S&P Downgrades and Banks: Threats to Global Stability

By Nomi Prins

Standard & Poor’s likes moving on Friday nights after the markets are closed. It was on a Friday night that it downgraded U.S. debt to AA+ from AAA. And on Friday night, Jan. 13, it downgraded France and Austria from AAA to AA+ and seven other European countries too—Cyprus, Italy, Portugal and Spain by two notches, Malta, Slovakia and Slovenia by one. Portugal, Cyprus, Ireland and Greece remain at junk status. Germany’s AAA rating stayed the same.

The markets weren’t shocked by last week’s wave of pre-broadcast S&P sovereign debt downgrades. For months, the question wasn’t “if” but “when.” And true to form, just as with the U.S. downgrade, S&P’s reasoning skated the surface of prevailing wisdom: Governments have too much debt and not enough income. That’s only part of the story.