Saturday, 6 August 2011

S&P Demonstrates Its Utter Hypocrisy

This morning, I saw S&P had "bravely" downgraded the U.S. to AA+.

What horsecrap.

If nothing else, this shows how irrelevant ratings have become.

Yields on 10-year Treasuries are about 2.5 percent, nearly at historical lows. Every time the market catches a whiff of fear, investors pile into Treasuries. U.S. debt is considered about the safest stuff out there, bar none, as indicated by the yield.

The yield is truth, the market itself speaking.

Meanwhile, S&P is still willing to rate lots of securities AAA -- if you call them CDOs and pay S&P a handsome fee for the rating, even when these securitizations are paying a yield that far exceeds that on U.S. government debt.

What we're seeing today is just rank hypocrisy from a ratings service that has the gall to claim that AAA is AAA, across asset classes.

Tip to Washington: just figure out a way to combine and tranche your Treasuries in some kind of god-awful complex structure -- make it really, really complicated -- then go back and pay S&P a fat fee to rate the mess. You'll get your AAA back. I guarantee it.