U.S. Ratings Downgrade: Responsible reporting or anti-capitalistic?

I was wondering about this the other day...

Since Standards and Poor's and Moody's are U.S. credit rating agencies and their scoring is usually applied to private U.S. businesses and financial companies, i.e., banks, investment firms and hedge funds, can they actually rate the U.S. Treasury since it receives the bulk of its financing via the Federal reserve banks or national banks which are not part of the private sector financing sectors? I can understand downgrading Treasury bonds since they do find themselves out on the open bond market, but can a private entity determine the credit rating of the U.S. Treasury?

If they cannot, would doing so be viewed as responsible reporting or anti-capitalistic?

If the market was actually functioning, none of those credit ratings agencies would be in business. They proved they cannot be trusted after giving AAA ratings to **** mortgages. They shouldn't be rating my $5 beer loan to my buddy, much less anything as important as the Treasury.

rathi said:

If the market was actually functioning, none of those credit ratings agencies would be in business. They proved they cannot be trusted after giving AAA ratings to **** mortgages. They shouldn't be rating my $5 beer loan to my buddy, much less anything as important as the Treasury.

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I completely agree. These agencies don't have very much credibility when it comes to rating the creditworthiness of different investments. People can buy and sell government bonds whenever they like; the rate of return that they demand is a much better indicator of creditworthiness than what S&P says.

rathi said:

If the market was actually functioning, none of those credit ratings agencies would be in business. They proved they cannot be trusted after giving AAA ratings to **** mortgages. They shouldn't be rating my $5 beer loan to my buddy, much less anything as important as the Treasury.

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Yep, this proves they are out for nothing more than what is best for themselves.

The government should have the same rights as any other organization to buy themselves any bond rating they want. No problem.

Objective Voice said:

I was wondering about this the other day...
... can a private entity determine the credit rating of the U.S. Treasury?

If they cannot, would doing so be viewed as responsible reporting or anti-capitalistic?

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It would be anti-capitalistic to not allow them to rate anything they want. An in an absolutely free market they can rate any way they want. For example they could occasionally move the market by rating in an unexpected way that aids their personal investments and hurts others. Of course this would hurt their ostinsable business if they were caught. And, they were caught doing at least a poor job for their own benifit. See, responsible reporting and capitalism are not required to be linked. If the are linked then you've made a step toward a controlled market. So what kind of market do you want. I bet it's the same as I want.

Free Markets invite expert publications of trustworthiness. See: Consumer Reports.

as for the Credit Ratings themselves - it's important to note that these guys are generally not the best and brightest on Wall Street - those guys can make much more money playing for the other team. The Credit Ratings Agencies are the dumb money. They aren't the warning whistle; they are the caboose flying by.

OhIsee.Then said:

It would be anti-capitalistic to not allow them to rate anything they want. An in an absolutely free market they can rate any way they want. For example they could occasionally move the market by rating in an unexpected way that aids their personal investments and hurts others. Of course this would hurt their ostinsable business if they were caught. And, they were caught doing at least a poor job for their own benifit. See, responsible reporting and capitalism are not required to be linked. If the are linked then you've made a step toward a controlled market. So what kind of market do you want. I bet it's the same as I want.

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Actually they HAVE been caught doing some shady things (e.g. demanding bribes for good ratings), and they're still around. In fact, some of the corruption is even institutionalized and not secret at all (e.g. being paid by the entities whose bonds are being rated). I don't think they should be prohibited from rating anything they want...but let's not pretend that the credit-rating agencies have the slightest shred of credibility.