The credit ratings agency Standard and Poor's is now awarding higher credit standings to securities backed by subprime mortgages than to the U.S. government's debt, Bloomberg News reports.
On August 5, Standard and Poor's downgraded the U.S. credit from a triple-A rating to a double A-plus rating for the first time in history.
Now, according to Bloomberg, "S&P is poised to provide AAA grades to 59 percent of Springleaf Mortgage Loan Trust 2011-1, a set of bonds tied to $497 million lent to homeowners with below-average credit scores and almost no equity in their properties."
According to Hoover's, Springleaf Finance Corporation "originates and services first and second real estate mortgages" - most of which "are categorized as subprime or nonprime loans."
Subprime mortgage loans were largely credited as being a driving force for 2008's financial crisis.
"Everybody has been led to believe over the years that AAA means AAA means AAA across the board," Gregory W. Smith, the general counsel for the $41 billion Public Employees' Retirement Association of Colorado, told Bloomberg in an interview. "Anybody that didn't learn in the 2008 crisis that doesn't apply should find another line of work."
Stocks plummeted on Wall Street following the U.S. downgrade in August, with the Dow Jones industrials falling 634.76 points in the first business day following the announcement. The drop was the sixth-worst point decline for the Dow in 112 years and the worst one-day plunge since December 2008.
Pundits and activists started targeting S&P even before the U.S. downgrade was official. The threat of a downgrade alone was enough influence the Washington debt debate. Pundits on the left to derided the rating agencies as "masters of the universe." Meanwhile, conservative pundit Michelle Malkin wondered, "Since when did politicians pledge allegiance to S&P's and Moody's?"