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S&P shoots self in other foot

August 11, 2011 - Harry Eagar
I have never been an admirer of American management, but it would be hard to find one less admirable than S&P's.

The company was exposed as corrupt and incompetent by the collapse of securitized debt in 2008, but it's a big company and not every corner of the office was implicated. One that wasn't was the part that rates government debt.

Nobody much was scrutinizing S&P's handling of sovereign debt ratings until the company decided to downgrade the US debt. Well, nothing like an unprecedented action to get journalists curious.

It turns out that the market -- supposed to be the arbiter in these things -- had not been paying any attention to S&P's views of sovereign debt. Germany, which has a higher rating than Japan, pays two and a half times as much to borrow as Japan does.

It's possible, of course, that government debt is a different animal from commercial or private debt. Economic historians have long thought so, but the news apparently has not filtered out to Wall Street.

Anyhow, after S&P downrated US debt, the Treasury had an auction today. The interest it had to pay was the lowest in history. Ooooh, that's gotta hurt.


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