Newswise — “On Friday, Aug. 5, Standard and Poor’s, one of three ratings agencies, downgraded the U.S. credit rating from AAA to AA+. Monday, the stock market fell 635 points as measured by the Dow Jones Industrial Average. Tuesday there was a 430-point rebound to 11,240. Wednesday, the market dropped again.
“Why did this happen?
“Simply put, Monday’s stock market sell-off was a gut reaction based on fear, and Tuesday’s rebound was based on the realization that S&P is without a doubt incompetent. What they did in downgrading the U.S. credit rating was the equivalent of yelling ‘fire’ in a crowded theater, setting off a panic when, in fact, they knew there was no fire.
“S&P, along with the other rating agencies, has been under investigation by Congress for giving AAA ratings to toxic mortgages that led to the 2008 financial crisis and Great Recession. In addition, S&P gave Enron high ratings on the day that it failed, and gave an A rating to Lehman Brothers just before it failed. S&P also missed Ireland, Iceland, Spain and Greece.
“The stock market will be unstable for some time, until people are reassured that the time for fear is over.”--William Schulze, professor of Applied Economics and Public Policy at Cornell University
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