This is almost too funny to watch. The ratings industry played a very important role in the recent economic crisis. The banks would slap together piles of junk and somehow (wink, wink, nod, nod) the ratings agencies would provide top ratings for these products. Often the products were the now infamous liar loan or risky mortgages. The "wink, wink, nod, nod" tended to be deals between those selling the packaged products full or junk and the ratings agencies. (It's not unlike the odd relationships between the large accounting firms who were supposed to be validating the books of their clients and but sometimes don't quite get there due to the size of the financial relationship.) A higher rating was supposed to show that the investment was stronger so the higher the rating, the more business and better terms the rated business (or government) could expect. Greece, for example, has a low rating today which makes borrowing to pay off debt that much more expensive.
The ratings industry is in dire need of reform which apparently is why S&P is investigating the downgrade. Whether Moody's will turn around and do the same to S&P is up for debate but they'd both probably be right for downgrading each other. Of course, it would be much more of a surprise if either downgraded their customers or owners even though they or their products probably deserve it as well.
Standard & Poor's said late Tuesday that it may downgrade the short-term rating of rival rating agency Moody's Corp. because of new legislation. S&P has an A-1 short-term rating on Moody's.
