Monday, August 8, 2011

S&P downgrade of the US !

The recent downgrade of the United States is something that has been widely known for quite sometime and is not a surprising event. One of the reasons attributed to this downgrade is the very fact that these rating agencies perpetrated the enormous housing bubble by stamping top ratings on the mortgage bonds and eventually downgrading them drastically at the outset of the financial crisis, after  the whole world realized that these mortgage bonds were not investment grade at all. Due to this drastic downgrade, in a way they fueled the 2008 financial crisis that has brought the world's financial system to its knees and many financial institutions in the US and Europe to the brink. So they did 2 serious blunders, first being rating the mortgage bonds as AAA and then drastically downgrading them. Sovereign investments in US treasuries are not made based on these ratings. Despite this downgrade the recent short term treasury bills were yielding negative returns meaning treasury buyers willing to pay to hold these instruments. The only alternative to US treasuries is a mattress, you heard it right. There is no financial institution any where that can provide the size and liquidity as does the US treasuries.

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