Given its fabulously incompetent and quite possibly corrupt performance in the events leading up to the 2008 financial collapse, it takes a fair amount of chutzpah for Standard and Poor’s to downgrade US treasuries, especially after the debt ceiling deal proved that back-against-the-wall compromise can still be had in American politics, however unsatisfying the deal.
This mystifying move comes after several weeks of the bond market sending the exact opposite signal: U.S. treasuries had been trending upward in price (and therefore downward in yields), even with the threat of default looming. The bond market was reacting to two basic facts that still obtain:
1. Given the wobbles in Europe, U.S. treasuries remain the safest investment in the world.
2. the bond market, more precise than many commentators, sees a double-dip recession as a much greater threat than the phony political crisis created by the Tea Partyers.
These two basic facts render the S&P judgment ridiculous. But then, I remain amazed that anyone continues to take S&P, or Moody’s, seriously after both agencies granted AAA rating to Collateralized Debt Obligations (CDOs) that were chock-full-of crap mortgages, thereby helping to precipitate the 2008 financial collapse. Indeed, I’m amazed that in our grand and glorious free market system, some dashing entrepreneur hasn’t come along and launched a competing ratings agency without all the baggage.