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Moody’s Cuts 15 Banks’ Ratings

Posted by Steve Markowitz on June 21, 2012

This morning’s financial news from Europe included an item that Spanish banks would require nearly $80 billion (US) to shore up their capital bases.  However, that was just the start of a bad day that saw the Dow Jones Industrial Average have its largest one-day drop of the year, 250 points.

After US equities markets closed, the news got worse with Moody’s Investors Service issuing downgrades to 15 large banks credit ratings with the largest hits being taken by giants Citigroup and Bank of America.  The two notch downgrade to these banks place then just two levels above the junk category.  In addition, Moody’s downgraded to a lesser extent the ratings of 13 other banks including Morgan Stanley, JPMorgan Chase, Goldman Sachs, Credit Suisse, Deutsche Bank, UBS, HSBC, Barclays, BNP Paribas, Credit Agricole, Societe Generale, Royal Bank of Canada, and Royal Bank of Scotland.  In other words, Moody’s is expressing concerns about a large portion of the West’s banking system.

In announcing the downgrades, Moody’s explained that: “The risks of this industry became apparent in the financial crisis.  These new ratings capture those risks.”  The downgrades are more than a black eye to these banks as the move could further damage them should customers decide to move investments to higher-rated banks creating a negative feedback loop.  In addition, the downgrades may raise the cost of borrowing for the banks further straining their already financial conditions.

As this Blog has proffered since the early days of financial crisis, a problem of excess debt cannot be solved by still more debt.  However, this is precisely the strategy that Western governments including that of the United States have taken since the 2008 meltdown.  Moody’s downgrades of today were therefore predictable.  It is also very predictable that more downgrades are to come.

Progressive governments worldwide have overspent for years on nonproductive programs including massive entitlements.  The reckless spending was financed by borrowing from future revenue potentials, a Ponzi scheme perpetuated by various bubbles fed by government interventions including artificially low interest rates.  Instead of allowing the growing economic imbalances to rebalance themselves in the market, governments continued and continue treating symptoms with still larger interventions creating even greater market imbalances.  The results of this ill advised strategy include the crises now occurring in European banks, European sovereign debt problems, today’s US and worldwide bank downgrades and the exploding US debt.

While the world jumps from crisis to crisis in increasing frequency, it is not possible to determine when it will hit a tipping point.  Generally, market inequities and imbalances can continue longer than logic would deem possible, especially when governments work together at interventions.  However, in the long run, the laws of the market, i.e. supply and demand, are infallible and will have their day.

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3 Responses to “Moody’s Cuts 15 Banks’ Ratings”

  1. Carl Hackert said

    Well said. The only way to reverse the direction of the US economy is through genuine private sector strength, beginning in the energy industry, and the curbing of governmental largess and the culture of dependency and decadence by eliminating programs and cutting governmental payroll and benefits.

    It is very disturbing to see the power, influence and incompetence of the international and national banking industry. The citizens are left to pay the real price for their errors and corruption. Elected leaders only care about the next election rather than doing what is needed to address these problems which began in era of FDR and The Great Society.

    It does seem that President Obama is either: (1) detached from or totally ignorant of the grim reality of increasing debt. OR, perhaps, even more sinister: (2) He and other leftist leaders understand that best way to achieve their goal of “new world order”(a global government under socialism) must begin with a total collapse of the existing economic order.

    Could a President Romney reverse this ominous decline and trend toward globalism? Let’s hope so…

  2. THIS IS total nonsense..Whatever the Democrats do DOES affect THEM as well as others. I doubt the Democrats are willing to loose THEIR $$$ and POWER and ruine what is ;left of the US in order the create EQUALITY. THEY to know as well as we all do that within a decade the $$$ AND the power will return to same people it cam from!! REALITY….The Captains and the KINGS have taken over a people ,who have been unable to stand up and be counted. Their is NO lOYALTY to Country left in the USA. As a 14yr old I tried to help my family surviove the ruthless Nazi GERMAN High Command by dismantelingf a AirGun platform that were shooting at OUR US/Canadian Forces but THAT is NOT happening today. WE have “ON PAY” solldiers that are BRAVELY defending us around th world BUT the idiots that are continue to vote the CARPETBAGGERS back into office.

    WE need an FREEDOM fighters army to set this country straight just don’t ask me where to find them. I am 82+ yrs old but will take up my brain or a machnine gun anytime to save my new country! A DUTCHMAN who is sane and capable.

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