Last week's stock market mini-crash wiped out all the gains we had made in our 401k plans for the year. Today, Standard & Poors downgraded the United States' credit rating due to inability to meaningfully address the budget deficit through the political process. The stock market has reacted by driving stocks down even further. In other words, S&P screwed you. Of course, this isn't the first time. Incompetence by S&P and the other credit rating companies was a big contributor to the financial meltdown that sucked so much wealth out of the economy and caused the Great Recession in the first place. Robert Kuttner lays into S&P in this Huffington Post editorial:
You have to hand it to Standard and Poor's. Forget their two-trillion dollar math error. The whole idea that these clowns are evaluating the creditworthiness of the United States is just loony.
For starters, these are the same people who brought us the crisis, by blessing junk sub-prime loans as AAA securities. And they did so because they were paid as consultants by the same financial scoundrels who created the securities.
The executives of the credit rating companies -- not "agencies," for these are private, profit-making, essentially unregulated companies, not public entities -- belong in prison.
Robert Kuttner was the keynote speaker in last year's National Consumer Rights Conference. This year the conference will be in Chicago on November 3-6. This is within driving range for over half of the UAWLSP staff attorneys. If you have the opportunity, you should make it a point to attend. I guarantee that you'll learn a lot.
The good news is that the Federal Reserve did not drink from S&P's fountain of Kool-aid and has held down the rates for long-term treasury bonds. If this keeps up, the rating downgrade's affect on the cost of credit for everyday loans might end up being minor or insignificant.
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