Views on improving the integrity of global capital markets
18 April 2011

A Matter of Opinion?

Newsof Standard & Poor’s negative outlook on the U.S. government’s long-term debt met with the unsurprising response from Washington that the S&P analysis was flawed.

 

As we’ve pointed out before, governments tend to speak out of both sides of their mouths about credit ratings agencies, calling for more robust analytics and conflict-free opinions — except when those opinions are about the sovereign credit of the government, in which case considerable restraint and tolerance are expected.

 

A shift in outlook for any government’s credit is serious, perhaps suggesting increased likelihood of a ratings downgrade that could impose real costs on governments and societies. But whether CRAs opine about companies or governments, candor and informed analysis are to be valued.

 

The U.S. government’s fiscal challenges are significant, as investors across the globe with stakes in the American economy know all too well. None of us welcome pessimistic views of the situation, but S&P’s announcement might serve as a useful counterpoint to the political chattering in Washington. Much more than rhetoric is required to address the weaknesses that S&P has noted. Perhaps this will refocus the effort.

About the Author(s)
Kurt Schacht, JD, CFA

Kurt Schacht, JD, CFA, is the Senior Head, Advocacy Advisor, Capital Markets Policy at CFA Institute, where he oversees advocacy efforts and the development, maintenance, and promotion of the highest ethical standards of practice for the global investment management industry.

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