See also: US credit rating sinks as national debt increases

When Fitch, the securities ratings agency, downgraded US sovereign debt, it was a huge story in the financial world. The Wall Street Journal’s initial coverage noted that it was:

…clouding the outlook for the $25 trillion global market for Treasurys. Fitch’s rating on the U.S. now stands at “AA”, or one notch below the top “AAA” grade.

America’s reputation for reliably making good on its IOUs has cast Treasury bonds in an indispensable role in global markets: a safe-haven security offering nearly risk-free returns. Treasurys serve as a critical benchmark for returns on stocks and other bonds, because investors generally demand greater yields on any other securities that they buy.

But instead of blaming overspending by the government for decades for running up the debt to unsustainable levels, Fitch decided to blame January 6th, two and a half years ago, for its ratings downgrade.

They also somehow essentially blamed Republicans for trying to negotiate spending restraints before increasing the debt ceiling.  This makes it appear that if Republicans just caved and we had unlimited debt and unlimited spending and high taxes that everything would be OK. 

What could go wrong? Fitch, like other ratings agencies, make huge amounts of money rating government debt from the US, states, cities, and agencies like Fannie and Freddie. Never forget that their income goes up if the government borrows more.

There was absolutely no threat that the U.S government was going to default, no matter how many times the public was fed that talking point. Via RedState:

As we previously reported, Fitch Ratings downgraded the U.S. credit rating on Tuesday, citing fiscal concerns, a deterioration in governance, political polarization reflected in part by the Jan. 6 Capitol riot, and repeated down-to-the-wire debt ceiling negotiations that threaten the government’s ability to pay its bills.

Richard Francis, a senior director at Fitch Ratings, explained to Reuters on Wednesday why the rating company considered the events of Jan. 6 as one of its reasons to downgrade U.S. debt:

Why would anyone trust the ratings of Moody's, Standard & Poor's and Fitch when they contributed so much to the economic collapse in 2008 by giving junk mortgages great ratings in 2006 and 2007? You didn't have to be an expert to see that a combination of no-document mortgages, interest-only loans, and over-100% loan-to-value loans were going to be a huge problem.

Home prices obviously couldn't continue to rise rapidly when incomes were going up around 3% per year. 

Trillions of dollars were lost when the housing and commercial real estate market collapsed and there were a huge number of defaults. Claire Hill of the University of Minnesota Law School:

 The three main rating agencies, Moody's, Standard & Poor's, and Fitch, have been scorned and vilified for their bad performance in rating subprime securities. They gave AAA ratings to securities whose quality was far lower. Indeed, a significant proportion of subprime securities rated in years preceding the crash have been downgraded, often significantly; many of such securities have even defaulted.   

So why did the ratings agencies screw up so badly when the problems were so obvious? They didn't care as they were making boatloads of money. People should have gone to jail for the massive fraud they committed but they are free and still making lots of money. 

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