Does S&P Lack Credibility?

With the news of the recent loss of the U.S.' coveted AAA credit rating, stock markets went into a tailspin. All three major U.S. stock markets fell between 5% and 7% since the announcement by S&P.

The downgrade was a result of political disputes on how to handle the mounting debt. S&P delivered a sharp rebuke to the political class of the U.S.

Investors obviously panicked and decided to sell and ask questions later. However, some analysts are questioning the credibility of S&P in particular and rating agencies in general. S&P, along with Moody's Investors Service and Fitch Ratings were the same agencies that gave AAA ratings to subprime mortgage instruments that were, for the most part, junk.

Add in that S&P made a slight mathematical error when they first submitted their report to the Treasury Department: S&P, due to a computational error, overstated the debt problem by $2 trillion!

Nevertheless, even though this was pointed out, S&P still downgraded the U.S. rating.

The U.S. is definitely in trouble, but S&P lacks the credibility necessary to be the ones to point this out.