Photo: Wikimedia Commons
On Thursday night, S&P warned that there was a 50/50 chance the US could lose its AAA rating in light of the debt fight, and the failure to come to a deal.Obviously this was designed to sent a message to Washington: GET YOUR ACT TOGETHER.
But on Friday it did something far more powerful: It basically threatened to downgrade every AAA rated financial entity in America, including insurers, if there’s no debt deal.
Via Insurance Journal, check out the list of insurers that could lose out: “The only insurance companies named directly by S&P were: Knights of Columbus, New York Life Insurance Co., Northwestern Mutual Life Insurance Co., Teachers Insurance & Annuity Assoc. of America (TIAA), and United Services Automobile Assoc. (USAA), as well as Goldman Sachs Mitsui Marine Derivative Products LP (GSMMDP), which offers over-the-counter derivative products.”
It also threatened to downgrade thigns like Farm Credit Banks, and every municipal entity in America.
Get what’s going on? Nobody feels individually responsible for the US AAA rating, but there are lots of managers in every Congressional district in America, who are suddenly individually looking at higher borrowing costs if their Congressmen don’t vote the right way. S&P is telling everyone who deals with any financial institution: Your Congress is putting you at risk.
PS: As long as we’re using words like “bazooka” to describe S&P’s approach, here’s another violent way to think about what they’re doing. This is a scene like in a movie where the hostage taker says: If you do anything stupid, I’m going to kill the person next to you. It’s incredibly powerful, and S&P is saying to politicians: Screw this up, and that innocent little insurance company that your voters depend on get smashed.
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