors, which stamped a “Triple-A” on every stock or bond with a pulse until the whole phony system collapsed under its own weight.
In the months and years before it all hit the fan, the ratings wizards at S&P were sleep-walking on the same beaches and golf courses as their cousins at Fitch and Moody’s.
So last Friday, they decide to downgrade the U.S. Not based on the numbers, they said. It was more about the dysfunctional politics that
led to a near-crisis when legislators bickered about whether to raise the nation’s debt ceiling.
Which to me is a lot like your math teacher saying you get a failing grade—based not on the correctness of your calculations but on your “attitude.”
I haven’t had time to check the Sunday papers. I’m guessing at least a few commentators are saying the same thing I am. S&P’s latest slap at the economy is grandstanding, pure and simple.
When S&P’s self-serving credit move is viewed in the hindsight of history, I hope it will be seen in the truest light and described
with the most accurate adjective—irrelevant.