Quote:
Originally Posted by Adder
I said that, but skeptically because I'm not sure which of them are AAA.
That will not result from a downgrade. It will result from a default, or a market belief that a default is imminent or materially more likely. A downgrade may or may not influence that market belief.
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Here's the fun thing about a sovereign downgrade. It will be accompanied by downgrades of corporate and municipal debt. Drive up borrowing costs and you drive down equity values. As long as you assume that many borrowers would see an increase in costs from a downgrade, a pretty good assumption, you should also assume equities markets drop after a sovereign downgrade.
Though, who knows, maybe enough money flows to equities away from debt as they become less distinguishable.
