The American financial sector has taken another yet another hit today. Moody’s downgrade of these 15 banks could not have come at a more dangerous time. With unemployment starting to track up again, and this downgrade of major firms and securities that have global market reach, Greece, Spain, and the Eurozone all have economic problems which could cause a huge world wide financial crisis if anything is pushed further over the edge. American citizens need reassurance that this “so-called” recovery is actually happening, not more devastating news about a faltering economy.
Earlier this year Moody’s announced that it would be reviewing some of the major financial institutions because of their, ” volatility and risks that creditors of firms with global capital markets operations face.” The report continues, “ In the past, these risks have led many institutions to fail or to require outside support.” In the report issued today by Moody’s their Global Banking Managing Director Greg Bauer said, “All of the banks affected by today’s actions have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities,” Mr. Bauer continued, “However, they also engage in other, often market leading business activities that are central to Moody’s assessment of their credit profiles. These activities can provide important ‘shock absorbers’ that mitigate the potential volatility of capital markets operations, but they also present unique risks and challenges.”
The actions taken by Moody’s today to downgrade 15 of these financial institutions was “reflected” in their reports that included factors such as capitalization, liquidity buffers, earnings from non-capital markets and their activities. This downgrade hit 5 of the largest American banks, which among these institutions are Bank of America, Citigroup, Goldman Sachs Group Inc., JP Morgan Chase & Co., and Morgan Stanley. Not only were major American institutions hit with this downgrade, but European banks were also downgraded, which will effect the markets world wide. As a result of this downgrade issued by Moody’s today which sank the Dow by almost 250 points, causing more investors around the country and the world to lose more capital.
Bloomberg.com reported that,
A three-level cut for Morgan Stanley (MS) could cost it $400 million in annual trading revenue from those types of derivative deals, estimated Brad Hintz, an analyst at Sanford C. Bernstein & Co., before Moody’s released its decisions.
After some of the worlds largest financial institutions have taken a major downgrade today, recently the Italian Prime Minister, Mario Monti said that there is only a week to save the Eurozone. This came ahead of the summit next week, in which he indicated that if the these talks result in failed policies, or no action, it could mean “a potential death spiral whose consequences would become more political than economic.”
As reported by the Guardian, some of the major players that will be involved in this summit will be;
The Italian leader is to hold talks with Chancellor Angela Merkel of Germany, the French president, François Hollande, and Spain’s prime minister, Mariano Rajoy.
Mario Monti spoke to the reporters of the Guardian, saying that, “there would be progressively greater speculative attacks on individual countries, with harassment of the weaker countries.” Mario continues, A large part of Europe would find itself having to continue to put up with very high interest rates that would then impact on the states and also indirectly on firms. This is the direct opposite of what is needed for economic growth.”
The Federal Reserve, with Chairman Ben Bernanke has spoken of a 3rd Quantitative Easing, which means that the Federal Reserve will just print money again, this will result in higher prices across the spectrum, because it will reduce the buying power of the dollar. This may also impact oil prices due to the fact that crude is traded on the value of the dollar. Country after Country is facing economic issues, one would wonder what will be the outcome, once every country runs out of money to lend to another? When will it all stop?