Hill: Downgrade Just Part of Market Downturn

The Dow Jones Industrial Average tumbled Monday as the reality of the nation’s credit rating downgrade from Standard & Poors began to sink in. The stock market dropped 634 points marking the worst day on Wall Street since fall 2008.

In the past two weeks, Dow Jones industrials are down 15 percent.

S&P moved to lower the United States credit rating from “AAA” to “AA+” over the weekend citing the recent debt ceiling debate and the government’s slow pace of setting a long-term, debt-reduction strategy.

It’s the first time in history the country has seen a reduction in its rating.

But Ray Hill, an assistant professor in the practice of finance at Goizueta, told 11Alive News the downgrade may not be the root cause of the recent turmoil in the markets.

Large economies in the European Union– including Italy, Spain and Greece — are facing sovereign debt issues. Hill says global strife is a major reason for the markets’ dive and that S&P’s reputation is somewhat in question.

“They didn’t get the mortgage crisis right,” he said. “They didn’t get Enron right. Enron was investment grade until a month before they went into bankruptcy.  I don’t think the Market really cares.  If you look at the 10-year bond, it hasn’t moved, which means people who buy U.S. Treasury Bonds do not care.  You don’t need the S&P to tell you that we have a debt problem or a dysfunctional government.”

ABOUT THE EXPERT

Hill (bio) joined Goizueta  in 2003 and teaches managerial economics and finance. Hill began his academic career by teaching economics at Princeton University, before leaving in 1982 to become an investment banker. In that role he worked around the world.  Hill returned to his native Georgia in 1993 and worked for ten years at Mirant Corporation and its predecessor, a subsidiary of Southern Company. During that time he served as the company’s chief financial officer, except for an eighteen month stint as a CEO of one of the largest independent power companies in Asia, which was owned by Southern. His expertise includes project finance, monetary policy and energy economics and finance.

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