Thanks a bunch, S&P
A lesson on how not to rate debt
Why I’m optimistic about the markets in 2025–tariffs or no
This advisor isn’t losing any sleep over the markets. In fact, looking back at 2024 and forward into 2025,...
For anyone who’s been wondering what touched off the latest round of market silliness, Preet Banerjee at wheredoesallmymoneygo.com has an interesting take on the timeline of events.
Assuming he’s right, markets started misbehaving Thursday, August 4, due to fears over the Eurozone’s debt situation. The only problem with that is such fears were not new and seemed an unlikely reason for a sudden sell-off.
Friday was more of the same, but accompanied by new theories (most of them lame). Then, after the markets closed, S&P announced its downgrade of U.S. debt from AAA to AA+. Then it gets interesting.
S&P sent a draft report to the Obama administration prior to release which contained a $2 trillion (yes, with a T) error related to the estimate for discretionary spending. S&P corrected the error but stood by its rating.
Wrote Bannerjee, “Shortly after the downgrade, people started to put two and two together and realized the Thurs/Fri sell-off was because the downgrade had leaked. It’s possible a few people knew, made moves big enough to scare those who didn’t into selling as well. Downgrade announcement made Friday evening, lightbulbs go off everywhere (the ones above people’s heads).”
So in a nutshell: a rating agency makes a mistake, doesn’t own up to it, announces the first downgrade of U.S. debt in history, allows said downgrade to leak two days prior to announcement and inadvertently touches off the worst market volatility since the Global Financial Crisis.
Naturally, questions are being raised about S&P’s analysts. For a revealing (and darkly comical) walkthrough, check out this piece by the dean of the Rotman School of Management, Roger Martin.
It would be even funnier if we hadn’t all just lost billions of dollars.
Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
Related Articles
Car loan interest rates: What’s the best Canadians can get?
Car loan interest rates can be as confusing as a complicated recipe, and just as daunting to navigate. This...
Auto loans for newcomers—questions to ask when buying your first car in Canada
Buying your first car in Canada is like any other major purchase. Ask a lot of questions, not just...
Where is bitcoin headed in 2025?
Bitcoin’s value surpassed the USD$100,000 mark in late 2024. Here’s what could affect bitcoin and other cryptocurrencies in the...
Buying ETFs in Canada Tool: The MoneySense ETF Screener
Which ETFs should you invest in? Which ones best suit your risk tolerance? What about personal ethics? Check out...
What types of tax-free savings accounts (TFSAs) exist?
A tax-free savings account (TFSA) is a fantastic way to earn money on your savings, without having to pay...
What is the Canada Carbon Rebate? Plus, dates and amounts for 2025 rebates
The Canadian government is sending out the last carbon rebate of 2024. See who’s eligible and how much you...
Can Santander take on Canada’s Big Six? Why the global bank may face hurdles
A fresh international challenger has the potential to add competition to the country’s banking oligopoly, though experts warn it...
What retirees need to know about tax brackets for 2025
Those at or near retirement need to account for slightly higher tax brackets, as well as higher Basic Personal...
Planning holiday spending and cash gifts? Here’s how to boost your budget
Sponsored By
Simplii Financial