Tag Archives: Moody’s

Moody Banks, Sad Ecomony

moodys

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?

Debt and our failing economy

Is the country being led astray once again by those on the Hill that appear to be doing business as usual? The words deficit and downgrade and debt-ceiling almost seem to be synonymous with one another when nothing could be further then the truth. Yet both sides think they are right; they have resorted to high school politics where one side blames the other, name-calling, and denial. And if that is not enough to send you into complete bewilderment, the current Bill, which was just passed, is full of idealism that will surely break the American economy, while setting in motion grave consequences for future generations. Raising the dept limit with out any structural reforms in place will be the primary force in setting the economy in a downward spiral. It is no wonder the average American is confused. So who is right?

Despite all the chaos, misrepresentation, and blame being thrown around on the Hill, and by the media, American’s seem to see the clear picture of what is going on based on current polls. For example, a July 12th Gallup poll showed 42% of Americans oppose raising the debt ceiling. The July 19th Wall Street Journal poll found that 55% of those polled felt raising the debt ceiling would be a major problem. One Gallup Poll found that Americans, by a 42% to 22% margin, want their representatives on the Hill to vote against an increase in the debt ceiling. The President of the United States, as well as some members of the Senate and House, have been reckless with spending from one generation to another, all of which have escaped accountability. Mr. Obama has spent more money during to date then that of Mr. Bush’s entire time in office. According to Karl Rove, “In 20 months, Mr. Obama will add as much debt as Mr. Bush ran up in eight years.”1 Raising the debt limit allows the president to spend more money and further the deficit. To be clear, the deficit is the amount of money we, as a country, are in debt; it is the money we owe to creditors, etc.

While the national debt continues to grow by the seconds, spending cuts continue to be nonexistent. The amount of cuts which would be required to balance the budget well exceed those suggested by congress. A downgrade would impact our AAA rating by Moody’s and S &P. Investors would view our failing economy as too much of a risk to invest in and take their business somewhere else. Whether it happens today, or five years from now, our AAA credit rating will go down if we continue to spend as though the checkbook is virtual black hole with no end in sight. In addition, to make matters worse as the United States becomes a mockery and concern for the rest of the world, institutional and foreign investors, those people or firms who invest large sums of money into securities, real property, and other types of investments, will reconsider investing in the US.

House Minority leader Nancy Pelosi regularly discussed the need for job creation and yet under this administration unemployment is at it highest level. David Axelrod, a political strategist for the president claimed the pork-laden stimulus package has been a success. But Mr. Obama told Americans that if it were passed, unemployment wouldn’t rise above 8%. It is now 10%. The president also said it would create 3.7 million jobs, 90% of which would be in the private sector. By Mr. Obama’s standards, the stimulus failed miserably.2 To create jobs we need to lower corporate taxes to be more competitive with the rest of the world. If we truly want to bring business back to this country and away from places like China and India we would need to look at the Tax code in its entirety.

There were a lot of bills on the table, the Ryan Bill, Cut, Cap, and Balance just to name a few. They were killed in the Senate by Senator Harry Reid. Cut, Cap, and Balance would have addressed the spending issues while putting measures into place to effectively balance our budget. The Connie Mack Penny plan which was discussed, but not something many people heard about, it also dealt with the excessive squandering that goes on in our government. More explicitly it would cut federal spending by one percent for six years, set a cap of 18 percent of gross domestic product in 2018, and reduce the amount of spending over a 10 year period by 7.5 trillion dollars. This plan provides the framework necessary for balancing the budget while maintaining spending regulations for future members of government. This plan has not gotten the attention it needs.

The bottom line is this: We are traveling down a path which is deeply rooted with opposition to our founding fathers and the Constitution of the United States. Both sides need to stop playing politics and address the very serious issues at hand. In addition, those people on the Hill who live with the delusion that they know more then the American people therefore they need to do all the thinking for them, need to wake up! It is about time they realize they were put there by the people, for the people, and they are accountable to the people.

Sources:
[1]Karl Rove.Obama vs. Bush on Spending.Wall Street Journal. January 21, 2010
[2] Ibid