• 11 Nov 2011 at 5:17 PM

Moody’s May Downgrade Penn State

On account of recent events. Read more »

Michael Feroli at JPMorgan had an interesting note this morning (via ZH) on the Republican letter to Bernanke, pointing out that this sort of saber-rattling against easing might actually make it more likely as a way for the Fed to assert its independence.

Moody’s downgrade of BAC/WFC/C, on the other hand, may have the opposite effect, precisely because the government hasn’t yet been able to declare its independence from the ratings agencies. Moody’s cut the banks’ credit ratings because they think the government is less likely to bail them out if they run into trouble. And that downgrade itself may have the effect of making the government less likely to bail out the banks if they run into trouble.
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Don’t Ask To Speak With Brian Moynihan Today

He may be in a mood. Read more »

  • 14 Jul 2011 at 1:49 PM

Credit Ratings Agencies May Want to Tread Carefully

It turns out that when you say things like “let’s not pay back our debts, what’s the worst thing that can happen?,” one thing that does happen is that the credit ratings agencies start worrying that you might not pay back your debts. Weird. From Reuters:

Standard & Poor’s has warned lawmakers privately that it would downgrade the country’s debt if the Treasury Department is forced to prioritize payments because Congress does not raise the debt limit, a congressional aide said on Thursday.

That is, cutting off Social Security checks could avoid a technical default but not a downgrade. Moody’s yesterday threw out its own threat of pre-default downgrade.

You know who else had ratings agencies all up in their shit threatening downgrades just because of massive fiscal and political-will problems? Europe. And they have some ideas on how to deal. Short version: insert fingers in ears, close eyes, hum noisily. Longer version:
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Although Moody’s fully expected political wrangling prior to an increase in the statutory debt limit, the degree of entrenchment into conflicting positions has exceeded expectations. The heightened polarization over the debt limit has increased the odds of a short-lived default. If this situation remains unchanged in coming weeks, Moody’s will place the rating under review. [WSJ]

The U.S. is the only large AAA-rated country that saw its debt rise during the crisis that until recently had no plan that would reverse the trend, said Steven Hess, senior credit officer at Moody’s. Budget cuts would mean the U.S. wouldn’t likely sell as much debt, which has grown to $9.13 trillion in marketable Treasuries from $4.34 billion in mid-2007 as the government boosted spending to pull the economy out of recession. “It seems both sides of this debate are now targeting lower debt and lower deficits,” said Hess, based on the president’s speech today. “We do see this as a turning point in terms of the debate. We would view that as a positive, but we’ll have to wait to see the outcome.” [Bloomberg]

The ratings agency is good for something! Read more »