The RP: Credit Downgrade for Dummies

In case you were battling the heat and rain of Kentucky’s Fancy Farm political festivities — or more appropriately, were enjoying some quality time with your family — you may have missed the RP’s latest column that The Huffington Post touted on its home page all weekend.

Having received positive feedback — and considerable media attention — from his piece two weeks ago,”Debt Ceiling for Dummies,” the RP penned a column to help explain in similarly straight-forward terms the import of Friday night’s decision by S&P to downgrade U.S. credit.

Here’s an excerpt from “Credit Downgrade for Dummies“:

Why should we listen to the credit agencies — aren’t they part of the problem?

There is broad consensus that credit rating agency action — or often times, inaction — was a significant contributor to the 2008 financial collapse. This April, a U.S. Senate investigations panel declared that Moody’s and S&P triggered the financial crisis when they were forced to downgrade their ratings on the very complex and controversial mortgage-backed securities that were at the heart of the collapse that almost brought our entire financial system to its knees. Had the ratings agencies been exercising more diligence, many experts argue, they would have alerted investors of the riskiness of these controversial financial instruments long before they became a problem.

However, while the credit ratings agencies do not enter the discussion with entirely clean hands, their decisions are extraordinary significant. Their role is written into the statutes and regulations that govern the financial system. Think of it this way: Even though progressives may decry the partisanship on the U.S. Supreme Court, and thoroughly detest some of its recent 5-4 decisions, we must abide by them.

Click here to read the RP’s full piece, “Credit Downgrade for Dummies” at The Huffington Post.

 

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