Financial markets today look just how you would expect them to look on a hot sunny day in August. There’s not a lot going on. Take economic data, for example. We’re already three days into the trading week and the only reports of note so far have been JOLTs (which really isn’t really a market-moving report) and Consumer Credit. While the slowness of today feels normal, there was actually a time when things happened in August. A case in point?  2011.

Seven years ago today, financial markets opened the week sharply lower. The culprit behind the weakness was Standard and Poor’s downgrade of the USA’s sovereign credit rating from AAA to AA, ending a run of seventy years with the highest rating. The rationale for the downgrade was the rating agency’s reduced confidence in the government’s ability to manage its finances. If you don’t recall, leading up to that downgrade, Washington was embroiled in a showdown over the debt ceiling. The GOP claimed that it wanted spending cuts to accompany any increase in the amount of debt the US was authorized to issue, while Democrats claimed Republicans were playing politics and wanted an increase in the debt ceiling with no strings attached (as prior increases had been confronted in years past). It came right down to the wire, but at the end of July 2011, Congress reached a deal two days before the US would have been forced to default on some of its obligations. While the issue was resolved, financial markets were in turmoil all throughout the final days of negotiations, leading up to the debt downgrade, as well as after.

The downgrade actually came on the Friday before August 8th, when S&P issued a release after the close of trading on August 5th. It’s not only companies that wait until Fridays when everyone is out of the office to release bad news! Immediately after the downgrade, S&P received widespread criticism and was accused of playing politics. Who were they to suddenly question the ability of the US government to repay its debts when they had missed the biggest credit bubble in history just three years earlier? Critics argued that while Standard and Poor’s had no issue slapping AAA ratings on subprime CDOs during the housing bubble, now they questioned the ability of the US, which has a printing press at its disposal, to make good on its debts!  Within a month of the downgrade, the President of S&P stepped down after the Treasury and Obama Administration questioned the methodology S&P used in their assumptions.