Standard & Poor’s Slow Reaction Time.

In Debt on April 20, 2011 by CQCA

On April 18th, Standard & Poor’s downgraded the outlook on U.S. government debt from “stable” to “negative.” U.S. government debt is still rated AAA, it is only the outlook that has been lowered. Why did they wait this long?

The S&P’s decision makes more sense if it is put it in the context of their previous rating blunders. Lehman Brothers is a good example.

The above chart shows Lehman Brother’s stock throughout the year 2008. The blue line shows when Lehman Brothers was rated “A” by S&P. The red line shows when they were rated “Selective Default.” There was no in-between. S&P’s press release announcing the downgrade refers to the bankruptcy in the past-tense, meaning a company that filed filed for bankruptcy still had an “A” rating for at least an hour.

If Standard and Poor were invited to a birthday party in May, they would show up in July.

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