Just two weeks after Standard and Poor’s (S&P) downgraded the U.S. government’s credit rating to AA+, the New York Times reported that the Justice Department is investigating S&P’s ratings of mortgage securities in the lead up to the recent mortgage crisis.

Despite the timing of the news, we know that the investigation isn’t retribution for the downgrade since the investigation precedes the downgrade by months. But the rating agency’s downgrade of US treasuries certainly didn’t help its case, and is construed by many as an effort at establishing S&P independence.

The investigation began with the Securities and Exchange Commission (SEC) looking into whether S&P and Moody’s Investors Service turned a blind eye to problems with sub-prime mortgage bonds that it rated prior to the recent financial crisis. The Justice Department joined the SEC’s investigation in recent months.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the debt crisis and U.S. downgrade in Advisor’s Journal, see What Does the U.S. Downgrade Mean for Clients? (CC 11-159), Debt Limit Deal Leaves Unfinished Business (CC 11-154), & Democrats Call Debt Limit Unconstitutional (CC 11-134).

Last week, Standard and Poor’s (S&P’s) downgraded the U.S.’s credit rating for the first time in history, moving the US from AAA to AA+. Although Moody’s and Fitch have not followed the S&P’s lead, both agencies indicated that their prime rating is contingent on future U.S. debt reduction.

The debt ceiling agreement reached two weeks ago included a pledge to cut spending by $2.4 trillion over the next 10 years; but the rating agencies have said that the reduction was insufficient, hinting that cuts of $4 trillion or more are necessary.

Although the downgrade could have significant long-term detrimental effects on the U.S. and world economies, it certainly isn’t the economic Armageddon that a U.S. default would have been. In other words, it could have been worse.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the U.S. debt crisis in Advisor’s Journal, see Debt Limit Deal Leaves Unfinished Business (CC 11-154), Democrats Call Debt Limit Unconstitutional (CC 11-134), & Debt Deal Talks Down to the Wire (CC 11-139).