This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

S&P Downgrade of U.S. Debt Would Be 'Right Thing'

Sica, who is also a former managing director for Wells Fargo, argues that the debt ceiling debate is being handled as a political issue when it's really an economic issue.

"Politicians on both sides are saying S&P should not involve itself with political issues," Sica says. "That is the most erroneous comment they can make. Politicians themselves made an economic issue into a political issue."

The bickering across the aisle in Congress will force the S&P's hand, he says. "There will be a downgrade. There is no doubt about it. There has to be."

For some market observers, it's hard to take a downgrade from credit ratings agencies seriously. After all, these were the same entities that continued to award triple-A ratings to asset classes that imploded in 2008 during the housing crisis. After the debacle with collateralized-debt obligations, or CDOs, S&P and other ratings agencies are stuck between a rock and a hard place.

"I would not want to be working for S&P right now and making this decision," Sica says. "Either S&P will step up and do the right thing or they'll lose credibility forever. They'll face tons of criticism from the government, even though the government screwed this up to begin with. This could be S&P's moment to stick to their mandate and show the reason they've existed to begin with."

Under the S&P guidelines, the agency must look forward from three months to longer than a year in order to assign a credit rating. While the government could come to a temporary solution to raise the debt ceiling, Sica says that S&P will be forced to act and protect its damaged credibility if congressional leaders offer no plan to deal with permanent changes to entitlement programs that could lead to severe deficit problems in the future.

"They can't embrace quick-fix solutions. Any potential solution would avoid default, but they need to justify the coveted triple-A rating," Sica says. "They need to address the overriding issue. Entitlement programs have been a third rail for both parties in Congress. They won't touch them. If you have any debt and you simply pay interest with no reduction in principle, you do not warrant a triple-A rating. That rating belongs to surplus-oriented entities."

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
TBT $41.83 0.36%
IEZ $46.97 0.60%
SLV $16.03 -1.20%
GLD $113.76 -1.10%
FCX $18.88 0.43%


DOW 17,976.24 +263.58 1.49%
S&P 500 2,078.50 +17.48 0.85%
NASDAQ 4,932.2780 +41.0590 0.84%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs