In a series of expected additional press releases, the Standard & Poor’s credit rating agency is expanding its downgrade of debt securities tied to the now-lower-rated sovereign debt of the United States, including Israeli bonds, Fannie Mae and Freddie Mac, and “pre-funded” municipal bonds. Other credits tied closely to U.S. sovereign debt are also expected to be downgraded shortly, with only a few exceptions.
Most municipal bond issues are not pre-funded with U.S. Treasury securities, and so they aren’t likely to be affected, especially as they rely on local and regional sources of revenues, with little reliance on the federal government to back them up. And, at the moment at least, S&P continues to rate 13 states as AAA.
These downgrades have set off a firestorm of protest, mostly from the White House and the Treasury Department. Secretary Timothy Geithner angrily expressed his views to NBC/CNBC News:
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