UK and USA might lose AAA rating
May 26, 2009 3:11 PM Subscribe
posted by memebake (38 comments total)
10 users marked this as a favorite
Standard & Poor’s changed the UK's credit outlook from stable to negative
a few days ago, and warned that there is a chance the UK could lose its AAA rating. Meanwhile, Moodys, another of the big 3
rating agencies, has warned that the US might also eventually lose its AAA rating
. The UK announcement caused sterling to drop by 1% and the FTSE by 2%
. However, many blame
the same rating agencies for their part in triggering
the subprime crisis. The irony of this is not lost on the Wall Street Journal
, who note that "After all, those governments are jacking up spending, in part, to bail out the financial firms who gobbled up those 'AAA' asset backed securities duly blessed by the credit ratings firms."
How did the CDO's get AAA rated in the first place? There are reports that it may have been a bug in the rating software
, although Greenspan says its because the ratings were based on only the last two decades
, giving a too-optimistic outlook. This reseach paper
by Vasiliki Skreta and Laura Veldkamp looks through some of the options.
Incidentally, all the ratings given by the rating agencies come with a disclaimer: S&P says in small print: "Any user of the information contained herein should not rely on any credit rating or other opinion contained herein in making any investment decision". Joseph Mason, a former economist at the US Treasury Department, points out that "The ratings giveth and the disclaimer takes it away."