AAA real shake in confidence for S & P

A little over a week ago S & P downgraded US bonds to AA.  There is no doubt that you probably heard of all the imminent doom that is associated with downgrades. But I don't completely trust S & P's move, and I am not alone.  10 year treasury bills have dropped about 30 basis points since the downgrade, so it seems that investors do not worry too much about it much either.

This raises the question if we can trust S & P anymore.  Look at it like this.  The first half of the twenty-first century saw an enormous spike in bonds backed with mortgages. What investment firms did was combine the worst mortgages they could find, polish them off, bundle them together and sold them to investors as gold.  You would imagine that an agency that was giving them a rating would assume they are junk, and assign them the worst rating you can imagine.  However, these junk bonds were given the most secure rating, so everyone assumed they were a safe bet.  One of the major players in giving them that great rating was S & P.  When the market collapsed and it turned out all those bonds had inaccurate ratings, S & P looked bad.  I mean really bad.  One of the most trusted rating agencies, which gets a profit from rating bonds of the companies who they happen to be rating, could whiff so hard is a really bad look.  Only thing they can do is try to toughen up.  Stamp American bonds as AA, rather than AAA to make themselves look serious.

This doesn't take away the fact that when banks would send bonds over for ratings, and they did not understand them, they just shrugged their shoulders and trusted the bank.  For a better part of the decade, that is how the system worked.  Hundreds of billions of dollars flowed through these bad bonds and nothing was thought of it.  But now since S & P realized they messed up so bad, it is time for them to get serious.  Unfortunately for them, no one is really buying it. 

It's been such a long time...

Decided I am going to try and get this blog going again after a year hiatus.....but it is Friday so that may not happen till Monday.