For Quick Alerts
For Daily Alerts

'Standard & Poor's have no credibility'


'Standard & Poor's have no credibility'
The Nobel Prize economist, Paul Krugman stated in his column that though US is in trouble but then Standard & poor's should not be taken seriously for their down-grade. But wasn't that too harsh?

He wrote, Krugman said that the deficit increased as a result of economic slump of 2008 and the primary reason for that slump were the rating agencies.

Aswath Damodaran, Professor of Finance at the Stern School of Business at New York University, was more merciful as he explained the rating agencies as following wrote on his blog, "Ratings agencies have more in common with politicians than you may realize: specifically, they are more likely to be followers than leaders."

Standard & Poor's was one of the major agencies which increased its profit year-after-year by giving AAA ratings to the mortgage backed assets. It came to light later that the agency was giving them AAA without analyzing it. These papers went on to become toxic waste, which the government had to guarantee just to save the entire country hitting the depression zone.

Krugman points out in his column that S&P is the very agency which gave Lehman Brothers a AAA rating right till the month it went bankrupt, creating the global financial panic. At the end, all that the rating agency said on the AAA-rated firm going bankrupt was 'by issuing a report and denying that it had done anything wrong.'

Besides downgrade was also controversial. The reports state that before downgrading the US debt from AAA to AA+; S&P had sent a preliminary draft to the U.S. Treasury. The treasury Officials spotted an error to the amount of $2 trillion in S&P's calculations.

It has been said that the error should not have passed any budget expert. And after some discussion, the rating agency conceded that it was wrong and downgraded the United States America anyway. And it changed its economic analysis in the report.


Krugman's biggest question to the rating agency's credibility was "Japan, which S&P downgraded in 2002. Well, nine years later Japan is still able to borrow freely and cheaply." The interest rate on the Japanese 10-year bonds on Friday was limited to just 1%.

Considering this Krugman is right, Standard & Poor's does not have any credibility!

Story first published: Tuesday, August 9, 2011, 16:00 [IST]
Company Search
Get Instant News Updates
Notification Settings X
Time Settings
Clear Notification X
Do you want to clear all the notifications from your inbox?
Settings X