In April of this year (2011) Standard & Poor’s issued a warning report to the United States prompting our Tap’s related post “I saw my duty and did it”.
As a refresher, credit rating agencies issue report cards for almost any entity that has a need for debt in the public marketplace. It might be fair to think of credit rating agencies as the FICO score makers for public entities. Credit Agency FICO scores are on scales of approximately AAA to CCCC rather than points, with a higher score receiving more favorable terms (lower interest rates). Generally the higher the score/rating the safer the lender.
Credit Agencies, have, and do, make mistakes (Mortgage Backed Securities) but that is the subject of another article.
What makes Standard & Poor’s and Moody’s warnings interesting are the following:
- There is a somewhat kid warning the parent, as these agencies are born here in the US.
- Agency warnings, in public venues are often followed by downgrades (if you warn, you must be prepared to act.)
- Ratings metrics are very simple to understand and it is not a mystery as to what is needed to keep a high rating.
In closing, we are not predicting doom and gloom or anything near the dramatic Armageddon as many writings have, that are associated with these Credit Agency public warnings. We do realize this is serious, especially given the complexities of Agencies being able to release this information, and we are grateful for the extended time to comply, given by each agency.
Have a Great Day!