World Markets React To U.S. Ratings Downgrade

19:16

August 08, 2011

Asian stocks nose-dived Monday as the first-ever downgrade of the U.S. government's credit rating jolted the global financial system. (AP)

Markets and governments around the world are trying to come to terms with the downgrade of U.S. treasury bonds. The bonds have served as the benchmark security for financial markets, and with this first ever downgrade of T-bills, financial markets are entering uncharted waters.

For example, banks and hedge funds commonly offer U.S. treasury bonds as collateral for the short term loans they rely on for day to day operations. Some analysts worry that lenders might now ask for more collateral, driving up operating costs for many businesses.

Wall Street Journal: U.S. Stock Futures Pummeled After U.S. Debt Downgraded
Bloomberg: Stick With U.S. Stocks After Rating Downgrade, Barclays’s Olsen Says

Guest:

Philip Coggan, writer for The Economist Magazine
John Cassidy, writer for The New Yorker and author of "How Markets Fail"

This segment aired on August 8, 2011.