Friday, August 5, 2011

A bad move for S&P?

So S&P's reputation been somewhat injured by the whole subprime thing--just a bit. Warren Buffet doesn't use ratings agencies in investment decisions (despite owning one), and I've heard at least one very well known mutual fund manger publicly speak very disparagingly of their work.

S&P threatening to downgrade the debt is virtually the same as a downgrade--the federal government's ability to pay its bills doesn't change because of S&P says it has, and the public threat clued us all in into their thinking. S&P has made good on their very public threat to downgrade the US credit rating. Well, in the week since the debt deal, which didn't meet S&P's very public demands, we've seen yields the 30 year's yield fall by 40bps.  Chances are that we won't see much of a move post ratings downgrade. If S&P's most public credit rating is entirely ignored, is their whole business in danger of sliding into irrelevancy?

Not right away, not while companies are contractually obligated to please the ratings agencies, but it's very tough to see how S&P comes out ahead on this one.

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