It’s one thing for S&P to pursue its corrupt ideological agenda against the US Government. In downgrading the US credit rating, it could at least count on the media and public conflating Washington’s inability to govern and to deal with a weak economy with the threats to hold the debt ceiling hostage.
With all that confusion, the naive might conclude, incorrectly, that there was some risk the US may not honor its debts. Of course, the US would have honored its debts regardless, one way or another. The 14th Amendment required that, even if Eric Cantor and Mitch McConnell are irresponsible demagogues.
But now S&P has taken that confusion and stuffed it down another rabbit hole. It has downgraded the credit ratings of several insurance companies that had the good sense to have their reserves heavily invested in safe US Treasury bonds — that is, for doing exactly what a financially prudent board would have expected. From the Hartford Courant blog:
Five top-rated insurance companies that stack their investments heavily in U.S. debt were downgraded Monday by Standard & Poor’s.
The insurers’ reduced rating was tied to a downgrade of U.S. government debt on Friday, but it won’t have a significant effect on the industry, according to a top insurance regulator said.
Standard & Poor’s put all AAA-rated insurers on credit watch in a July 15 notice, at the same time government debt was put on watch.
The companies include New Haven-based Knights of Columbus, New York Life Insurance Co., Northwestern Mutual Life Insurance Co., Teachers Insurance & Annuity Association of America (TIAA) and the United Services Automobile Association (USAA).
And note how careful S&P was. This from Knights of Columbus:
“We’re still one of the top rated insurers in the United States . . . we still have the absolute top rating from A.M. Best, and we have the top rating available in this environment to an insurer from S&P,” said Knights of Columbus spokesman Andrew T. Walther.
“The rating is a rating if we were to issue debt,” Walther said. “We don’t issue debt. We don’t intend to issue debt. We don’t have any bonds out there.”
Think about what S&P is arguing. Even though US bonds are universally recognized as about the safest, risk free investments a prudent investor or insurer can hold — and the bond markets are confirming that every day [10 year yields fell to 2.25% today!] through higher prices and accepting lower interest rates — S&P will downgrade a company’s credit rating if it keeps its money safe by holding these extremely safe assets.
Or to put it another way, US bond prices are rising, which means the value of the assets held by these companies has increased. But the brilliant folks at S&P conclude these now richer companies deserve to have their credit ratings downgraded.
The good news? If you’re in Australia, you don’t need to hold onto the railing after nightfall, or worry about drifting off into space; the earth is flat.
S&P needs an intervention. Criminal fraud investigations? Sure. But some type of institutional commitment hearing is clearly warranted.