A Credible Downgrade?

On Friday Standard & Poor’s lowered the AAA credit rating of the United States. The new credit rating is now AA+ and it marks the first time in history that the U.S. has had its credit rating lowered. It probably doesn’t even need mention that this will serve as political ammunition for opponents to President Obama. It will be beside the point that the Republicans use of the debt ceiling for political advantage is the only reason the United States came precariously close to a first ever default on its financial obligations.

Was this rating warranted in the first place? Why do we still take rating agencies seriously? Why do these agencies have the power that they do over our financial markets and now, as it would appear, over our political system? After all, this is the same Standard & Poor’s that had no problem handing out favorable ratings for the various exotic mortgage backed security instruments that led to the financial meltdown in 2008. But it appears that the rating agencies didn’t suffer any consequences from their incompetence during the financial disaster. That probably should not be surprising because much of Wall Street also suffered very little while the rest of the country struggles to find work and pay the bills.

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