United States loses AAA credit rating from S&P • Hacker News Board

Re: United States loses AAA credit rating from S&P

#21

Post by winestock » Sat, Aug 06, 2011, 12:59 AM UTC

muyyatin wrote: post #17

eps wrote: post #13

One thing to keep in mind is that many institutional investors, including those in Europe, are required to invest exclusively into triple-A instruments. This downgrade means a major sell-off of US bonds and whatnots currently held by such investors, and that could have an interesting avalanche effect.

It would be interesting if they make a financial vehicle that turns US AA+ debt (along with something else) into AAA.

Damn you, but the boys at Goldman Sachs are probably on it, right now. Take a pile of T-bills. Siphon off the income from them into a pie. Cut the pie into tranches. The first tranch or two are guaranteed to be AAA. Just look at the math that the quants derived...

We can all lipsync this tune.

Re: United States loses AAA credit rating from S&P

#22

Post by joebadmo » Sat, Aug 06, 2011, 1:00 AM UTC

eps wrote: post #13

One thing to keep in mind is that many institutional investors, including those in Europe, are required to invest exclusively into triple-A instruments. This downgrade means a major sell-off of US bonds and whatnots currently held by such investors, and that could have an interesting avalanche effect.

Is it really imaginable that institutional investors won't just change their rules to allow an exception for US bonds? Honest question.

Re: United States loses AAA credit rating from S&P

#23

Post by thematt » Sat, Aug 06, 2011, 1:01 AM UTC

_delirium wrote: post #19

eps wrote: post #13

One thing to keep in mind is that many institutional investors, including those in Europe, are required to invest exclusively into triple-A instruments. This downgrade means a major sell-off of US bonds and whatnots currently held by such investors, and that could have an interesting avalanche effect.

Does it? Many institutional investors don't treat U.S. Treasuries as ratable bonds, but a separate category (they aren't lumped in with AAA corporates in investment strategies, for the good reason that they have quite different characteristics). Based on the slim case studies we have so far, the S&P downgrade of Japan in 2002 had approximately zero impact on Japanese bond rates. It doesn't even show up as a small bli…

That's because Japanese debt (up to this point) has been primarily financed by its own citizens, life insurance and pension funds. These are more likely to accept sub-AAA rated bonds and support their own government than external investors are.

Re: United States loses AAA credit rating from S&P

#24

Post by guildchatter » Sat, Aug 06, 2011, 1:01 AM UTC

Getahobby wrote: post #7

fanboy123 wrote: post #4

from the press release: "The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. "

This really should be a call for both parties to start working together but it will most likely turbo charge the blame game.

It's definitely going to be the blame game, especially with Obama's re-election campaign coming up.

sigh

Re: United States loses AAA credit rating from S&P

#25

Post by cantbecool » Sat, Aug 06, 2011, 1:03 AM UTC

fanboy123 wrote: post #10

cantbecool wrote: post #5

I wonder what would have happened if S&P dropped the rating during the trading day, and not after the markets closed. We probably would have seen another -500 point drop on the DJI.

They wait until late friday to make big changes to give the officaldom/industry a weekend to scramble/grab parachutes. They actually didnt release today until after the SPY stopped trading.

I wonder if they, the parachutes, will be golden this time around.

Re: United States loses AAA credit rating from S&P

#26

Post by localhost3000 » Sat, Aug 06, 2011, 1:03 AM UTC

These are the same guys who rated subprime mortgage backed bonds AAA. How the rating agencies still have any credibility is completely incomprehensible to me. I hope someone in the press has the wherewithal to make this point.

Re: United States loses AAA credit rating from S&P

#27

Post by miked » Sat, Aug 06, 2011, 1:03 AM UTC

fleitz wrote: post #12

I wonder if the downgrade is because the US might be unwilling to pay its debts or because they feel the people may be unwilling to bailout the banks again?

The downgrade is because the US Gov is spending far more than it's taking in. In other words, it's for the same reason that every other person / business / government gets downgraded. It's important to realize that there's no magic here.

Re: United States loses AAA credit rating from S&P

#28

Post by temphn » Sat, Aug 06, 2011, 1:03 AM UTC

credo wrote: post #20

This illustrates one of the risks of hostage-taking and the mistaken assumption of Republican leadership that the "hostage" (their words, not mine) wouldn't be harmed see quote from Senate minority leader below From http://www.washingtonpost.com/politics/in-debt-deal-the-triu... But at the Capitol, behind the four doors and the three receptionists and the police guard, McConnell said he could imagine doing this again…

The question is whether you believe the issue would have become an issue even if the Republicans hadn't raised it now. Many people look at this as an intervention; if the US is addicted to oil, we are even more addicted to borrowing. I suppose it really comes down to whether you find multiplier/countercyclical spending arguments persuasive or not; Nobel Laureates come down on both sides.

Re: United States loses AAA credit rating from S&P

#29

Post by thematt » Sat, Aug 06, 2011, 1:04 AM UTC

fletchowns wrote: post #18

Didn't S&P maintain that Lehman Brothers had a favorable rating up until they collapsed? And in the subsequent congressional hearings the rating agencies simply responded that the rating is their opinion. Why do people put so much faith in these ratings when they have proven to be not very useful in evaluating the risk associated with investing in an institution?

People put faith in them because not everyone can hire an army of experts to evaluate all possible investments. S&P supplies their ratings to life insurance companies, pensions funds and even municipal governments. These entities don't have the resources to employ that expertise in-house, so they rely on companies like S&P and Moody's to give them guidance.

Re: United States loses AAA credit rating from S&P

#30

Post by chailatte » Sat, Aug 06, 2011, 1:05 AM UTC

Took those lazy rating agencies a while.

- 1.6 Trillion budget deficit

- 14 Trillion national debt

- 55 Trillion US total debt

- 115 Trillion Unfunded liabilities

- 17% U6 unemployment

- 45.8 Million Americans on Food Stamps

- 52 Million Americans without health insurance

- 1/2 of mortgages are underwater

- 63% labor participation rate, lowest since early 80s

- -5% in Real medium household income in the last 10 years

- 25% of US households have zero or negative net worth

- 1 out of every 45 households was hit with foreclosure

- average length of unemployment is now 40 weeks