NEW YORK — A downgrade of United States’ top-tier credit rating has Wall Street scrambling to figure out the knock-on effects for the financial system, from mortgages to banks to markets that rely on U.S. Treasuries for collateral.
The immediate effects of the Standard & Poor’s downgrade of the country’s AAA credit rating late on Friday are likely to be modest, largely because it was expected and already at least partly discounted, experts said.
Many downplayed the likelihood of the sort of financial contagion experienced when Lehman Brothers went under in September 2008. Few had expected it to have to file for bankruptcy, and few were prepared for the fallout. Money market funds froze, some major commercial banks collapsed, and many major dealers and finance houses teetered on the edge of failure.
But even if that type of scenario is unlikely this time, bankers, lawyers and investors wonder if there could be longer-term consequences of S&P’s downgrade, given that U.S. sovereign credit is bedrock to the world financial system. The analysis is complicated because so many of the potential stress points for the financial system are relatively opaque areas like over-the-counter derivatives markets.
So much for Obama and his lefty freaks. “Done like dinner” comes to mind.